Joseph Drups buys businesses to incubate high return, passive income portfolios. Check out a Financial Freedom Blueprint: DrupsInvesting.com
Back in 2012, I was a freshly minted Air Force officer staring down the harsh fluorescent-lit reality of a cubicle prison. Coming from a family of nine kids, the military seemed like a good way to gain experience, avoid student debt and pay my way through college.
My time served taught me operations and leadership skills, but it also gave me a glimpse of the unsatisfying bureaucratic world of large organizations. While the job offered benefits and career prospects, I had an incurable entrepreneurial itch that no paycheck could scratch. While my coworkers watched the clock, I obsessively consumed books like The 4-Hour Workweek and Rich Dad Poor Dad, preparing an exit ramp to financial freedom.
With my freedom date already marked 4.5 years out, I experimented with side hustles: web apps, blogs, courses, partnerships, car flipping and even house flipping. You name it, I tried it. Nothing stuck. I traded failure for failure, racking up tacit knowledge but no passive income.
Into The Jungle
When my final day arrived, I didn’t hear angels singing. Just the hollow echoes of my footsteps as I marched out of that dingy corridor, leaving the fluorescent-lit maze behind.
This was it: The terrifying leap from the safety of a paycheck into the harsh reality of the marketplace jungle. I would either thrive or dive based solely on my decisions, effort and grit.
Year one was a pure gravel-eating grind. I pounded the pavement to build a digital marketing firm, slowly replacing my military income. By year two, I matched my old salary but was still trading hours for dollars.
It took processes, contractors, employees and developing serious delegation skills before I untethered my output from the time clock. Even then, I felt stuck in the harsh truth that most startups fail utterly or succeed modestly at best.
The Small Business Light Bulb
After pouring years of blood, sweat and tears into building my company from scratch, I had an idea: Why not buy profitable, cash-flowing businesses instead?
The math blew my mind. You could acquire small businesses for three-times earnings, versus 20-times to 60-times for public companies. Finance that with a loan and you could realistically earn your entire investment back within one year. With the right acquisitions, you can also buy down risk and bypass the staggering 90% startup failure rate from the outset. Plus, this strategy allows those with marketing and operations experience to apply these skills to quickly add value.
I started by purchasing a website that generated $400 per month. Within two years of systemization, it was spitting out over $5,000 in monthly net income—a passive cash flow machine running itself that only cost me one to two hours a month of time.
Emboldened, I leveled up by acquiring an established business with employees to run it. By 2020, I spent less than two hours per week “working” on this company I had bought a few years prior.
I continued developing this “buy-optimize-passive-FI (financial independence)” playbook to purchase business after business until I had acquired and merged seven businesses.
Leveraging this approach across multiple acquisitions, I find you can generate significant annualized returns on invested capital that outperform the returns of even renowned Wall Street figures like Warren Buffett, Peter Lynch and George Soros.
Fast FI: Beating Billionaires
Traditionally, Wall Street’s behemoth funds are too large and unwieldy to nimbly invest in smaller businesses netting $300,000 to $2 million per year. Small operators are often stuck without the network and resources to scale an operation successfully.
Here are some key lessons I’ve learned from purchasing multiple businesses and turning them passive:
1. Small business investing is a team sport. Acquiring small businesses is hard to do by yourself. I’ve found working with our community of proven operators, investors and an investing club can provide invaluable support.
2. Buy down risk through diversification. Build a portfolio of cash-flowing assets across different industries and locations. This spreads your risk and increases your chances of hitting home runs.
3. Leverage fractional expertise. Work with fractional executives on deals to bring in needed expertise that small businesses can’t normally afford. This is how you punch above your weight class and apply big-business strategies to smaller operations.
This syndicated approach can allow passive investors to benefit from the outsized returns of small business acquisitions without getting bogged down in day-to-day operations. Investing clubs are a great way to pool capital and expertise. This strategy can be more accessible than those of Wall Street, all while building a diversified portfolio that can weather any storm and accelerate your path to financial independence.
The Path To High Returns
If you’re intrigued by the prospect of achieving outlier profits and accelerated financial freedom, then small business investing may warrant a deeper look.
Moreover, investing in small businesses brings you much closer to the culture and people of the businesses you invest in. Meeting Ted, who runs the warehouse, and Joe, who chairs the product development team, is satisfying. Contrast that to the abstraction of attending a corporate behemoth’s annual shareholders meeting.
But small business investing isn’t all smooth sailing. You’ll face challenges—from deal sourcing to operational hiccups. But I believe that with a solid network and the right expertise, these hurdles become stepping stones.
This approach isn’t just about outperforming billionaires. It’s about transforming lives: yours and those within the businesses you touch. After years in the trenches, I believe I’ve cracked the code on marrying stellar returns with meaningful impact.
All that’s left is for you to take those first strides and escape the lifelong rat race once and for all. I’ll keep the jungle path clear and well-lit for you.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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