marked its third anniversary. To commemorate this occasion, we offer some reflections on our journey and provide an overview of our current playbook as a small and medium-sized business (SMB) holding company.
Decada envisions a decade-long path to establish a collection of diverse and eclectic small local businesses in our Salt Lake City community valued at over $100 million. Achieving this goal without external capital and relying solely on conservative debt strategies, we have successfully expanded to operate five companies in three years, each experiencing annual growth rates of approximately 60-65 percent.
Our approach has been unconventional in the context of “buying small," or what we refer to as “subscale" SMBs generating $1-5 million in revenue. Generally, the prevailing advice suggests avoiding the acquisition of excessively small businesses, favoring larger, more established companies when feasible. However, had we heeded this counsel, Decada might not exist today. Armed with a mere $750 in startup capital and a commitment to eschew external funding, we have achieved remarkable growth in our initial three years:
Decada’s Year 1 revenue: $1.7 million
Year 2 revenue: $4.7 million
Year 3 revenue: $8.1 million
We project revenues of $12-15 million next year, assuming no acquisitions take place.
As we lay the foundation for our first few years, we are constructing what I call Decada’s “unfair advantage," which constitutes the initial phase of our 10-year strategy. This unfair advantage encompasses unique qualities, assets and capabilities that are challenging for competitors to replicate, thus providing a distinct edge in the marketplace. Unfair advantages must be methodically developed, and here’s how we are constructing ours.
Phase 1: Building our unfair advantage
Objective: Create a playbook and assemble a team capable of overseeing a portfolio of 5-7 small businesses generating annual free cash flow in excess of $3 million, all while avoiding external investors and relying on highly conservative debt.
Throughout the United States, numerous “subscale" small businesses are available for purchase, such as retail shops, art schools and neighborhood electricians, generating less than a few million in sales annually. These businesses possess inherent beauty but often lack maturity, stable cash flow, an established management team, or any redundancy—all of which must be cultivated. Due to their size and associated risks, they are typically sold at much lower prices, usually ranging from 1-3 times annual earnings. This lower barrier to entry, however, comes with a significant operational burden.Acquiring these businesses is akin to a master class in chaos, accelerating our learning curve and enhancing our team’s development and Decada’s playbook. One might say we are learning “in the arena."
In Phase 1, we focus exclusively on businesses we are confident can experience fivefold growth within five years. The ideal subscale SMB is one where we admire the retiring founder and the original vision but believe our team can contribute additional value to the equation. Once we identify the right business, we acquire it and seek every opportunity to reinvigorate its original vision. We allocate substantial resources in the first year to gain insights into the business, navigate an EBITDA J-curve, make long-term investments and enhancements, refine the brand, launch new products, develop a sustainable customer acquisition funnel, build a management team and embrace digitalization.
This approach has enabled us to scale to five companies in three years, with each business funding the next in a self-sustaining cycle. We continue to build our unfair advantage as we progress.
Phase 2: Leveraging our unfair advantage
Our subsequent phase entails leveraging the playbook, team and free cash flow created in Phase 1 to acquire remarkable small businesses within the Utah community. This entails acquiring more of the same small, local businesses we are committed to stewarding and exploring opportunities to purchase larger, more established companies for which we are uniquely qualified to be good owners.
Phase 2 centers on responsible stewardship and becoming a beacon for business owners in Utah who care about the future of their businesses after retirement. This endeavor necessitates the team and track record we are currently building. In Phase 2, our primary objective is to identify the most suitable ways to leverage our team, playbook and free cash flow to seize unique opportunities.
Our team is deeply passionate about various aspects of our approach, even those that may be less feasible if we were funded by limited partners seeking specific returns on strict timelines. Our strategy embodies delayed gratification.
Our gradual, phased approach aligns with my belief that a long-term strategy can be undermined if not integrated into your capital structure and ethos from the outset. A true commitment to long-term development cannot be achieved merely by adding the word “patient" to your website and raising significant capital. It must be ingrained and designed to endure for decades.
That, in essence, is our playbook. I do not recommend this path to everyone. Acquiring “subscale" businesses carries risks and demands time, operational expertise and comfort with operating on the edge. Our strategy is not a replication of the Berkshire model, a get-rich-quick scheme, or a strategy of piling on debt without fundamentally improving thriving businesses. Nonetheless, it is a playbook that we find deeply fulfilling, and it is proving successful for us—establishing what I believe will set Decada Group apart in the long term.