I recently had a conversation with an entrepreneur who’s started several successful businesses in various industries. He was telling me about the latest company he’s working on. It’s a waste management space, and the company will remove trash from residential homes. He doesn’t have experience in this industry, so how did he decide to start this, I wondered. The story was that he heard from a friend about the opportunity to obtain a contract (i.e., recurring revenue), investigated it, and decided it could be profitable. He went to work finding a cofounder and developing a strategy to execute the work.
During our chat, I realized a few things:
- This isn’t a space this founder is passionate about; he just saw an opportunity he couldn’t pass up.
- He isn’t planning to scale this company. He just wants to have a few reliable customers and build a small, reliable team to execute the work.
- This is a small (and tough) market, so there isn’t an opportunity to create large amounts of value for others and recognize that value through appreciation of the company's value. Rather, it’s an opportunity to create a steady stream of cash flow by providing a service that people don’t want to do, but also don’t highly value.
During my conversation with this entrepreneur, I realized something. Some entrepreneurs are gifted at creating small companies that essentially exist to generate cash flow for the owner. And they do this repeatedly. They’re great at taking a company from zero to one—to getting the machine started—but rarely think about the problem’s market size or how big the company could be. They focus on getting the company to the point where it can distribute a certain amount of cash to them, and when it does, they’re happy. The idea of reinvesting cash into growth opportunities to scale the company doesn’t cross their mind and doesn’t interest them when it’s brought to their attention.
I think of these gifted people as serial cash-flow entrepreneurs.