How You Can Use Inefficiency to Build a Business Empire
- August 31, 2017
- by:Serhat Pala
This article originally appeared on Inc.
Just like a jigsaw puzzle, sometimes taking small pieces and putting them together to form something larger and coherent works with entrepreneurship, too.
Don’t take it from me, though. Take it from a man who is responsible for creating three different Fortune 500 companies that you’ve probably heard of: Waste Management, Blockbuster Video, and AutoNation.
His name isn’t quite as famous as some other legendary entrepreneurs, but Wayne Huizenga built multiple business empires by piecing together existing businesses.
Let’s see what we can learn from this master puzzle solver:
1. Inefficiency can be an entrepreneur’s best friend.
Huizenga started a trash collection company in Pompano Beach, Florida in 1962. Trash hauling struck Huizenga as the perfect business to start: relatively low overhead, a simple business model, and guaranteed repeat customers.
Over the years, Huizenga noted the trash hauling industry was highly fragmented. It was full of tiny, undercapitalized players that each had their own inefficiencies, from administration to truck purchasing. He exploited these inefficiencies by aggressively purchasing these small businesses and amalgamating them into one corporation that he took public in 1971: Waste Management Inc.
Rather than accruing debt, Huizenga performed his acquisitions via public company stock. Most of the former owners stayed on as managers, which helped create a robust infrastructure within the company, which he also diversified by investing in market trends that promised growth, like solid and hazardous waste, street cleaning, and international trash disposal.
Like a jigsaw puzzle, Huizenga pieced together hundreds of tiny entities into one giant business, which eventually earned $13 billion in revenue and more than $23 billion in market cap in 2015.
Although every business (theoretically) strives for efficiency, there can be massive inefficiency in an industry that has many unconsolidated players. Spot an industry like this and you could have yourself a nice little puzzle to put together for huge gain.
2. Forget your preconceived notions about an industry.
A colleague turned Huizenga onto a small video chain just getting started in Dallas in 1987 by the name of Blockbuster. At first, the business mogul balked at the thought of getting into the video rental business because he associated renting videos with seedy pornography shops. Once he saw the family friendly atmosphere and the dozens of people with cash in hand in the shops, he quickly changed his mind.
He put up $18 million for voting control of the young business, which had just finished building a $6 million distribution center to enable Blockbusters to pop up anywhere in little time. When Huizenga bought into Blockbuster, the company owned eight stores and 11 franchises. The next year, Blockbuster was the largest video rental chain in the world. In less than five years, the store count reached over 1,700 (including the United Kingdom and Canada).
You should never think you know an industry and what it’s all about. Having preconceived notions about an industry could lead you to miss a big opportunity. Always be open minded. And even if your preconceived notions are proven to be accurate, remember that that means you have an opportunity to disrupt that industry with something different.
3. Success is repeatable.
After escaping from Blockbuster, Huizenga went back to his original tactic of buying up tiny players in a fragmented market to form his third Fortune 500 company. This time it was the retail automotive industry. Using the same method as he did with Waste Management, he built a nationwide network of new and used car dealerships and rental car companies.
By 1999, AutoNation Inc. owned about 400 new-car dealerships, 40 used-card stores, and was operating nearly 4,000 rental car locations worldwide, making it the world’s number one auto retailer and one of the largest car rental service providers.
It was a different picture, but the puzzle pieces were pretty much the same as the first time. Even though, as an entrepreneur, you are likely drawn to trying new things, know when to stick to a winning formula.
Market inefficiencies can be the most lucrative opportunity you’ll ever come across as an entrepreneur. Like Huizenga, you just need to recognize the puzzle pieces and arrange them into a coherent picture of success.