Flywheel
This month I'm working from Santa Teresa, Costa Rica. It's a beautiful one-street town in the middle of the jungle with excellent surf. I feel like I'm about 2 years late to getting on the digital nomad bus. I've always been a late bloomer...
Of course last week I posted about a lack of deals, and this week we're doing diligence on a small deal already under LOI. This kind of timing makes me believe in God.
But whether this deal ultimately goes through or not is not the point of this post. I want to talk a bit today about an elusive flywheel.
This looks so simple it's stupid. And it is simple. Not easy to pull off, but conceptually easy to understand. You buy a business that generates cashflow above the expenses (i.e. profit, how strange!) and when you accumulate enough cash, you redeploy it. In our case, that means buying another business.
This is the dream, a money machine! Of course it's a lot harder to do than it looks, and it's taken us 18 months to be able to do a deal with cash generated from growth alone. The first time we did it because we sold something and then redeployed that cash later. This is our second time going around this flywheel (the first time we got a little lucky). This one again is different because we didn't get the cash through the sale of a business, but exclusively through the cashflow of a portfolio company. Yaaas
We (proverbial we, actually Danny) closed an enterprise customer for WorkClout which paid annually on a relatively large contract. We were already marginally profitable before this. This excess cash came in a few weeks ago and if we get to deploy it in the next two weeks not only have we been efficient with our personal capital (remember, XO is 100% bootstrapped), but we would be extraordinarily efficient in deploying cash too. This problem gets harder with larger amounts but that's not the point. The point is we went through this flywheel for a the first time by way of cashflow and it's a hecking beautiful thing.
If we can take this timeline down from 18 months (first time ever), to once or twice a year I believe that's when XO will start to hit an exponential inflection point (if desired).
P.S. Seriously considering doing an all-out sprint to become a LinkedIn influencer. I want to post the cringiest of cringe posts. Thinking shirtless thirst traps, thoughts? and yes, of course I'd measure results with Inlytics.
Have a great weekend.
✌️
Andrew
