“Let someone else run the marathon and incentivize them.”
This is part of my operating manual series opening up the playbook of private equity and company building luminaries. Check out past ones with Mark Leonard, Andrew Wilkinson, Robert F. Smith, Joe Liemandt, Felix Dennis and Mike Speiser.
If you are interested in buying, growing, and selling small companies, check out my course & community on it at IndiePE.com.
What is Tiny?
Tiny is a long term holding company for internet businesses started by Andrew Wilkinson and Chris Sparling. They take majority, generally whole, stakes in "profitable, simple, and often boring” internet businesses.
Why are holding companies and micro private equity interesting?
I suspect this is the most dependable way to become very wealthy. It isn’t as glamorous or as quick (potentially) as founding or investing in the next multi-billion dollar startup. This is a longer-term grind it out approach.
Starting companies is fun, but anyone who has done it knows it is a lot of work. Buying established businesses with existing cash flow isn’t as sexy so I suspect it is wildly underrated as a way of building wealth.
The reality is that it is easier to buy and improve businesses than to start them. It is easier to go from 3 to 10 than from 0 to 1. Even for the folks that have done it before.
There isn’t much info on how holding companies or micro-PEs like Tiny actually operate. I’ve listened to every podcast Andrew has been on and compiled these notes from them.
Here is what they are doing behind the scenes.
How Andrew got started? Where the capital comes from?
In 2006 at 19 years old Andrew founded MetaLab, a Victoria, British Colombia, Canada-based design agency shortly after high school. In year 1, he made $250k in revenue with 50% profit margin.
3 years in, they were doing a couple hundred thousand in profit. In 2012, 6 years in, they made $3m in revenue. He doubled for a few years and then consistently grew by 30% year over year. By 2020, he was doing about $20m in revenue. By 2023, they are in the $40-50m range in revenue.
After rapid growth, he tried launching SaaS businesses, but lost a bunch of money. Eventually he used the profits to buy a variety of businesses starting in 2016, which today form Tiny, a holding company he owns fully with his business partner Chris Sparling.
Agencies traditionally aren’t very profitable, but MetaLab is able to charge San Francisco or Silicon Valley agency rates and only pay Victoria, a city on the southern end of Vancouver Island, wages.
Tiny, not Tiny Capital as it is often called, shifted its focus from starting businesses to buying them in 2013 when MetaLab and all their other businesses (5 at the time) combined were doing $7M/year in profit. Tiny is fully self-funded today.
What’s the scale of Tiny now?
Comfortably not tiny. They just went public at billion dollar valuation in 2023. It made about $50m in profits in 2022. They have about 40 wholly owned businesses now with 3 major companies:
- MetaLab doing $40-50m in revenue and $20m in profit. The cash flow engine of the whole Tiny empire.
- Dribbble - Basically GitHub for designers. It was launched by two designers that we'ren't very business savy. Tons of traffic, but little monetization. Bought it for $5-10 million and now it makes $10s of millions every year.
- WeCommerce - Shopify apps roll-up
What Tiny looks for in businesses to buy?
From their site:
3-5+ years of operating history
Profits. A minimum $500k/year in annual profit, as high as $15MM.
A high-quality team in place. This is negotiable if the business is simple to operate and the team wants to leave.
We are open to owners sticking around, leaving cold turkey, or transitioning out over time. We'll work with you to transition.
Simple internet businesses that have high margins, don't require tons of people or complex technology, and have a competitive advantage that protects them from competitors. For example: A dominant brand, a large and loyal community, a niche vertical, or something similar.
Andrew describes these businesses as "New Zealand companies.”
What is a New Zealand company?
- It is in the middle of nowhere, nobody is paying attention to it, but it is quietly growing. It is not at risk of nuclear war.
- It is self-sufficient and thriving. It’s food & energy independent. A "safe" business isn't beholden to benevolent gatekeepers like Google or Facebook to reach their customer.
Andrew is always worried about staying power.
An example of one of his New Zealand business is Dribbble:
- Top 1,000 site on the internet
- A huge community of designers
- Few competitors. Big companies are not trying to kill it or compete.
- Not dependent on Facebook or Google for traffic. People type Dribbble.com into the address bar to visit.
Types of businesses Tiny has bought/started?
I don’t know if this is by design, but it seems like Andrew has progressed from services to tools/products to platforms/communities to digital marketplaces.
- Agencies: MetaLab (design agency), Double Up (podcast growth agency), 8020 (no-code agency)
- SaaS tools: Flow (product management), Castro (podcast player), Supercast (podcast subscriptions)
- Products: AeroPress (coffee press), Caramba (furniture)
- Communities: Dribbble (designer community)
- Media: Designer News, RideHome (podcast network)
- Job Boards: We Work Remotely (remote job board)
- Digital goods marketplaces: Creative Market, Pixel Union
How Tiny companies operate?
Tiny companies have fewer information responsibilities than typical PE-owned companies. There are no formal board meetings for example.
Once a month companies send Tiny a finance-only update with the P&L, balance sheet, and KPIs. No operational info is included.
Once a quarter companies send Tiny a SWOT (strengths, weaknesses, opportunities, and threats) analysis.
Companies contact Tiny ASAP for emergencies, major news, or decisions.
Some CEOs will go 6 months or more without speaking with Andrew.
How Tiny launches new businesses?
Tiny’s primary business is buying majority stakes in businesses, not starting them. For a while Andrew would start a new business in any niche he was interested in. He tries to avoid that now and thinks it’s a lot better to buy something that is already good.
When Andrew does start a new business now, he delegates almost all aspects of it. He recently said he only spent something like 4 hours on each of the new businesses he has launched.
Andrew will pay for all the work to be done and the investment will form his majority stake in the business. He will find a CEO to run the business and pay the new CEOs a month or two of salaries to get things going. Then he’ll help with intros, connect them with relevant agencies Tiny owns to set up a website, marketing, etc., but otherwise, he’ll be hands-off. All in he said it takes $50k to get off the ground with a great operator.
Andrew bootstrapped all these businesses initially and then realized that it's worth spending money on marketing and sales to take it somewhere. Now he can do it all himself or bring in outside investors.
Why do Founders sell to Tiny?
Tiny is positioned as the good guys of private equity. The Berkshire Hathway of internet businesses. Andrew is often called the “Warren Buffett of the internet”.
They have become known for doing simple acquisitions. Andrew didn’t like the traditional acquisition process: long due diligence, and renegotiation of terms. Warren Buffet does deals in seven days and those are larger, more complex businesses. Smaller deals should be even quicker.
A challenge with this model is that it is difficult to acquire tech companies at reasonable prices. Acquiring boring traditional businesses is easier because the valuations are so much lower than tech companies. To successfully use this approach you need discipline around what you’re willing to pay for a business and a reputation for being easy to work with. Andrew gets deals by being a nice guy and offering a good home for businesses to live on. Contrast this with the typical PE approach of dramatically cutting costs (ie firing everyone) and squeezing as much profit out as possible. Some founders are looking more for freedom and an easy process than maximizing their financial outcome.
These smaller PE opportunities are underserved relative to the typical VC businesses. The lifestyle businesses that VC shuns are Andrew’s ideal companies. He is fishing in a less crowded pond.
Andrew will occasionally pay 10x for an amazing business, but that is rare.
What happens to businesses after the sale?
For the employees, it is business as usual for the most part. The goal is for the employees to not even notice.
The biggest difference is that Tiny becomes the bank. Cash is kept in the company based on historical working capital needs and any extra goes to the head office for new acquisitions.
Often Tiny buys product or designer-led startups that have grown organically. They will put standard best-practice marketing and sales processes in place and sometimes raise prices. Each company has its own CEO with a few exceptions like all job boards (5+) are under one CEO.
Tiny has a preference for remote companies where they can hire more affordably. Andrew estimates the cost of running a business in Canada can be 60-65% the cost of in California. Struggling American companies with inflated cost structures can reduce costs by moving to Canada. Canadian arbitrage includes lower salaries, not needing to pay medical benefits, SRED, and cheaper currency.
Who runs the business after a sale?
Often Andrew is buying from bootstrapped founders that have been at it for 5-10 years and want to move on.
Finding great people to run these companies is one of the hardest aspects of this model.
Andrew deals with this by paying up and hiring CEOs that have managed similar businesses at larger scales already before instead of trying to find underpriced less-experienced talent.
His general approach is to find someone that's run business double the size in same industry and screen them really hard for culture. The find someone that has been there, done that approach has been the most effective strategy
If a business has a special culture, finding a fit can take longer.
Months before closing on a deal Andrew works to identify opportunities for the business and a new leader to come in. Finding a CEO can be as fast as two weeks, but 2-3 months is typical.
He finds these new CEOs through his existing CEOs by asking “we’re about to buy a business who’s the smartest person you know in the space."
What's the interview process for CEOs like?
Andrew used to just meet someone, like them, and hire them. He is more diligent now and does deep background checks to avoid costly mistakes. Tiny has a 60-70% success rate on hiring CEOs now.
The interviews are exhaustive. Andrew shows the CEO candidate the business, walks them through the P&L, and then gives them 48 hours and asks them what they would do with it. He has trained himself to talk less and asks candidate questions.
He spends a lot of time talking through all the candidate's different roles in the past, what they did at each, what they like doing, what they hate doing, etc. He wants to understand how they approach things, what's their superpower, is it the right tool for this job. Magic CEOs understand everything, but they are rare. The book Topgrading is the basis of this concept. It is a bad book, but a great concept. The basic premise is the threat of reference checks, do multiple interviews and get many perspectives, see how candidates interact with each person.
Tiny uses a firm that costs $10-20k to validate that everything the candidate has said is true. Quinlan is a similar company that has a bunch of former journalists that do reference checks.
You can't trust reference checks unless the reference has actually worked together with the candidate.
Andrew's biggest thing: do I feel good after I talk with them? He avoids overly slick people, draining people, manipulative people for this reason. He doesn't do psychological or Myers Brigs testing, etc. anymore.
Andrew's favorite interview question "What's the worst job you've ever had?" He finds that people that haven't had crappy jobs are less motivated.
The best people show that they are working in the first 3 weeks. They figure out who needs to stay or go and fix simple stuff. Andrew gets antsy after 2 months if the new CEOs aren't pulling their weight. Some people bad or great at managing up so can be unclear until the levers of the business start moving.
How does Tiny compensate CEOs?
Incentives act as a magnet to get what you want done. Money is more meaningful to new CEOs than to Founders that have been making great money for the last 5 years.
Tiny doesn't want to pay out for unexceptional performance. If a business is already growing 15% annually, they reward performance above that. You don't want to just do 5% of profit because then the CEO can just sit back and enjoy without growing the business.
Andrew sometimes, although uncommonly, gives equity when a company is more of a startup without profits and there is a possibility of a sale. In this situation, growth is more of a priority than profits.
Giving out equity gets complicated with a conglomerate like Tiny so they are moving towards doing more phantom equity, which basically mimics equity. Something like guaranteeing a percentage of proceeds in a sale after dilution or sharing in dividends.
An example company with $10M revenue and $1M profit, where the CEO candidate wants to make $500k, he can do that if he is willing to take more variable comp and bonus. It sounds like roughly half is variable and half is base, but potentially much more if the company is doing well.
Big bonuses means the business is hitting its targets and growing faster than they expected to so they are happy to pay them. They pay 150% of variable bonuses above a certain level of performance.
The first CEO Andrew hired he paid $250k base + a couple hundred thousand variable. Tiny's highest comped CEO is making in the 7 figures.
What controls are placed on CEOs?
Andrew wants to empower CEOs, but sets boundaries to make sure things don't go off the rails.
CEOs are given a high limit credit card (max ~$10k) for random stuff. They can't enter contracts over $50k without board approval and don't generally have direct access to the bank account.
The goal is to prevent CEOs from signing big long term leases or something like that. He spends a few hours on the phone when starting and then it is up to the CEOs to contact him.
What does the operating company and Andrew do day-to-day?
“Entrepreneurship is just delegation”
Andrew spends time looking for new deals and looking at their existing portfolio and thinking "how they could get fucked”.
Andrew says his strengths are:
- Laser focused on problems for a short period of time. Moves fast.
- Very good at 0 to 1. Burns bright for 15 days.
- Inch deep and a mile wide
- Not good at execution or day to day details
Being comfortable with delegation is key to this model. Andrew is the owner, not the CEO. The owner can’t constantly be delegating what can or can’t be done or the CEO grows resentful. Some comfort with decisions being made that you don’t agree with comes with the territory. Large decisions that require more capital than usual are a discussion.
How connected are businesses in Tiny?
Tiny companies are not at all connected. They each operate independently.
CEOs will take calls and give advice on best practices, but nothing beyond small favors. Real work gets paid for. Tiny pays all companies for the work they do for the holding company and all work between companies is paid at the full rate.
Synergies are appealing, but they generally just make the CEOs resentful so they are avoided entirely.
How much debt does Tiny use?
Tiny uses little debt for acquisitions (less than Berkshire Hathaway) and they like to pay off debt within 6 months. Debt comes from BDB of Canada, or traditional banks.
What are Andrew Wilkinson's favorite books?
"This is one of the best books I've ever read on how to build an empire."
Shoe Dog by Phil Knight
"Incredibly inspiring and beautifully written business memoir by the founder of Nike."
The Gambler by William Rempel
"The story of Kirk Kerkorian, who went from penniless immigrant, to pilot, to airline owner, to owner of MGM and more. This is one of the best biographies I've ever read and it covers so many topics."
The E Myth by Michael Gerber
"How to work on your business not in your business."
Getting Things Done by David Allen
"How to manage a complex work and personal life. The only productivity system that has ever worked for me (use Omnifocus)."
The Hard Thing About Hard Things by Ben Horowitz
"How to hire, fire, scale, sell your business — you name it. Told with wonderful anecdotes."
The Tao of Charlie Munger by David Clark
"A collection of quotes and explanations from Charlie Munger. This is the bible. Everything you need to know."
The Dhando Investor by Mohnish Pabrai
"In my opinion, this is the best handbook on value investing. Huge fan of Pabrai."
You Can Be a Stock Market Genius by Joel Greenblatt
"Again, ignore the terrible title and trust me. One of the best books on special situations investing and finding value in hidden spots."
If you are interested in buying, growing, and selling small companies, check out my course & community on it at IndiePE.com.
If you know of anything I should add to this please reach out @ColinKeeley or Colin@ColinKeeley.com. I’ll continue updating as I learn more.