Austin Equity Group is an Austin-based holding company focused exclusively on owning and operating market-leading Austin businesses in perpetuity. We were born and raised in Austin, our office is in Austin, and our stakeholders live in Austin.Our ultimate objective is the permanent preservation of exceptional local businesses authentic and unique to Austin. To achieve our goal, we actively seek direct ownership of a diversified group of outstanding Austin businesses that generate cash and consistently earn above-average returns on capital.We offer a fair choice to the Austin business owner who wishes to sell: a permanent home in which the company’s people and culture are retained. Our decentralized philosophy is rooted in local entrepreneurship and autonomy. We remove bureaucratic layers and empower frontline management closest to customers. We have no interest, at all, in ever selling any good business we own to competitors or out-of-town investors. Our preferred holding period is forever.
Rules, Strategy, and PrinciplesRules:
Rule #1: Don’t lose money.
Rule #2: Never forget Rule #1.
Rule #3: Incentives are the most powerful force in the universe. Never think about something else when you should be thinking about the power of incentives.
Rule #4: Integrity is everything. Lose money for the firm and we will be understanding. Lose a shred of reputation for the firm, and we will be ruthless.
Rule #5: Embrace your inner pirate. It’s better to be a pirate than join the navy!Strategy:
Our strategy for compounding earnings growth in perpetuity is simple and in four parts:
• Part 1 - Reinvestment Rate: We consistently reinvest more than 80% of our cash flows back into the company. Reinvestment rate is the key driver in earnings growth. The higher the reinvestment rate, the more powerful the compounding effect.
• Part 2 - Hurdle Rate: We efficiently allocate our capital into investments at an average return on invested capital (ROIC) of more than 25% annually. We are disciplined in our approach: under $1M in revenue we require a 30% ROIC; above $4M in revenue, we drop to a 20% requirement; and we require 25% for everything in between. Ultimately, price and availability of good businesses determine our annual capital allocation.
• Part 3 - Share Repurchases: We want our shareholders to make their own individual decisions about liquidity events. We firmly believe elective share repurchases, fairly priced, are the most efficient way to return capital to shareholders. Our shareholders are aligned with our strategy of compounding earnings growth by reinvestment over the next few decades. We do not force feed shareholders cash flow in the form of taxable dividends.
• Part 4 - Niche Businesses in Smaller Markets: Austin has been a very good place to be born, raise a family, and build a business. Through dumb luck, we get to put all our eggs in the Austin basket and focus on niche businesses within our smaller regional market. The businesses we target are generally under the radar of larger private equity players. Less competition for acquisitions usually means more attractive prices and higher shareholder returns.Principles:
• If we tap dance to work, we’re winning.
• Be kind, listen before speaking, have fun, and do the right thing – most importantly, trust your gut.
• Stay in your circle of competence.
• We are not tethered to corporate constraints or investment mandates.
• If you see a snake, kill it. Don’t form a committee on snakes.
• The clear, unmistakable sign of a bureaucrat is someone worried about whether he has a window.
• Fight procrastination with a passion; if it can get done now, get it done. (A good plan finely executed today beats a perfect plan next week.)
• Live without ego; shed your shame.
• We have a strategic plan – it’s called “doing things.” Make a decision and do it like hell!
• Don’t confuse a bull market for brains.
• Things that have never happened before happen all the time. (Few have the imagination for reality.)
• Anyone who does you dirty – well, you should never forgive them for that. - Mrs. B
• There are times when certain cards sit unclaimed in the common pile – when certain properties become available that will never be available again. A good businessman feels these moments like a fall in the barometric pressure. A great businessman is dumb enough to act on them even when he cannot afford to.
• Well done is better than well said. A man cannot build a reputation on what he is going to do.
• Authenticity outruns the competition.
• The road to success is paved with problems well handled.
• Every problem, no matter how extreme, has a rational solution if you keep your wits and focus clearly.
• To try is scary – you can lose it all! But otherwise, what’s the point?
• There is always room at the top.
• Familiarity breeds contempt, while rarity breeds admiration.
• Resist the path of least resistance (at first, at least).
• Forced consistency is the hobgoblin of little minds.
• Not everything that can be counted counts, and not everything that counts can be counted.