How my friend John escaped the slums and became super-rich

in #entrepreneurship8 years ago

This is John in the 1980s, on the left, with staff and friends who were running in Sydney's City-to-surf race (my photo)

My friend John was born just after the end of World War 2 in the slums of Birmingham, England. Life in the slums was short and cruel. The slum houses were squalid, with no indoor toilets. The government was rationing food and there was never enough to eat, even for those whose parents were not alcoholic or absent.

John left school as soon as he was allowed, and he seemed destined to spend his life working in lousy jobs for lousy pay. But unlike many of the slum children, a spark inside him yearned for an opportunity to do something better with his life.

Back then, the Australian government offered subsidized immigration (the “£10 Assisted Passage” scheme), so when John turned 16 he cobbled together £10 and set off to start a new life in Australia.

The government put him in a hostel and got him a dead-end job stacking boxes in a warehouse. In those days you got paid 50% more for each hour you worked after the first 40 in the week. John worked every extra hour that he was offered, which raised his income and also his average hourly rate, and he was able to start saving.

The warehouse supplied Sydney’s Newsagencies (newspaper and stationery shops), and John noticed that the delivery drivers earned more than the box stackers. As soon as he had saved the down-payment for a delivery van he quit stacking boxes and started work as a self-employed delivery driver.

As master of his own destiny, he started to optimise his work. The other drivers did their paperwork before setting out on their delivery rounds; John did his paperwork while stopped at red lights. The other drivers made the deliveries in the order they received them; John re-ordered his so that his driving distance was much shorter.

John noticed that his van filled up quickly in the morning with light but bulky items (such as boxes of bubble-wrap), and he had to do two delivery rounds because his van could not hold everything at once, yet in the afternoon the compact items (such as greeting cards) went out for delivery and left lots of space in his van. He arranged with some of the recipients that he would hold back their bubble-wrap delivery until the afternoon, when his van had spare space, and by doing so John could do one less delivery round in the morning.

Having optimised his work so effectively, John could do other work on the side and was saving lots of money.

He noticed that the newsagencies that received his deliveries were prospering, and decided that he could do a great job of running a newsagency. His bank manager lent him some of the purchase price, and he bought a newsagency.

To understand how he made so much money from his newsagency, you need to know how businesses are bought and sold. The sale price is generally set at a multiple of the annual profit. The multiple might be two times or it might be six times; it depends on the type of business and the levels of supply and demand.

Suppose you buy a business for four times its annual profit, then run it for two years during which time you double its annual profit, then you sell the business for four times its increased annual profit. Not only have you benefitted from a growing profit for two years, but you can sell the business for double what you paid for it.

Here's how it works: Suppose the business makes $50,000 profit per year. You buy the business for four times annual profit, i.e. $200,000. The first year you make $50,000 profit, and the second year you make $100,000 profit because you have grown the business. Then you sell the business for four times annual profit, i.e. $400,000. So in two years you have gained $350,000, which would have taken the previous owner seven years to make at $50,000 per year!

And this is what John did. He worked hard, and he worked long hours, and he optimized every aspect of the business as he increased its turnover and reduced its costs. I met John at this time. I was a teenager and got a job delivering newspapers each morning before school. Instead of paying us by the hour, John paid a fixed rate per newspaper delivered. So it was in our interest to work fast, and we did! Not only did the delivery boys earn money faster, but we worked so quickly that he could open up the shop half an hour later each day and still get the newspapers delivered before 7am! And we all got an extra half hour’s sleep.

Meanwhile John now had a wife and two children. He sold the newsagency and bought a nice new family home with a swimming pool in a desirable suburb, without needing a mortgage. Not bad for age 32!

The next business he bought was a milk delivery business. Normally you don’t make much money delivering bottles of milk to individual houses, but this business was different. The delivery was to Sydney Airport, and the government’s rules meant that the airlines paid the same price per bottle of milk as the houses on the street, even thought they were receiving milk by the pallet-load, so the business was highly profitable.

John's truck for his bulk milk delivery business (my photo)

But it got better! New hotels were being opened on land near the airport, and John made sure that his business was their milk supplier. Having increased the turnover and the profit, he sold the business for much more than what he paid for it.

At this point he was financially secure, and ready for a break, so he took his family on a fabulous seven-month round-the-world trip.

On his return, he bought another business, an inexpensive small newsagency in the run-down suburb of Bondi Junction. A new railway line was almost complete, which was to end in a huge interchange at Bondi Junction. John could see that the suburb was due for revival. So he moved the business into huge new premises in a prime position. It was a big financial commitment, and I remember him being a little apprehensive at the time, but he was well rewarded. Turnover tripled, and so did profit, and he was able to sell the enlarged business for a high price.

John used to let me borrow one of the vehicles when I needed transport

His children were approaching high school age, so he moved to a larger house in one of Sydney’s most desirable suburbs, near one of the most prestigious private schools, where he enrolled his children. Here they would mix with the children of the elite, and would be expected to join the elite themselves. (I wouldn’t choose this path for my own children, but I can understand its appeal to someone who has worked their way up from the dregs of society.)

When John took his family on their round-the-world trip, he had noticed the financial success of the 7-11 chain of convenience stores. As it happened, they were about to launch in Australia and were offering a great franchise deal for their first “flagship” stores. John didn’t hesitate to partner with another businessman and gain a 7-11 franchise, which in a short time he built up from nothing to a respectable turnover.

At this time, I moved to another country and lost touch with John, but he was in his 40s and owned a great house in one of Sydney’s best locations. His children were set up for life, and he was free of debt. He liked his work, but he could retire any time he wanted, and the sale of his 7-11 franchise would be the “frosting on the cake” of his retirement income.

People often assume that to make it rich you need to create a start-up and become the next Steve Jobs or Elon Musk. But, as John showed, you can do well by buying a business that was started by someone else. Then you grow the business and sell it on for a higher price.

I worked for John in three of his businesses, including as acting manager when he took holidays. For John’s other businesses, I have filled in the details from discussions that I had with him at the time. I may not have all the details exactly right, but the general gist is solid.

I should add that John was a great guy. He treated his employees well, and always found a way for others to share in the success that he was creating. When I was at university, he let me stay in a room above his shop rent-free, and let me borrow the newsagency delivery vehicle when I needed transport.

If ever you read this, John, Thanks! You showed me the way of entrepreneurship, which shaped my own life and career.


Nice post. One can learn from John! Thanks for sharing.

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