Tech-Backward Industry Rollup

“I was discussing the construction industry with one of the analysts when he asked me what I thought about going into construction equipment rental. I hadn’t heard of it, but I kept an open mind. It turned out to be exactly what it sounds like: Companies buy machines like boom lifts and backhoes and rent them out to contractors who need the equipment but don’t need to own it. My team and I moved fast to scrutinize the industry before concluding the big trend was the most exciting we’d come across so far. The addressable market had only 15 percent rental penetration, which didn’t make any commercial sense. A lot of the equipment in the remaining 85 percent was sitting idle on worksites getting rusty and dusty. We could capitalize on that disconnect. In addition, the equipment rental industry was growing organically; had only one national provider, a subsidiary of Hertz; and offered thousands of potential acquisitions, without widespread computerization or standardization. It was a big, juicy opportunity, and only a matter of time before economist Adam Smith’s “invisible hand of capitalism” swooped in. United Rentals was born.”

“Our M&A game plan from the start was to avoid going head-to-head with the largest waste management companies. Instead, we went into tertiary markets like rural Mississippi and the Upper Peninsula of Michigan, places that the big incumbents overlooked, where we could be a big fish in a small pond. We rolled up landfills, then bought the collection companies that were hauling waste to those sites. In short order, we had geographic density and economies of scale. Eight years in, we sold United Waste for $2.5 billion.”

“When I say “tech backward,” I’m not just talking about outdated websites or clunky point-of-sale software. I look for industries where I can apply automation, analytics, and AI and give my team a multiyear head start. Some of the best returns we’ve generated came from acquisitions that weren’t sophisticated at all when we bought them. We deployed tools for pricing, logistics, inventory management, demand…”

“The final must-have on my checklist, and one that’s especially exciting to me, is finding an industry that’s somewhat tech backward. This may sound counterintuitive—shouldn’t I want to jump into an industry that’s already benefiting from the latest technologies? Actually, it’s the opposite. If the companies that will be my competitors are already tech savvy, where’s my edge? I don’t want to compete on someone else’s playing field, where they already have the advantage. I want to walk into an industry where the cool, mission-critical technology has been overlooked and businesses are still using Excel spreadsheets and gut instinct to make critical decisions. These…”