From: myfirstmillionpod
Andrew Wilkinson is the founder of Tiny, a holding company that began as an agency generating profit. These profits were strategically reinvested to acquire approximately 18 to 20 different companies. Today, Tiny operates as a public company with a market capitalization of around $600 million [00:00:07]. Wilkinson’s journey is characterized by a focus on “boring” yet highly profitable businesses and a keen understanding of incentives and market dynamics.
The “Barnacle on a Whale” Strategy: Pixel Union’s Success Story
One of the most significant examples of Andrew Wilkinson’s business ventures and his “barnacle on a whale” strategy is the story of Pixel Union. This strategy involves attaching a smaller business to a larger, growing platform to benefit from its established reach and marketing efforts, effectively getting “free marketing” [00:51:09].
Initial Investment and Growth
Around 12 years ago, Wilkinson met the founders of Shopify when it was a small, bootstrapped startup of about 15 people [00:51:36]. They approached Wilkinson to design themes for their marketplace, with the caveat that they wouldn’t pay him directly, but he could list them for sale, ranging from 250 [00:51:52].
Wilkinson’s initial investment was minimal, roughly 5,000 to $10,000 a month [00:52:09]. He realized the value of not having to promote or market the products, as Shopify drove all the traffic to their marketplace [00:52:17]. Over time, Pixel Union developed more themes, securing more “squares” in the marketplace and achieving high saturation [00:52:31]. As Shopify grew and invested hundreds of millions into marketing, Pixel Union continued to benefit from this free marketing [00:52:56].
Selling and Re-Acquiring Pixel Union
At one point, Wilkinson was experiencing burnout and felt depressed from running multiple businesses, including Pixel Union, Metalab, two SaaS companies, and an e-commerce business [00:54:43]. To alleviate the pressure and gain financial security, he sold Pixel Union for approximately $7 million [00:55:00].
After the sale, Wilkinson read books on investing, particularly about Warren Buffett’s concepts of competitive advantage and economic moats [00:55:40]. He realized that Pixel Union possessed many of these qualities, regretting his decision to sell [00:55:50]. Since he remained on the board and maintained a relationship with the new owners, he was able to re-acquire the business for $25 million when they became fatigued and wanted to sell [00:56:05].
Public Offering and Valuation
After re-acquiring Pixel Union, Wilkinson and his team engaged in further mergers and acquisitions (M&A), investing an additional 260 million a couple of years ago [00:53:08]. The total investment for this successful venture, from its 36 million [00:56:37].
Business and Investment Philosophies
Wilkinson’s success isn’t solely attributed to the “barnacle on a whale” strategy but also to his broader investment philosophies and operational insights.
Focusing on “Boring” Businesses
Wilkinson emphasizes that “it’s really not the sexy stuff that pays off” [00:02:47]. He prefers “boring” businesses that offer high margins through operational efficiency rather than flashy new products or partnerships [00:02:47]. Examples include:
- Increasing prices by 30% after years of stagnation, leading to massive profit growth [00:02:55].
- Reducing shipping costs by downsizing packaging [00:03:08].
- Leveraging strong SEO for affiliate revenue [00:03:13].
- Investing customer gift card deposits in T-bills to generate 5% interest, yielding $500,000 a year in pure profit [00:03:20].
He contrasts this with his bakery business, which, despite being “sexy,” is a “pain in the butt” to operate with high employee turnover, significant swings in profitability, and only about 1.5 million, grew from 4 million in profit with only two employees [00:09:44].
The “Profit First” Mentality
Wilkinson advocates for a “Profit First” approach to business management, where profit is taken out before expenses [00:13:30].
“if you make a hundred bucks, you immediately take away 30 and people are just forced to eat off a smaller plate and so they eat less and they’re more thoughtful about expenses” [00:14:55]
This psychological trick forces companies to be lean and question expenses, rather than passively accepting them. For example, some of Tiny’s businesses historically operated with 80-90% net profit margins, which could be easily burned through by CEOs focused on innovation if the cash wasn’t siphoned off [00:15:48]. Tiny’s policy is to leave only two to four weeks of payroll and expenses in a business’s bank account, sweeping out the rest [00:18:19]. This creates a sense of urgency for collections and efficient operations, even if Tiny itself is prepared to inject more capital if needed [00:17:53].
Strategic Networking and Earning the Room
Wilkinson is a master networker who actively seeks out influential people by finding genuine connections and offering value [00:31:35].
- Cold emailing: He cold-emailed Dan Gilbert (Quick Loans/Rocket Mortgage founder), expressing admiration for Gilbert’s work in rebuilding Detroit and highlighting shared passions like owning a local bakery and bootstrapping businesses. This led to a personal meeting and a tour of Detroit [00:33:13].
- Creating value: To meet Bill Ackman, a hedge fund manager, Wilkinson offered his design agency’s services to redesign Chipotle’s website (a company Ackman invested in) [00:34:41]. This initially led to a board member introduction.
- Investing in opportunities: When Ackman’s charity lunch auction presented an opportunity, Wilkinson bid $57,000 to have lunch with him, even without immediate business expectations [00:35:17]. This paid off years later when Ackman invested in a business deal with Wilkinson [00:36:06].
- Adapting communication: With Charlie Munger (Warren Buffett’s partner), Wilkinson learned to communicate through letters, as Munger prefers written correspondence for remembrance, despite enjoying verbal communication [00:36:37].
Wilkinson emphasizes the importance of “earning the room” [00:43:44]. His experience at the Vanity Fair Oscars Afterparty, where he felt he didn’t belong because he lacked shared language or value for the film industry elites, taught him that it’s more fulfilling to be in rooms where you have genuine value [00:41:00].
Human Behavior and Organizational Management
Wilkinson also shares observations on human behavior that inform his management style.
People Suffer in Silence
At Tiny, a culture of autonomy means CEOs are often left to run their businesses without constant oversight [00:57:25]. While this suits founders who want to operate profitably without interference, new CEOs, accustomed to active boards or corporate structures, may interpret silence as a lack of care or appreciation [00:58:13]. Wilkinson notes that people often “fester in silence,” assuming negative intent rather than benign neglect [00:59:58]. This stems from “Hanlon’s Razor”: “never attribute to malice what can otherwise be explained by ignorance or stupidity” [00:59:25].
People Don’t Change (or Rarely Do)
Drawing from Robert Greene’s “The Laws of Human Nature,” Wilkinson believes that people rarely change their fundamental characteristics or habits [01:00:22]. He hasn’t seen success in coaching someone to develop a high pace if they don’t already possess it [01:00:56]. Change, he observes, usually occurs only when someone hits “rock bottom” like an addiction [01:01:10]. He advises assuming people won’t change to avoid making bad decisions based on hopeful but unrealistic expectations [01:03:31].
Through a combination of strategic acquisitions, disciplined financial management, shrewd networking, and a realistic understanding of human nature, Wilkinson has built a substantial and diverse business empire, demonstrating how a small initial investment can lead to massive returns.