Who's Ready to Operate, 1970s-Style?
Most of my professional friends are uneasy about where the economy is drifting. The political pressures on every major party look as if they’re pointing in the same direction: support wages, keep households afloat and accept more inflation than anyone wants to admit. That’s not a great environment for savers. It’s increasingly uncomfortable for investors who’ve floated through recent decades on appreciating capital assets.
But what about the hands-on, mid-career small business owner? I’m cautiously coming to the conclusion that the best acquisition entrepreneurs and operators are going to be just fine.
Working with business owners and leadership teams every week, I’m beginning to see a stark divide. The operators who can drive cashflow, and whose life goals aren’t tied to multiple expansion and a quick exit, are the ones staying composed. They feel stronger now than they ever did when cheap money made us all look like geniuses. Their confidence is rubbing off on me, and it’s reminded me that earlier difficult decades produced some of the most impressive entrepreneurial runs in modern history.
The historical pattern is pretty clear. In the US between the late 1960s and early 1980s, inflation averaged more than seven percent a year. Equity markets went sideways in nominal terms while inflation quietly crushed real returns. Yet company earnings roughly tripled over the same period. In the UK, households lived through strikes, recession and IMF intervention, but real incomes still rose across the decade because politics protected wages more than it protected asset prices.
That is the part most people forget. A difficult macro environment does not treat everyone the same. It punishes anyone who relies on rising multiples, and it rewards operators who control their own pricing, margins and cost base.
My favourite historic examples are now globally dominant brands. Walmart expanding steadily through the early 1970s. IKEA opening stores across Europe. McDonald’s scaling a simple, cash-rich franchise model. They weren’t icons then. They were operators who understood predictable demand, disciplined pricing and relentless execution.
The same mechanics apply across the UK today. Our historic documentation is messier, but the economics were the same. Essential service businesses, trades, local logistics firms, plant hire companies, compliance contractors, building services and maintenance groups all repriced every year and kept serving customers who needed them regardless of the wider chaos. You do not need a glamorous sector to thrive in an inflation-heavy period. You need something essential, sticky and priced with conviction.
The UK economy is full of these businesses. They are not fashionable, but they are durable.
Think about a number of ETA favourites (Entrepreneurship Through Acquisition. If it’s new to you, listen to Carl Lundberg’s and Paul Quirk’s respective podcasts and sign up for Paul’s next Buy and Build accelerator):
Compliance services in fire safety, electrical testing and environmental checks
Plumbing, heating, HVAC, drainage and commercial property maintenance
Facilities management, cleaning and security
Local logistics, plant hire and technical labour
Specialist B2B software and data platforms with multi-year contracts
These firms provide mandatory services and are often protected by high switching costs. Pricing conversations are normal. Customers will complain about increases, but they will usually accept them when they’re fair. Switches happen when operators overreach or underdeliver. If governments are going to tolerate inflation to stabilise wages, these businesses are well positioned to keep their revenues ahead of their costs.
It’s been fascinating to watch the psychology of owners of durable businesses versus those who aren’t in the same position. When an owner isn’t actually feeling the benefit of their own business – when the cash isn’t improving their life in any meaningful way – they become vulnerable to fixating on the wrong things. They start worrying about how the business looks from the outside. They talk about valuations, comparables, exit stories. It’s a stress response.
Owners who focus on revving their cash engine sit in a very different place. Their income moves up with inflation, their margins hold, and the business supports their life in a real, tangible way. That foundation gives them composure. They make better calls because they’re not relying on a theoretical exit to make the whole thing worthwhile. They’re building something with weight and resilience, and it compounds.
It’s a simple divide: if you’re living off the business, you think clearly. If you’re waiting for it to pay off one day in the unknown future, you're more at risk of getting distracted by the noise.
My own interest in small business is shaped by this same logic. I prefer rising cash reserves to theoretical capital gains. I’m comfortable with businesses that produce enough cash to look after their investors through distributions and buybacks, where a dramatic sale is a 'nice to have'. And I suspect this may be the more dependable way to build wealth in the sort of decade we're heading into.
This is not a message for operators only. Investors who back disciplined, cash-focused leadership teams should still be able to guarantee strong returns. They may just get paid differently. Instead of relying on a future sale at a higher multiple, they may extract value through the business itself. Higher distributions. Redemptions. Buybacks. A steady path to liquidity that doesn’t depend on market mood. It may even be a healthier alignment, with nobody holding their breath for a greater fool.
I hope I haven't sounded gleeful about the hard times ahead in this post. Nothing about high inflation, stagnant asset prices or tight credit is comfortable. But if this is the environment we are moving into, I think it's important for 'animal spirits' within our community to acknowledge that the people who own and operate essential businesses have an opportunity that most do not. It will not feel glamorous, but it could be the most productive decade in years for UK operators who are prepared to focus on the right things.
