$5T opportunity: AI Roll Ups

0:00Over the next 10 years, there's going to be millions of small businesses that are going to get sold because their owners are retiring. We're talking about $5 trillion worth of these businesses. Now, some of the biggest investors in the world like Thrive and General Catalyst are already buying them up and they're using AI agents to make them way more profitable. Now, most people think that billiondoll funds can can only do that and there's just no room for solo founders or small teams. I don't. I think there's a huge opportunity here for solo founders and almost nobody's talking about it. I posted about it on X yesterday and it got over a million

0:37impressions. The funniest part was that my DMs and replies were filled with people messaging me to stop talking about it publicly because they think there's so much alpha in this. So, obviously, I'm making a whole episode of the podcast about this and you're listening to it. If you stick around until the end, you'll learn three things. You'll learn why this is happening right now and how Thrive and

1:00General Catalyst are actually doing it. You'll see exactly how I'd run one as a solo founder down to the folders, the agent files, and what my average week would look like. And you'll hear the biggest arguments against this, including the one I take most seriously. I had hundreds of tweets of people who were like, "Yeah, here's what's wrong." And I speak to those arguments. [music]

1:24If you're new here, I'm Greg Eisenberg. I run a holding company of my own. I host the Startup Ideas podcast and I spend most of my time thinking about which kind of businesses are worth building right now. If this episode gets 5,000 likes, comments, subscribes, I'll give away more of my notes on this whole topic. It'll be in the pinned [music] comment. Now, let's get into the

1:43episode. [music]

1:52So why is this $5 trillion shift happening right now and why is there an opportunity? I think three things happen at the same time and when that happens you usually get a new kind of business. The first thing is owners are retiring. So that $5 trillion number actually comes from McKenzie and they expect about a million of those businesses to actually sell by 2035. These are people who started an accounting practice or an insurance agency or property management company. Maybe it's the 80s or in the '9s, but they've built this, you know, loyal client base over 30 years and now they want to retire. Maybe their family

2:31doesn't want to get into the business. You know, they don't have people lined up to take it over. their kids went off and did something else and their employees usually don't want to run the whole thing. The second point is AI can do the work now. And I say that like, you know, I don't think I could have said this eight months ago, but I'm saying it now. Think about what happens inside those businesses all day. Someone types numbers from a PDF into a spreadsheet, and someone chases a client from the same missing document for the third time. someone writes the same status update like 50 times a week. Not

3:08long ago, if you pointed AI at that work, you got a rough draft and someone had to redo it and it was like hallucinating all the time. Now, you know, if you set it up correctly, you get a J a draft that somebody checks. And I'm getting to the point, I don't know about you, but I'm getting to the point where I can trust my AI agents and my AI agent systems sometimes way more than my human beings. like my human beings on my team are making more mistakes than my AI agents. The third piece is service businesses are priced like their margins are stuck. So a a

3:43normal service uh firm runs at, you know, 5 to 10% profit, something like that. And everyone assumes that it'll just sort of stay that way because that's been that way for the last 30 years. And that's how buyers value those businesses. But when you put all three ma all all three points together, you get a huge wave of businesses about to change owners full of the exact kind of work agents are good at and priced as if nothing about them can change. And I think that's one one of the biggest opportunities about about right now. So yes, people have talked about, you know, boomers and the $5 trillion number I've

4:25seen before, but they haven't, you know, but they've talked about in the sense of like, okay, I'm going to buy this company and then maybe I'll optimize it a little bit. The the black swan is the AI agents are actually really really good right now. So I think that the funds, the big funds have figured this out first. So let me tell you exactly what they're doing. Let's learn from them. Um and and some of these stories

4:50are actually really amazing. Okay, so what are the big funds doing? Thrive. Thrive Capital is Josh Kushner's firm. So they were early in companies like Instagram, OpenAI, and a while ago they spun out something called Thrive Holdings. And what Thrive Holdings started buying surprised a lot of people because they went out and they bought local accounting firms. Now, they've bought close to 50 of these accounting firms over the last 24 months, and they just committed another billion dollars to buy more. So, obviously, it's working, right? One of them is a firm in Bellingham, Washington called Larsson Gross. It's been around since 1949. They've got five offices and

5:37they've got 200 people. After Thrive got involved, the firm started using AI built on OpenAI's codecs. I'm pretty sure Thrive has some sort of partnership with OpenAI. This tax season, it processed 7,000 returns. An accountant saved 31% of their time on average. One one accountant had a job that used to take her 180 hours a year and she got it down to 15. So like it's really really working. And the interns who used to prepare tax returns started training to review them instead. And that's the part

6:15I, you know, can't stop thinking about. The people who used to do the work are becoming the people who check it. And keep that in mind because it comes back when we get to the arguments against all of this at the end. The other firm is General Catalyst. So they're one of the biggest venture capital firms in the world. They set aside $ 1.5 billion for this strategy. And from what I heard, they put more than 750 million into at least 10 companies. One of them is Long Lake, which buys property management companies. They say that they've bought 18 businesses and gotten to a 100 million in Ibida in under two years with

6:57margins doubling, which is like hard to even, you know, comprehend, right? Another is Cresendo, which runs customer support centers. They say AI now handles about 90% of frontline tickets. And there's one I really like the structure of. So when general catalyst companies buy a business, they usually pay about 60 to 70% in cash and the founder rolls about 30% equity into the into the new company. So, the person who built the relationship for 20, 30 years has a real reason to stay and make the handoff go

7:36well, which is like a big issue, right? Um, one honest note, by the way, a lot of these uh numbers, well, you know, when I was doing my research are self-reported by young companies that are raising money and none of them have been through a recession yet. So, I take them, you know, so I take them as a strong signal of where this is going, not as proof. Right? these it's early days. But the thing that to that I take away from this is when you have Thrive and General Catalyst, both venture firms who I look up to and I think that they're really smart, they're putting

8:11billions of dollars into the same idea. You got to pay attention. And if you look at how they're running it, there's a pretty clear playbook and a pretty big gap they're leaving for everyone else. And that's what I care about. Like, of course, you know, I hope they do well, but I really care about you listening person, founder who wants to make their first few million dollars. Um, and I want to give you that opportunity or at least get your creative juices flowing to connect the dots. So, I'm trying to analyze their whole playbook, General Catalyst and Thrive. And the simplest way I can describe it is first they

8:47build the platform meaning the agents and the software before they buy like literally anything. Then they buy a firm people already trust. You know with clients who've been around for years a lot of the time they like brand names like good brands. Then they run the agents in the background. So the agents do the work alongside the people and nobody outside sees anything change. Uh if anything, you know, the they're more timely, it's more optimized, the customers are hearing back faster, and they're getting, you know, hopefully better work. Um once the agents are reliable, they move the back office over you know things like data entry, collecting

9:34documents and first drafts and then they buy the next firm and then they plug it into the same platform. So look at what that does to the business. Revenue stays the same because the clients are the same and they're paying the same invoices. Costs go down because agents are doing a big share of the work. So profit goes from anywhere around 5 to 10%

9:58uh to if the thesis holds to 30 or 40%. It's basically the same business making three to four times profit. Now the thing I think most people miss is that the funds need big deals. If you're a billiondoll fund, you can't spend your time on a bookkeeping firm doing $2 million a year. It's just too small for

10:21them and it can't move the needle. That's how they think. And the McKenzie number that you know I gave earlier about a million businesses are expected to sell. Well, those are mostly small firms. So, Thrive and General Catalyst like I don't think that they're going to call them. I think they're going to call the bigger firms or they're going to call the mid mid-market firms. So, the question I kept asking myself is what does the oneperson version of this look like and let's explore that. So, how would I set up a oneperson holdco doing these AI rollups? You know, I would I would set it up as you the founder,

11:00you're at the top. You own a holding company, which is just a company whose job is to own other businesses. That's the simplest way to think about a holding company. Uh, under it, there's a few small businesses. So, each one has a GM, a general manager, and usually that's someone who's already there. Uh, think of it as like a senior bookkeeper who's been with the firm for 15 years, knows every client, then you make her the GM and give her a real piece of the

11:27upside. And this bar at the bottom is the part that makes the whole thing work. Every business uses the same agents, the same rule system, the same back office, and the same dashboards. So you build the layer once so the second business is easier than the first because half of what it needs already exists and then the third one is easier again fourth fifth you get the idea at the start I said there's a huge piece of this pie uh for solo founders and there's a few reasons why I believe that. So the tools that you're going to use are the same tools uh that the funds are using. So,

12:04Thrive agents run on codecs. Um, but yeah, you can use, you know, codeex, cloud code, you know, Gemini. Um, you have access to the same models. Uh, you also get to be the integration. So, the hardest part of any rollup is getting each new business onto the system without breaking anything. Uh, so the funds have to hire managers who learn every business from scratch while you're the one in the room. you know, you know the clients and you read the agent drafts yourself. So, a lot of owners who would also rather hand their business to a person, you know, if you spent 40 years building something, you care

12:45about, uh, who takes it over. Um, so, you know, if you're, you know, some of them are just not going to want to sell to a large venture capital firm, but they might want to sell to you. And again, that is an edge. Um, and the deals like we talked about, they're too small for the big funds, so you're not even competing with the general catalyst uh for them. Um, you know, I've run a hold co now for uh wow, six years. Um, almost um actually no, six years. I've run a hold for six years. Um, and I just got to say that like who the GM is is going

13:26to be such an important part of making this thing work. Um, and I've seen not good GMs just not be able to take the business where it should be should should get to and and and incredible GMs just really fly. So, um, finding that person is super super important. Um, and this is pretty, you know, it's pretty much how I think about my own holding company. Um, you know, we have a few businesses with amazing people running each one, and then we've got like a shared layer underneath that keeps getting better. Um, and we basically support those businesses. Now, let me show you what that shared layer could

14:12look like. Um, it it this is something that you might want to screenshot. Um or like I said, you know, if there's some likes and comments, um I could put in the pin comment. So, this fold uh folder structure is kind of like the org chart. Uh I'll walk you through it so you can clearly understand how I think about

14:32this. The first folder is the thesis. So, this is where you're going to write down what you believe, like which industries you're in and why, what a good business looks like to you. And that's going to keep you from buying something just because you got excited about it. The shared folder is that bar at the bottom of the drawing, meaning everything every business uses. So the

14:58agents and the global rules live here. There's also a folder of real accepted work that you use to test the agents every time you change something. And there are runbooks uh which are just step-by-step instructions for things that happen more than once. Um like okay, it's day one after taking over a business or uh what you know what you do when an agent sends something wrong. Um then you're going to want to make sure each business uh has its own folder. So, the client's file um says who's been with the firm for 20 years, who's sensitive, who's loyal to a specific person. Those details are going

15:39to matter. The people file says who knows what. If the senior bookkeeper is the only one who knows how a certain client likes things done, that gets written down here. Uh the rules file holds things that only apply to this business. So maybe this firm always sends reports on the third instead of the first because one big client asked for that in like 2011. And the

16:03corrections log is where every fix goes. Anytime a person changes something, an agent did it, it gets logged here. If you set up only three files, I'd say set up the global rules, uh, each business rules, and the corrections log because that's the stuff that turns agents into something you can actually trust with a client, right? Um, and even honestly, even if you don't do this, uh, like don't do an AI rollup, thinking about your business in this way is pretty darn helpful. um from a structure perspective, from getting more out of your AI agents, um and for just being more AI native. So, those are the

16:48folders. Uh let's talk about the agents living inside of them because there's one rule here that I think prevents most of the disasters people worry about. Um this is how work actually moves through one of these businesses. So when work comes in, the intake agent is going to collect the documents and chases anything that's missing. Um that's going to save a ton of time. You have the prepare agent who does the first draft of the actual work. In a bookkeeping

17:20firm, you know, what could that be? Categorizing transactions or, you know, drafting the months and close, things like that. You have the reviewer agent which checks that draft against the rules. Something's off or something, you know, it sends send sends it back. Then yes, there's human beings, you know, you still want human beings a part of this, you're going to need a person to approve it. Um, usually the same person who used to do this work by hand and only after that does it go to the client. I think the most important rule of this whole system is the reviewer can block Um, but it can never send anything. And the

18:01prepareer can't send anything either, by the way. A person always approves before anything reaches a client. Yes. Can we get to a point where it's completely AI, you know, uh, agents doing everything? Like maybe one day, but I think at this point, you know, uh, you do need to have humans do certain things. And also human beings uh are the accountability uh layer for you, right? Um I'm going to do I think I'm going to do a whole episode of the podcast about about that. Um but yeah,

18:35the person is the accountability layer. I thought it might be interesting for for people to see like what do these agent files actually look like. Um here's one. Uh it's the one for the reviewer. Um so you can you can check it out here. You know your job. Check every draft from the preparer before before a person sees it. You score it or pass it to the person or send it back. Here's what you can do. Here's what you can't

19:00do. Check every draft for these things. Send it back of this. You know, when you pass it on. So, what is this basically? I won't bore you with the details. It's basically like a plain English job description. Every agent in the system gets one. Um, and it covers what its job is, what it's allowed to do. more importantly, what it can't do, and when it has to stop, ask a question and get

19:24human intervention. Most of the agent problems I've seen come from nobody telling the agent where its job ends and writing down what it can never do fixes a lot of that. Um, so I think this will be helpful for you. So imagine you've rolled up a few of these businesses. What does an a week, you

19:46know, an average week look like for you? Um, people ask me about this. Um, and they're, you know, the common feedback I get is, "It must be so hectic." It's actually a lot less hectic than you think because your GMs and your agents handled the day-to-day work. Um, so here's how I would spend my week. Uh, if I if I own a few of these businesses, um, on Monday, you want to look at the numbers. You know, for every business, check five uh core core metrics. Number one, profit margin. two, minutes of human time per job. Number three, how often agent drafts need fixing. Number four, client retention. And number five,

20:26whether the key people are happy and staying. A lot of people don't have that, but it's going to be key to the whole system, right? If profit is going up while clients are leaving, well, something's wrong. You're going to want to catch that early. On Tuesday, I do, you know, one call with each GM to hear what's working, what's annoying them, which clients need attention, how you can help. Wednesday, maybe it's your corrections log. Um, I think it's the most important hour of the week because I'd go and, you know, I go through every fix a person made to an agent's work and I turn to the one I'd turn the ones that

21:06keep happening into rules. Um, you know, you can I'll just put up a prompt here. Show you a prompt. Compare each agent draft with the version of person approved this week. Sort every change into factual error, client preference, missing information or style for any correction that happened more than once. Propose a rule. Add each approved rule as a test using the original input and the accepted output. And that's how agents get better every week. And it just compounds. After a few hundred jobs, that list of rules becomes the most valuable thing you own because anyone can use the same AI models, but nobody else has your list of every way

21:46they go wrong in your kind of business. And then Thursday and Friday, that's for finding your next business. Coffee with owners, learning a new industry, figuring out what comes next. You know there people ask me about the marketplaces to uh buy some of these businesses like I think it's Bisby buy scale uh bisby sell and and some other ones. They're my experience is once they hit the marketplaces uh unless it's like super curated like you're not going to get a good deal. Uh the best way to find these deals is to reach out um and things like that. The last thing, by the way, people ask me is

22:27how do you get the first one? Like how does the first one start? Uh the path I like to pick one industry, say bookkeeping firms, and I start by selling them a service. Take one annoying job and do it with agents, like cleaning up month end for their messiest clients or chasing missing documents. And then doing that, you learn how these firms work from the inside. So, you're building your agents on real work and

22:52you get to meet a lot of these owners. After 6 months, 9 months, 12 months of doing good work for a bunch of firms, one of those owners is going to be ready to step back, and you'll be the obvious person to take it over. So, you start by serving them. You earn their trust, and eventually you own one. That's how usually these things happen. Okay. So, one when I posted this to X, like I said, I had uh actually in my DMs, several billionaires, several of the biggest firms, you know, just

23:26wanted to talk more about this with me. Um, and then I had a bunch of people being like, "Keep this quiet." Um, but then I had a ton of quote retweets, plenty of smart people telling me why this won't work. um some of them have a point um or there's like a reason why I like I understand where they're coming from. Um so I wanted to do a lightning round of some of the common complaints about doing AI rollup. Um so the first thing that you know I I saw a lot of is rollups always fail. This is private equity with an AI sticker on it. A lot

24:04of people saying this is just private equity. This is private equity. Um, and a lot of a lot of private equity fails. So, yes, a lot of roll-ups do fail. Um, but they almost always fail for the same reasons, like they overpay or they buy faster than they can integrate. Uh, or the culture falls apart. And yes, AI doesn't fix any of that, you know, on its own. Um, that's actually why like the oneperson version or the small team version, you buy slowly. You're the first one doing the integration and you price the business on what it makes today instead of paying the seller for

24:40the AI upside you're planning to create. So, you know, I think I understand where this is coming from, but like that's it's like saying don't do startups because most startups fail. Uh the second thing that I heard a lot of is once everyone uses AI the margins are going to get compete uh competed away. Um yeah eventually probably yes but there's a window between when your costs drop and when prices in your industry catch up. And in a lot of these industries that windows is actually years long. It's not like a month. Um, and the stuff that keeps clients around, like 20 years of relationships and your

25:19own list of rules, uh, for how the work gets done, like it's it's actually harder than people think to copy. The third thing I heard a lot of was these are regulated and high stakes businesses. You need human beings checking everything. There's no savings. Um, yeah, you need human beings check, you know, in some industries, you need human beings checking everything. Um, but checking a draft takes a lot less time than making it from scratch. And remember, we're talking about Larsson Gross's 31% uh 31% margin. Um, well, that's where that came from. the people are still there, but what they spend their day on is different. And now

26:08they have just like a whole lot more leverage. It's basically like you're adding leverage, not in like the financial leverage sense. Like in the productivity sense of the word, they're just way more leverage to do stuff. Fourth thing that people uh were saying was people hate change, the staff and the clients are going to leave. Um I take this the most seriously. um some will. Uh and that's why the first 30 days change nothing the clients can see, why the agents run in the background before they touch anything real, and why the person who knows every client becomes a GM with a real piece of upside. So, you want to really

26:46incentivize your senior leadership. Um I think that's really important. Um I I'll do one last one. uh a bunch of replies saying it's like a f this is a fancy way of saying layoffs and I get why people feel that way. It's a fair question to ask. Um but what the early examples show is people are shifting from doing the work to checking it and each person is handling more clients than before. So we talked about

27:13that with the interns at Larsson Gross. Um I'd be lying if I said no jobs are going to change. A lot of them will. Um and then the question becomes like okay can you know if you've now evolved your role you know some people are going to be good in that new role some people are going to be satis just satisfactory and some people are just not going to be meeting expectations those people are going to probably get laid off we haven't seen a lot of that yet um but I expect it will happen yes so overall like the TLDDR on some of the repl replies I got there there are real risks

27:49with with this type of business and business model. Um, but none of them changed my mind about the size of the opportunity. Um, and none of it changes my mind about how you approach the opportunity. Um, so that's kind of how I see this $5 trillion AI rollup opportunity. I, you know, I think it's a huge huge deal. Um, it's happening. Um the early stories are remarkable. Um and I do think that like I said there's the those businesses there's tons of businesses that are too small for these big funds. Um I think this idea of a one person hold or small hold co is really interesting. Few good

28:35businesses a great GM running each a shared layer of agents and rules underneath that gets better every week. If people want to hear more about this these types of businesses hold codes I call it um multipreneurship this idea of you know you have entrepreneurship is obviously you're starting businesses and multipreneurship is when you own multiple businesses um I think it's a huge opportunity I think you can cash flow it um and I hope the this episode got the creative juices flowing like I said in the intro um I can expand on this Uh, and I can put it in a pin comment. Um, I can put out the folder

29:16structure, the agent files, any prompts in there. If that hits 5,000 likes, comments, and subscribes, I'll hit I'll put in the pin comment. And if you start one of these businesses, tell me cuz I generally love to hear about it. I love doing these videos and I love putting out the alpha. Um, and although I might get some haters for it, um, for me it's worth it because I think if it changes the lives of a few, it's absolutely

29:42worth it. Um, this has been really fun. Um, and I'll see you in the next one. Take care.