Joseph Drups, founder of Drups Ventures, buys businesses to incubate high-return, passive income portfolios.
At age 65, after four decades of grinding away, you finally reach that golden milestone—retirement. Time to start living, right? Except according to life expectancy data, you’ve just traded your prime years for about 13 years of “freedom”—and those aren’t exactly your most vibrant ones.
What if this equation is broken? What if the conventional wisdom of “work hard now, live later” isn’t just outdated—it’s backwards?
Some professionals and investors are rejecting this trade-off entirely. They’re following what I call the Fast FI (financial independence) strategy: combining high savings rates with high return investing to fast track their retirement.
The Hidden Trap In Traditional Retirement
Before we dive into how Fast FI works, let’s first mention what makes traditional retirement particularly insidious: While we think we’re being responsible by following the conventional retirement playbook, we’re actually falling into a trap.
Health issues often begin accelerating after age 65. Mobility problems, chronic conditions and cognitive decline can become serious concerns. Yet this is exactly when traditional retirement planning tells us to start “living.”
Fast FI
Fast FI is a strategy that combines cost cutting with aggressive private market investing—such as small-business investing—for high returns to accelerate the path to retirement.
In my experience purchasing and structuring over 13 small-business acquisitions, small businesses oftentimes sell from 2.5 to 3.5 times earnings. I’ve found a 33% return is possible, though it’s important to note that returns will vary. Scan any business marketplace to see what current market rates are. Through financing the purchase and splitting the risk between investors and the operator, I’ve learned you can gain high returns while mitigating many of the risks.
For an example of Fast FI, let’s consider an exceptional earner. A software sales manager earns $120,000 annually, with a 5% to 10% annual raise over five years. While his colleagues upgrade to luxury cars and expensive homes, he maintains a comfortable but moderate lifestyle, capping annual expenses at $60,000. By avoiding the lifestyle inflation trap that ensnares many high earners, he’s able to save an impressive 56% of his income—about $67,000 annually. He then invests his extra income into high return small-business investing, compressing his retirement timeline.
A main principle of Fast FI is to expand the gap between income and expenses to gain money to invest. This isn’t about day-trading or risky startups. Each business in a portfolio should be an established operation with proven cash flows and existing customers. The power lies in the combination of high savings paired with high return cash-flowing business investments.
Considerations For Working With Investing Clubs
With small-business investing, a lone wolf may get bogged down in a single acquisition and have to trade their time for money. Perhaps, if they’re willing to hustle, they can work one acquisition a year and form a roll up as I did when I was starting out.
However, this is difficult and takes a lot of business expertise. One alternative option is to form a founding team and incubate new acquisitions within an investing club. This is the method I’ve developed within my business, and other organizations use this strategy as well.
An investing club concept allows for a group of people to operate in their particular strengths. Investors can put money in, operators can run individual businesses, and dealmakers can structure projects.
This allows for flexibility in determining roles. An investor can be fully passive, serve on a board for some extra cash flow or participate in a fractional executive role. The operator has the support of the team and the accountability of partners to perform. The dealmaker can structure deal after deal and focus in their area of expertise while continually providing new opportunities for the partners.
Some of challenges of working with an investment club include finding the right people and getting aligned. High return investing requires specialized knowledge. Avoid groups that offer generic information you could get from any investment advisor.
Specialization and customization can also present a challenge. I suggest to look for groups that have specialized members and leaders who can open a window into unique, high-return customized solutions.
Getting Started
1. Bootstrap expenses: If partnering with a dealmaker, look for someone who has expertise and can minimize expenses. I’ve seen deals cost $100,000-plus or $10,000 for similar acquisitions. To buy down expenses, the team should be able to review businesses and perform due diligence, and the dealmaker should have templated acquisition legal documents.
2. Establishing a team: Establish a core team with investor(s), an operator and a dealmaker.
3. Creating a thesis: Agree on your investment thesis and your grading parameters up front.
4. Due diligence: Minimize investment in due diligence until you have the company on contract, then establish a no-loss due diligence period.
5. Team experience: Team experience for everyone except the investor is important. Operators are key to the long-term success and dealmakers make or break the acquisition.
Managing The Risks
You buy down risk with specialized knowledge. By choosing your team well, and selecting a good investment target, you can reduce risk in small-business investing.
Beyond that, prepare a parachute plan up front. By that I mean, understand what the point of failure is and establish an emergency plan and how the project can be unwound while minimizing the risks of financial loss even with a failure. Oftentimes, within a bankruptcy there’s the option to negotiate debt or asset liquidations to minimize the losses. By preparing ahead of time, an operator’s assets can be protected from a personal guarantee, and the dealmakers should understand how to set up investors to mitigate risks in the deal from the start.
With the right strategy combining disciplined savings and business investing, I’ve found it’s possible to compress decades of wealth building into years. The path to freedom could be shorter than you think.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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