A couple of weeks ago, I was a day away from making what would have been a fairly large mistake.
I almost bought a small business.
The business itself was sound, and so was my investment analysis.
I spent many hours doing due diligence including six months of growth planning, hiring plans, and even some potential staffing interviews. As part of my due diligence, I revamped the marketing, website, landing pages, spoke with some potential customers, and—believe it or not—received a commitment from one of those customers to proceed with my offering when ready.
From a numbers perspective, everything made sense, and although the asking price was a bit high, I determined that I would be able to make a minimum of 300% IRR inside of 18-months.
Feeling good about the investment, I validated the business, determined the potential financial upside, figured out how to mitigate my downside, and was ready to go.
I made an offer to the seller. We negotiated back and forth, and we came to a verbal agreement.
I had the paperwork ready for signature.
And then, that night, I had trouble sleeping. Fortunately, it was the weekend, and I was able to hold off on the paperwork for a few days.
Something about the deal was still literally keeping me up at night.
I knew that not sleeping at night was a sign that something was wrong, so I started thinking about the investment.
There was nothing wrong with the business. Frankly, it was a perfect work-from-home opportunity with tremendous upside in the B2B space which I am very familiar with.
I had estimated getting back a 300% IRR, but in hindsight, the returns probably would have been closer to 1000%. And I’m not exaggerating.
There was nothing wrong with my research. So what was keeping me up at night?
I got spooked by the magnitude of work I was going to have to do myself over the next 6-months. Buying this business would mean that I would be back to managing a team of people, deliverables, and marketing. I would be dealing with customers and customer expectations, and once again living the life I had left behind a few years ago before I sold my last business.
A couple of years ago, during the summer of 2018, and after I closed on the sale of my last business, I found that I was missing the business challenge, and as a result, I made myself busy with too many initiatives.
I read the book The Seven Habits of Highly Effective People by Steven Covey. As a result of that book, I crafted a personal vision statement and reprioritized my life based on what was most important to me.
Before I decide to invest or make any other major changes to my life, I refer to those pieces of paper to make sure that:
- The investment decision falls within my financial framework
- The personal decision is in line with my life’s priorities
Buying this business fits my financial criteria. Buying this business did NOT fit my personal and life priorities.
My gut was telling me something was wrong. But the potential returns were so enticing that I had almost acted on a moment of weakness.
At first, I thought it was a simple yes or no—deal or no deal. Then I realized that just because I am not the right person to run the day to day, doesn’t mean I can’t be a part of the deal. I do know what needs to be done, and I would be willing to share that risk with a budding entrepreneur who feels they’re ready to tackle running their own business.
What that means is that I will buy the business and that you will run it. I will make you a large minority shareholder, and of course, share the financial reward accordingly. You don’t need to put any money into the business—I will front that 100%. What you need to invest is sweat equity.
My plan is to invest in the business and to help get things up and running, and then quickly pass the reins of the day-to-day management of the business to you. I hope to be out of the business within two weeks, and from that point forward, we will have a somewhat regular weekly, and then bi-monthly meeting cadence.
My investment thesis is to invest in these businesses and find outstanding entrepreneurs who have the skill and capability to run a business, but, lack the capital.
My plan is to start with one business, and as long as I keep finding exceptional entrepreneurs, I will continue to marry small business acquisitions with capable entrepreneurs. This idea is not that dissimilar from the venture studios concept, except in this case the business won’t be started from incubation.
If you’re interested, and you feel you have the entrepreneurial wherewithal, please connect with me through my contact us page.
Are You an Entrepreneur or Businessperson?
Something I’ve come to realize over the year is that there’s a big difference between an entrepreneur and a businessperson (business manager). Just because you’re good at one doesn’t necessarily mean that you’ll excel at the other.
There are many people who are excellent managers. They’re great at delegating, and even leading people. They would, however, probably make poor entrepreneurs.
So what’s the difference between an entrepreneur vs a businessperson?
An entrepreneur understands the subtle nuances of the entirety of the business across its entire spectrum, at a fairly intimate level, and isn’t afraid to get their hands dirty (either literally or figuratively).
Let me clarify what I mean.
An entrepreneur doesn’t sleep.
An entrepreneur starts and or runs a business not because they want to, it’s because they have to. It’s in their DNA.
An entrepreneur doesn’t handle dealing with authority well.
Entrepreneurship is a calling. It isn’t a career. It’s a passion.
An entrepreneur is restless, sometimes almost verging on ADD traits.
An entrepreneur can recite every relevant and perhaps not so relevant KPI. They likely put most of the KPIs in place.
An entrepreneur understands their business and everything about it. They know how to sell their product, engineer the solutions, design the marketing campaigns, and understand the business’s finances and cash flow position better than anyone else inside the business. And to that end, an entrepreneur needs to understand how to drive positive cash flow.
I want to reiterate the importance of marketing. It is an absolute 100% requirement that the entrepreneur understands marketing, how SEO and PPC work, how to drive leads, the cost per acquisition, branding, social media, and content marketing. It isn’t enough to delegate the marketing function to someone else. An entrepreneur needs to understand how marketing works, and then, and only then, is it acceptable to delegate this work. I’ve seen way too many businesses fail because the person at the top lacks the marketing muscle.
The first few points speak to an entrepreneur’s personality. The last speaks to the entrepreneur’s quest for knowledge as they strive to make their business and themselves better because good is never good enough. If it was good enough, it could always be better.
And the last two points address marketing and cash flow specifically. No marketing, no business. No cash flow, no business.
If the above sounds stressful, it is.
It’s stressful because you’re always worried about tomorrow. About cash flow. About your customers. About your staff. About driving that entrepreneurial culture through the organization.
You’re always thinking about what can be done better—again because good is never good enough.
And as a result, you don’t sleep.
Entrepreneurs Listen To, and Solicit Feedback:
Here’s one of the most important traits of any outstanding businessperson, and in the context of this article more specifically, entrepreneurship. Outstanding entrepreneurs listen to constructive feedback, and they’re not afraid to admit that they’re wrong or that they don’t have all of the answers. When you, as a businessperson or entrepreneur, ossify your way of thinking, you risk potential loss.
Outstanding entrepreneurs have a quest for knowledge, and a desire to learn, not only the what, but the how and how to. As I said above, they’re not afraid to get their hands dirty.
The Entrepreneur vs. Business Manager?
I’ve met some amazingly talented managers and leaders. They’re great at leading a business, leading their people, and providing direction. But, don’t conflate a superstar business leader with a superstar entrepreneur, and then, hopefully, a wealth creator.
If you’re reading this and think being an entrepreneur sounds exciting, and you’re just itching to forge your own destiny, but don’t have the funds to launch, then connect with me. I have an opportunity for a budding entrepreneur.
If you enjoyed this article, you might also enjoy: How to Become a Decamillionaire, Grow your Net Worth to $10 Million, and Join the 1% Club
You should also consider subscribing to my blog. I publish one article a week on small business and wealth creation. You can subscribe here.
Also, I published a book during the summer of 2018, “The Kickass Entrepreneur’s Guide to Investing, Three Simple Steps to Create Massive Wealth with Your Business’s Profits.” It was number 1 on Amazon in both the business and non-fiction sections. You can get a free copy here.