Great Businesses Aren't for Sale

I kicked up quite the dust storm a couple weeks ago when I posted about the harsh truth of buying businesses on X. 

Basically, I said that business owners do not sell great businesses. 

I think way too many personalities on social media make SMB buying seem like investing in stocks.

“Buy a company, hire a manager, and sit back to collect cash flow.”

Nope. This is a fairytale.

I’ve looked at thousands of businesses listed for sale and basically zero of them fell into the category of great businesses.

Here’s why: Owners don’t give up great businesses! 

And if they ever do, it’s at an eye-wateringly high acquisition price that they’re approached with (ie. they don’t have to list the business on BizBuySell to get that high acquisition offer).

Listed businesses are basically the scraps of the business world.

When looking at a business listed for sale, you should ask yourself:

• Why does the owner no longer want to run this business?

• Why is the owner not hiring a full-time GM and letting them run the business, while maintaining ownership?

• Why have none of their competitors offered to buy the business before it got listed?

• Why did every other insider and person with a business relationship to the owner pass on buying this before it got to me?

Plenty of people disagreed with me, either on part of my thesis or the entire thing.

Most notably, those in the brokerage community scoffed at the idea that all their listings suck.

And that’s a point of distinction I want to make here: I don’t think all listed businesses are bad opportunities. I just think that the opportunity of buying a business is much more difficult to execute than most believe. 

Said another way: There is no business on Earth that you can buy for 3x SDE, insert a manager on day one, and sit back and collect massive profits.

You can buy a decent business for 3x SDE, but just know that you’ll need to put in a lot of work to first understand the business, and then improve it. And you likely have a short window to do that before the chaos engulfs you, causing customers and employees to leave, with default on your SBA loan not far behind.

You’re either going to have to get your hands dirty in the business to improve it, or you’ll have to accept below-expected returns while the manager you hire figures out how to run the business.

If someone is selling their business to you for 3x SDE, it’s not some automated business that will print money and grow 50% a year without much effort on your part.

Embrace Chaos

These SMBs everyone on Twitter talks about buying have a hidden characteristic – they operate in a state of constant chaos.

Imagine a small company, understaffed and reliant on a single, crucial supplier. Their customers could easily find a competitor with a better deal.

This is a "chaos company," one storm away from disaster. Yet, these are the very businesses that often get financed with SBA loans.

The opportunity is not in buying the company; the opportunity is for skilled operators to buy the business and operate it on a higher level than the previous owner.

So I’m not saying that you can’t make money buying businesses!

You can make an okay return by buying a business and operating it the way the previous owner did - or you can make a great return by buying companies and operating them better than the previous owner.

No matter what, you’re buying a small business with a lot of chaos. If your skill is making order of that chaos, then you can make a killing. It just won’t be easy or quick! And it certainly won’t be like buying shares of stock in your brokerage account and waiting for the dividend checks to roll in.

-Keep Building!