An entrepreneur is someone who is an expert at business. More specifically, buying, building, and selling businesses. An entrepreneur is not the same as a capitalist. A capitalist creates wealth out of nothing. A capitalist creates capital with just an idea or knowledge. That idea could be a book, a talent, a business, real estate, a security or almost anything that can be converted into capital. An entrepreneur, however, by definition (at least by my definition) deals entirely with businesses. He or she is a master at them…
At this point I’m not a capitalist, however I’m an entrepreneur (successful hasn’t been proven yet, though).
It amazes me at how many business opportunities have come my way since I decided to become an entrepreneur. At least every week someone approaches me to help them with a business, to buy a business they are selling, or to a buy a business they know is for sale. Some are not good ideas… Others are… Keep in mind, out of 50 businesses you evaluate, 1 will be good – so you better always be evaluating.
So what does it take to convince people you are the entrepreneuring genius that they should be talking to before ever considering a great (or not so great) business idea? Actually it’s pretty simple. You just have to convince everyone around you that you know more about business than they do. Here’s the quick process for doing that:
- Tell everyone your expertise is business. Not the product or service of a business – just the business – any business.
- Be an expert at business.
- Let people know you’re always looking for new business opportunities.
- Learn how to evaluate business’ quickly and ask the right questions as soon as you’re presented with an idea.
The first 3 are pretty direct and/or have been addressed before so we’ll skip past those.
Number 4 is so important because it immediately affirms what you’ve told people – that you’re an expert. Experts know the right questions to ask because they know what answers they need to hear. In other words, a great entrepreneur knows what that “perfect” business opportunity looks like. Make sense? Ok, so what are a few questions I ask as soon as I learn of a business? My questions focus on a few basic categories and vary by business type. For instance some of these things will vary depending on whether it’s a service business or a product based business. Generally I would prefer a product based business because it’s a lot simpler. Service based businesses genrally require people with specialized skills. Now if finding people with those specialized skills is easy then a service business could be a great investment.
- Growth Potential
- Profit Potential
- Worst-case scenario
- Up-front Cost
Growth Potential – In essence we’re determining current market and wallet share compared with total
- How many customers do you have?
- Are they all in a database?
- What are you doing to cross-sell, up-sell, and add-on to existing sales? (remember it’s always cheaper to have a current customer buy from you again than to have a stranger buy from you the first time)
- What’s the population in this area?
- Why do people do business with you?
- What kind of marketing are you currently doing?
- How are your salespeople trained?
- What products do you sell?
- Have you tried to sell X (similar or complementary) product to your customers?
Profit Potential – trying to figure out where to cut the fat while growing the business. More sales does not guarantee more money in your pocket.
- What are your profit margins? (Gross and Net)
- What is your total take home? (i.e. company cars, travel, meals, etc.)
- How have you negotiated prices with your suppliers?
- How do you manage the office, inventory, payables, receivables, service, etc.? (in essence i’m looking for inefficiencies that can be replaced with technology and automation to save time and money)
Worst Case Scenario – Ideally the business is currently existing in a worst-case scenario and still surviving which presents you with the maximum upside potential. Also, I need to know if I could possibly make it any worse.
- Do you have any competitors? Who? (monopolies are always nice)
- Why do people choose to do business with you instead of them?
- What are your daily goals for each employee?
- Do your employees know at the end of the day if they had a good day?
- Is anyone paid an incentive such as commissions, bonuses, etc.?
- How often do you perform employee evaluations? (the employee questions help me determine overall business efficiency by guaging employee effectiveness)
- What do the owners do for the business?
- Are the employees happy and effective? Do they plan to stay?
Complexity – Since I don’t want to be personally involved in the product or delivery of service for a business, how hard would it be to teach someone new? Additionally, is the business too complex to manage remotely? Most of this is common sense. You can look at most businesses and determine if they’re simple or complex.
- How long has each person been working here?
- How long does it take to train a person for x positon?
- How do you find new people for x position?
- Do you do any work or sales online?
- Do you have any business management computer systems in place? (not just accounting software, but software that will allow me to get a snapshot of the whole business across the globe)
Up-Front Cost – This is basically supposed to tell me 2 things: How much money do I need out of pocket and how much can I pay for the business versus what I can sell it for?
- Are you willing to vendor finance?
- Are you willing to sell or lease the property that houses the business? (if selling I can always get a bank loan for real estate to provide instant cash to the seller making a vendor finance more attractive on the balance)
- Why are you selling?
- What’s your time-frame?
- How long have you been selling? (This tells me if I’ll be able to quickly resell)
- Have you ever had your business professionally valued? (tells me if they understand business valuation or I can “educate” them on the true value of their business)
- How did you determine your asking price? (give me more insight into their business valuation knowledge)
Obviously there are more questions you ask when evaluating a business. When I’m actually sitting down with a business owner who’s selling their business I might spend 2-3 hours asking questions. At this point in my entrepreneurial career I do that partially to learn of the business opportunity and partially to see if that owner knows something I don’t.
As a warning, you never talk about the asking price or negotiate down from that price without ensuring that the business owner likes you, trusts you, and knows you can make their baby succeed. We’ll get more into negotiating the best price for your business in another blog.
Notice that I highlighted the top 2 questions in each category. If you want a super-quick way to evaluate a business in just a few minutes, ask those questions and make sure you know the “perfect” answer ahead of time. When you start asking those questions off the top of your head when someone mentions a business idea, I guarantee they will respect your knowledge and start viewing you as the business expert you claim to be. Once everyone knows you’re a business expert the opportunities just start flowing your way.
To your success, Bryan