what does your business really do?

When people ask me what I do, I typically respond with I am an entrepreneur, but that is a vague response that is similar to self-employed and dangerously close to unemployed in some people’s minds. Being an entrepreneur is a broad profession – it would be much easier to say accountant or lawyer, so most entrepreneurs identify directly with the business they are growing and state that they own [insert business name here]. So I have an identity crisis since I don’t identify with the business I currently own, but more with the process of discovering and growing businesses.

I have experimented with an expanded version of what I do – buy, build and sell small businesses. I could shorten that to buy and sell small businesses, but that really removes the important part of building or growing the business and it also makes it sound like I “flip” businesses.

While some entrepreneurs love the process of creating a new business, product or service. I love the process of growing a business that has lost its way in the market and needs a jumpstart. Starting a business takes so much energy in the beginning to get it off the ground and many business owners run out of steam after a few years. Just when the business starts hitting it’s stride with consistent income and customer relationships, the founder/owner is ready to throw in the towel. They used all their energy in the start up phase and are exhausted, it is like running at a full sprint for the first hour of a marathon and then not being able to finish the race.

What I find most intriguing at this point is the perspective of the founder. In every business I have purchased, the founder thinks the reason he started the business is still the most important part of the business. The founder is convinced that he knows why his customers buy from him and who his target market is. In my experience, the founder is never right. While they were working hard getting this business started, they failed to realize that the business took on its own identity … it became the business that the market wanted, but their ego is still attached to why they started the business or what they believe.

Here is an example, when I bought a ten year old business, Music Library Service Company, the founder told me the most important reason librarians purchased from his company was price. While training to take over the business, he made it clear to me that I should not raise prices. He explained which competitors to price check and make sure that I stayed under those, otherwise I would fail. Shortly after purchasing the business, I surveyed the customers and had them rank the factors important in their buying decision. A variety of services ranked very important, but price ranked very low. The founder never noticed that the commodity business he started had become a service business with a very loyal customer base who didn’t price shop.

When I bought Home Health Testing, which was listed as a website that sells home medical tests and the owner said that one of the greatest challenges of the business was educating the public that these home medical tests existed. In the offering memorandum, the owner described the demographics of his clients as:

Most customers are well educated and have recognized the need to actively participate in the management of their own health care.

However, when you delved into the numbers more than half of the gross margins were from drug tests, not from health tests. The drug test market did not need any education and was a much larger market than the home medical test. After I saw this in the numbers, I asked the owner the demographics of the drug test buying customer and he said it was parents testing teenagers. Wrong again, most of the people buying drug tests were known drug users wanting to test themselves before being tested at work, probation, etc.

When I buy a business, I feel like an archaeologist trying to expose the real business that is hiding under all the owner’s assumptions. I listen to everything the owner says and write almost all of it down, but I rarely believe any of it. Then I set out to find out what the business has to say by digging thru the history, the numbers and talking to customers. After listening to the business and the entity it has become, I then form my own assumptions and create a growth plan based on the strengths of the business and the market opportunities that exist for this hidden business.

When someone sells the business they started they take with them all their ideas about the business; what they leave behind is what the business became in spite of them. I enter with a vision of what the business actually is and the energy to make some radical changes and then the fun begins. When I buy an established small business, my goal is to triple profits in two years. (Not gross sales, but net profits)

Why would I sell after that type of performance? The main reason is that I love working in a small business, one that is quick, agile and flexible. I like working in small groups, I am not a large organization person and typically do not play well with others. So once I have grown a business to the size that now needs more employees and a layer of management then I am no longer comfortable. And if anyone asks me “where is the employee handbook” then I can guarantee you the business is on the market.

Also, I have the same entrenched assumptions that I used to grow the business and sometimes I just need to get out of the way so that now this new business can reach its potential in a larger organization.

My favorite part of the process is the discovery of the real business inside the business for sale and unlocking that potential.

I saw the angel in the marble and carved until I set him free. Michelangelo

2 thoughts on “what does your business really do?

  1. I remember when ten years ago, if someone asked what you did, it was acceptable to reply with “entreprenuer” without it conjuring images in the other person’s mind of you being unemployed or a secret drug dealer 🙂

    Refreshing to read something orignal in this space and I look forward to seeing more.

    Justin

  2. Thanks Justin. I think that ‘flipping’ gets a bad rap too, that we don’t add value to the asset in between the buy and sell.