The Dangerous Fad of "Buying a Business"

The Hey Everyone!

Hope you are having a wonderful Wednesday.

For this little newsletter I wanted to dive into one of the biggest fads that I am just waiting to go wrong for a lot of people… (sorry I admit I am a bit of a hater sometimes)

That fad is:

BUYING BUSINESSES

We dove into it on the Collecting Keys Podcast this week (You should seriously check it out) but since I know not all of you listen I wanted to post my thoughts on this topic here as well.

If you’ve been in the social media/business content sphere even the tiniest bit, you have no doubt seen the rise of this GURANTEED TO MAKE YOU RICH scheme.

Between the rise of Cody Sanchez, Alex Hormozi, and now all the look alike influencers/coaches now popping up, Small Businesses are officially the hottest investment everyone is pursuing.

Now let me first say, Small Business and Business Acquisition in general has extreme upside cash and wealth potential compared to any other asset class.

Its no secret that Real Estate creates millionaires, and Business creates billionaires.

When you look at the basic numbers and potential, its no wonder everyone is abandoning Real Estate, Crypto, and Securities and looking to by their local plumbing business.

The dilemma I have is not with the Asset, its with how its being presented and the individuals recklessly jumping into the space.

Its quite similar to Crypto/NFTs in 2020 and then Real Estate in 2021. You suddenly have people with ZERO applicable experience fancying themselves an expert and putting it all on the line to “Strike it big.”

“It'll be easy!” they say. “I’ll just buy with an SBA loan or seller finance, promote a senior employee to ‘Operator’ who will run the business, and head out on my retirement at the ripe young age of 26.”

But of course, everyone with an inkling of common sense knows this isn’t how it works.

At least with Crypto and Real Estate if you get burned, you’re really just burning yourself (or maybe that private lender you conned into getting a HELOC to fund your down payment).

With Small Businesses, youre taking down a heck of alot more well beyond yourself.

If they fail, that $80k/year office employee who crashed out of their internship at Deloitte and had to settle for a job they hate so they decided to buy a $4m HVAC business is taking down:

• FAMILIES of their team members.

• Legacy of the mom and pop operator they bought the company from.

• downside risk that FAR exceeds just a simple investment property mortgage.

This exists because we don’t have the LOSER stories yet.

It’s fresh, and businesses die kinda slow, so we don’t have the stories of people who have gotten WRECKED and completely failed yet.

As a result, everyone jumping into the space thinks they’re ahead of the curve and the smartest thing to take over a Power Washing company since…. some famous power washing guru or something.

Ultimately my thing here is….

Don’t be idiots people.

Also don’t be greedy.

Use some freaking common sense and understand that NOTHING that’s worth pursuing is easy.

ESPECIALLY if someone on the internet makes it sound simple.

This includes me 🙂 

Don’t fear Small Business Acquisitions, but make sure youre actually the right person for it.

Do you have management experience?

Are you down to work 80 hours per week on all the stuff everyone else doesnt want to do?

Do you have a high risk tolerence?

If any of the above is a NO, then Small Business Acquisition probably isnt for you 🙂 

Thoughts? Let me know on instagram or by replying here.

-Mike