In the time I have been working as a business consultant, this is one of the most frequent questions I get. Other variations of this question are:
- What’s the most profitable business right now?
- What can you tell me about [fill in the blank] business? The most common businesses I get asked about are gas stations, laundromats, bakeries, restaurants, or cafeterias.
None of these questions have a direct resolution, which makes the question hard to answer. It is very true that some businesses fall in the extremes, especially in an economy as large as the American one. Some businesses are on the decline while others are amidst accelerated growth. While these might be attractive, the dynamic nature of the American economy will sooner than later level them with the rest of the economy, making such accelerated growth rather short term. Given that you might be seeking more of a long-term investment, you have to cast a wider net.
The most important factor that people seek when buying a business is its profitability. When you’re buying Microsoft stocks in the exchange, you can do little to nothing to impact the return-on-investment of these stocks. Nevertheless, when it comes to owning a small business, much of the profit is tied to the skill or competence of the owner/manager. Consequently, you need to keep in mind both how profitable a business can be, and your capacity of impacting such profits. Hence, the chemistry between the owner and business is of utmost importance.
To evaluate this “chemistry”, we must evaluate some core aspects of any given business:
The Activity: it is good to have some knowledge about the type of business we are getting into. To manage a restaurant without being familiar with how to handle a large kitchen or not having a certain disposition to deal with the public will make owning such restaurant very challenging. We need to look for businesses with daily activities that will both draw us in and we have the basic skills for.
The impact over our personal life: preferably, the type of business we’re looking into with our daily life. For example, while bars are usually profitable, if you’re unwilling or unable to live a nocturnal lifestyle, the business might suffer greatly, losing profitability. To ensure an appropriate choice of business, we need to know how a business can impact our lives but also how much we are willing to concede to certain lifestyles.
The clientele: we need to know beforehand what type of clientele we are interested in serving; a person that has little patience for children will likely struggle to manage a kindergarten. In addition, parents will feel uncomfortable leaving their kids with a “grumpy old man”. It is of utmost importance to determine quickly if you are in a position to interact comfortably with certain types of customers and if you are able to establish a connection with such clientele.
The employees: we can obtain better results and a higher level of commitment from your personnel if you’re able to connect with them easily. If you have a managerial style that resembles that of a sergeant, you might struggle to have employees that are creative types. On the other hand, having a managerial style that’s very laissez-faire will not be compatible with a construction crew.
To succeed, we need to ensure we are doing things well, something that is easier to do when we enjoy what we are doing. To ensure this as much as possible, we need to make sure we feel comfortable with aforementioned points, such as the type of activities, the type of clientele we are going to be serving every day, and our employees.
To summarize, the most common answer I give is: you need to thoroughly evaluate your options (Due Diligence) and ensure that you have a healthy, profitable business that is within your level of investment, meets your expectation of revenues, lifestyle, management style, and most importantly, that your skills coincide as much as possible with what moves the business forward, prepare a good business plan and prepare for great things. It’s not a short answer but if you’re able to identify a business that meets these criteria, you’re more able to turn it into an amazing business. If you spend your time looking for a business that’s already great, one of two things might occur: a) that you never find it, or b) that you do find it but it will be in a price range outside your reach. Buy a good business that is compatible with you and you can turn it into a profitable business.