There are many techniques you can use to originate deals – leveraging your network, social media, direct approaches, contacting business brokers, attending events, corporate carve-outs…
And so on.
But no matter what deal origination technique you use, there are FIVE rules you must sear into your brain to make it successful:
Now let’s discuss what they are and why they are important.
Rule #1: Deal origination is a numbers game
It’s very rare you can pick one random deal and take it all the way through closing, especially without using any of your own money. ANY business is for sale – it’s just a question of price.
Remember the Perfect Deal Triad? Your deals need to tick all three boxes:
As a rule, you need several deals in your funnel to increase your odds of success – at least 10, ideally more.
Rule #2: Deal origination is 90% psychology
I can’t stress enough the importance of seller psychology and the associated motivation for an owner to exit their business.
Imagine two businesses. They are identical. Same financial performance, same products, customers, everything.
The only difference is the owner and, more specifically, how they feel.
The seller on the left loves being in the business. He may want a 5X multiple of profit to sell and most of the cash at closing. That’s not our typical seller.
We want the guy on the right. He’s burned out, really wants to leave, would probably sell for as little as 2X profit and doesn’t want all of the money at closing. He’s our guy.
Rule # 3: Deal origination is a machine, an ongoing process
Deal origination is NOT a one-off process. You have to create a deal origination machine. If you do it once and then stop, you will not have any more deals coming into your funnel.
It takes time to build a network and originate deals. Invest that time at the start and keep the meters running – you’ll find deals will be served up to you nonstop.
And once you buy your first business, follow-on deals can be bolt-on acquisitions to rapidly grow your empire.
Rookie dealmakers only do deal origination for a week and then focus on those deals and let deal origination dry up. If you exhaust all of your initial leads, you will have nothing to back up your ongoing activity.
So once you start deal origination, don’t stop! Invest just a few hours a week to keep the deal flow gushing.
Rule #4: Deal origination starts with your mindset
Mindset is critical to dealmaking. Why? Because without a clear purpose you will not have the fuel to follow through when the going gets tough.
Nothing valuable in life is easy all of the time. Sometimes we have to dig in and push through to get the outcomes we want.
Dealmaking is no different.
All you need is a purpose. You need to define your WHY.
Because let’s face it. You don’t want to buy a business.
You don’t even want to own a business.
What you REALLY want are the benefits of business ownership – cash flow, wealth creation, security, freedom, work-life balance, pride…
Or something else.
If you are trapped in your job, overworked, underpaid, don’t get enough quality time with your family and dread the potential of the future, buying a business will solve all of that.
Rule #5: Deal origination is about relationships
Recently, I was asked on a podcast what are the THREE skills to master in dealmaking?
Small businesses are sold between individuals. And the access to those deals is also via individuals.
You need to build relationships with multiple people… sellers, deal intermediaries like CPAs and lawyers, financiers, business brokers, wealth managers, etc.
When building those relationships, you need to establish KLT – get them to KNOW, LIKE and TRUST you.
You need to position yourself as someone who is credible, likeable and trustworthy. A safe pair of hands.
If you follow all five of these deal origination rules, I know you will make an absolute killing.
Speak to you again on Wednesday.
Until then, bye for now.
Editor and co-founder, Dealmaker Wealth Society
P.S. Need help setting up your deal origination funnel? My Dealmaker Launchpad training program will show you the best way to get your funnel up and running for a torrent of high-quality, off-market deal flow. Learn more here.