“What type of business should I buy?”
I’m asked this fundamental question at least once every single day.
My standard response is, “Stay in your lane.”
Buy a business in a sector that you know something about, have a passion for and will complement your skills and experience.
But I recently discovered a Japanese model for adding a lot more art and science into this conversation…
It’s called IKIGAI.
The literal translation is “reason for being.”
The origin of the word dates back to the Heian period (A.D. 794–1185) so it’s been around for a very long time.
Let’s see how we can use this to nail the perfect business to buy…
Ikigai lies at the center of four overlapping circles:
The intersection of what you LOVE and what the world NEEDS is your MISSION.
The intersection of what you LOVE and what you’re GOOD AT is your PASSION.
The intersection of what you’re GOOD AT and can be PAID FOR is your PROFESSION. (Probably what you are doing right now.)
And the intersection of what the WORLD NEEDS and what you can be PAID FOR is your VOCATION.
IKIGAI — your reason for being — is at the center. It hits all four marks.
The business that you buy and then own needs to represent your IKIGAI.
That will give you the proper leverage — the inner hunger and passion — to not only close the deal but to grow it, optimize it and eventually sell it for a big payday.
Let’s look at this more closely…
What sectors have you worked in — or understand in enough detail — to be able to build relationships with sellers and financiers?
What skills and experiences do you have that can move the needle in the business you buy?
For example, if you’re a marketing master, it will help you massively grow the business. Specializing in systems, operations and processes will enable you to optimize the business. Having worked in finance roles gives you the ability to manage working capital to explode growth.
It’s crucial you know what your superpower (or superpowers) is and apply it to your business buying journey.
One of the major drivers of doing deals is to generate free cash flow in the short term and massive wealth in the long term.
It’s therefore important to understand the three ways to make money from deals:
Any business you’re looking to buy should have a USP — unique selling proposition — that’s related to value rather than price. Ideally, customers should need the product or service offerings and be happy to pay for them.
Stay away from commodities and businesses that compete on cost. Chinese producers and Amazon will eventually eat your lunch.
I have lost count of the number of businesses I’ve seen launch because the owner thought the product or service was cool but didn’t understand why a customer would buy it.
Though more important in a startup, it’s true for established businesses as well.
A lot of businesses never scale beyond $500K to $1 million a year in revenues. They barely scratch the surface in their markets and don’t have repeat customers because the products or services offered aren’t compelling enough.
This is critical for two reasons…
First, it gives you the rocket fuel to follow through. Take exercise as an example. I’m super passionate about cycling. I’m out on my bike most days. You can’t stop me. Rain, wind. I don’t care. I’m out there because I LOVE it.
But the gym? I hate the gym. I go to build strength and, these days, to get my second 75 HARD workout in. But I really don’t like it.
One conundrum about passion is how it links to your industry experience and skills.
You may have serious chops in one sector but not have the passion. You may be super passionate about another industry but don’t have the skills and experiences to own a business in it.
Assume you are a crack web designer but the industry’s really beaten you down. The thought of coding another line of a website makes you vomit.
You can still buy a web design business: Just don’t do the technical work. Remember, as an owner-investor, you should work ON the business not IN the business.
If that still makes you squirm and you are super passionate about, say, wine and want to own a vineyard, that’s when you find a partner — someone who knows that industry inside out. (More on this Friday…)
You drive the deal, the vision and strategy. They run the day-to-day operations. You split the ownership.
So that’s IKIGAI — the Japanese method for picking a niche (not to mention a long and happy life!)
Hit all four marks.
Until next time, bye for now.
Editor and co-founder, Dealmaker Wealth Society
P.S. How many of you are currently passionate about buying a business in an industry you have little experience in? Email [email protected] and share your story.