When High Demand Is Bad

If you are a parent you have likely experienced a situation where your child wants a toy that is very hard to get.  The level of difficulty can range from a pain in the neck to an outright toy craze where buying plutonium on the black market would be easier than getting what you need.  This is not a new thing.

Back in 1982, toy company Coleco introduced the Cabbage Patch Kids.  The dolls were so popular that riots broke out at malls around the country.  Over 2.5 million units were sold in the first year. 

Coleco road the demand wave as long as possible, but when it began to fade they tried some weird spin-off versions that ended with a snack time version whose animatronic jaw would munch on children’s hair instead of fake carrots.  

This isn’t to say that the demand has disappeared.  There is a vintage Cabbage Patch Doll on eBay right now for 30k.  Great if you have one.  Not so great if your kid wants to go retro.  As you can see, high demand is not always a good thing.

Why You Should Avoid Shiny Objects When Acquiring A Business

There is nothing hotter in the business space right now than Artificial Intelligence (AI).  Everywhere you turn online there is a story talking about how a company is leveraging the tech to make some service, offer, product, or experience the best thing since sliced bread.  Much like earlier tech bubbles, some of these companies are being bought and sold for absurd prices.  

Although it may seem like a good idea to get in on the wave, watch out.  Unless you have a lot of capital to work with you will get crushed by the big boys.  There is also the start-up risk problem given the tech is so new (90% of new businesses fail within 5 years).  Just because demand is sky-high does not mean something is a good fit for your portfolio.  A better approach is to look for low-demand businesses where there is a lot of upside for growth.

Low Demand Companies And Cheap Efficiencies

My main strategy for looking for deals is to look for low-demand businesses with high value.  To a lot of people, this may sound too good to be true.  It’s not.  There are a ton of business owners retiring right now with profitable businesses that have to close their doors because they can’t find buyers.  This means that there is literally ZERO demand for their business.  These types of situations can be discovered with a little work.  

When you find a few deals like this you then look for which ones have the biggest potential for growth.  I use a very simple framework when evaluating businesses.  Basically, I look at what the current owner doesn’t know or isn’t doing, that is limiting the business’s current growth profile.  I can figure this out by looking at the numbers.

Acquisition Aces Maxim:  Look for cheap efficiencies that you can improve for big results.

This framework is very helpful to sort out the different opportunities when you find them.  You always want to be able to move from hoping something will work, to feeling confident you can make the right moves to increase cash flow once you acquire the business.

Not Enough Buyers For Boring Businesses

I look at dozens of deals a week that don’t have enough buyers.  You might be surprised to learn that this is pretty common in certain industries.  Why?  These industries have low demand because they are not the newest shiny thing.  They are either really boring (ATM routes or there is a misperception of what it takes to get into one, i.e. thinking you need to be an accountant to buy an accounting firm (nope).  

Remember, when the demand for a business is low, it means that you can recoup your initial investment much faster.  Once this happens, all bottom line revenue starts to be profit that you can either put in the bank, invest into other assets, or start looking for another business to acquire for the portfolio.  Low multipliers for business acquisition can be your best friend.

I put together a video where I talk about 4 businesses that fit the description of low demand but high value (Accounting, ATM Route, Remediation, and Pool Cleaning).  It is just under 7 minutes and it could change your life: 

There is an old adage that you can look good or do good but you can’t do both.  I don’t necessarily agree with this all the time but it is definitely true for boring businesses.  If you are ok with not owning the newest shiniest thing but building a portfolio that can generate cash flow for you and your family, it is time to start looking at “less desirable” opportunities.

 As always, if you want to compress time frames and have me coach you on every part of the process (including my research methods), book a time to chat with me here: Calendar 

Have a great rest of your week!

Ben, I Want to learn more…

If you feel that you are constantly working "in" the business instead of "on" the business and feel that your goal of financial freedom has led you to a prison of your own design.

You are not alone, I used to be there as well.

I have 5 companies and counting and work less than 20 hours a week on them - COMBINED.

It is not rocket science and I can help you do the same for your business.

Choose a time on my Calendar and we will get to it.

Onward,

Ben

Forwarded this newsletter? Sign up here.

You can also find me on X (Formerly Twitter), Instagram, LinkedIn, and my YouTube channel.

If you enjoyed this week's issue make sure you are subscribed by clicking here (if you are already subscribed forward this issue to one person you think might benefit).