Characteristics vs Industry
Big Deal Small Business: Characteristics vs Industry
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A common discussion among searchers is what industry they are targeting. There’s plenty of online discourse about the benefits of HVAC, landscaping, and other home services businesses. This results in a larger group of searchers focused on these sectors where there is proof of success.
However, I think the real opportunity is to isolate key business characteristics in successful SMB acquisitions. Take those learnings and then find them in other, less popular industries.
For example, Chase Murdock went on Think Like an Owner recently and talked about managing high-end, luxury businesses. He talked about looking at pricing as the gas pedal and NPS scores as the clutch of his business.
In these businesses, pricing detaches from the cost of service, but instead attaches to NPS. This is a distinct business model from a distributor charging cost-plus and pushing volume, for example.
Chase was talking about his custom suit business, but I can now see this business characteristic across a number of industries. It resonated for me because it matched what I’ve seen in high-end group tour operators.
As a result, I define one of the “industries” I’m targeting as any industry that features price attached to NPS but detached from cost of goods sold. I think of it as finding industries that rhyme with each other, even if they have no traditional connection.
Let’s examine the home services example. They are attractive acquisition targets because they recurring revenue contracts.
But the deeper layer of commonality is that these are all logistics businesses with embedded, latent profitability that can be unlocked through route optimization.
Take for example this great thread from landscaping owner Mike Botkin (click through to see the full Twitter thread):
Notice something? No mention of landscaping anywhere in the thread. This tweet could apply to a cleaning company or a pool maintenance business.
Identifying these common business characteristics unlocks a wider range of industries that would make attractive SMB acquisitions.
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Guesswork Investing (Twitter)