🔑 11 mistakes I've made buying businesses...
Welcome to The Business Academy.
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I keep a document that describes all of the mistakes I've made as an investor. I call it "Hard Lessons".
It's 15 pages long now (I've made a lot of mistakes). I refer back to it regularly, and it helps me and my team avoid mistakes on future deals.
I've pulled 11 lessons from my "Hard Lessons" sheet and am sharing them with you today.
You can’t do a good deal with a bad person.
A few years ago I found a business that was selling for a great price. When I met with the owner I could tell he wasn't a great person. The clearest indicator was he spoke poorly about his employees behind their backs...it was a huge red flag. But he wanted to sell us the business and retire. So I figured with him gone, we would have a nice business at a good price. What I later learned is that bad culture permeates every part of the organization. It destroys trust with employees and customers alike...and you can't screen it out. So even though I got a big discount on the business, I ended up paying a premium overall.
There’s a difference between “great” and outstanding businesses.
It's worth paying more for an outstanding business...
The formula for a good business is growth potential + moat + cash flow.
Imagine a moat is like a lake around a castle. It prevents your enemies from coming in and taking all your resources. That moat can be intellectual property or the strength of the business' brand.
If your business can grow, while distributing cash flow and has a moat...you have something special (but this is very rare).
Healthy conflict makes you a better thinker (and investor).
If you have a business partner, you need to practice healthy conflict early on. Yes, you need to argue. It's important.
The act of arguing helps both of you sharpen your thinking. Unfortunately, we all want to be "liked" and therefore we are agreeable with our partners. But you need to regularly practice disagreeing and moving on.
Before you start arguing, set the ground rules for future conflict and say "I'm going to argue with you. I very much respect you. The act of disagreeing will make us both better thinkers". Otherwise, your partner will be surprised that you're acting like a jerk all of a sudden.
If the business can’t run without its owner, we don’t buy it.
This one is important to us. We own 20+ companies. We don't have time to manage each business. So we only buy businesses with great teams. If the owners retire, we need to believe their team can continue running the business.
Fundraising = relationships + plan + experience + hustle.
Nobody has ever said, "I love fundraising". But it's necessary for some businesses. Your job as a fundraiser is to build quality relationships over time. Make a clear plan with downside protection for how your investors will make money. Develop experience little by little in your specific field. And then be prepared to have hundreds of conversations with potential investors.
Study other peoples’ mistakes to avoid making your own.
Humans have been making mistakes and writing about them for a thousand years. By reading history you can learn about those mistakes and avoid making them yourself. Never stop reading.
You don’t need to ink out every bit of profit on a deal.
Life is long. And you will cross paths with the people you're dealing with again and again. Create deals that feel like a win-win for everyone involved and it will serve you in the long run.
Join masterminds to learn from others.
Masterminds have been impactful for my career. These are groups of 6 to 8 people who meet monthly and are all focused on similar goals and learning from each other. For example, I've joined Hamptons and YPO which allows me to bond with fellow entrepreneurs and investors.
If you can’t explain the business in clear language, don’t buy or invest.
You can make a fortune just by making a few good investing decisions in your life. There are thousands of companies to choose from. Avoid companies that are hard to explain. Focus on investing in things you understand and can explain simply.
Have the patience to let compounding work over many years.
You don't need to get rich quick. If you make progress every year for 30 years, the numbers can get really large. Buy things that you think will create returns over the long term. And just hold on tight, and let compounding kick in. It takes longer than people think...but when it starts happening it's magic.
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🔑 One interesting graphic - the rise and fall of most affluent cities (1949)
The top 3 in 1949, Cleveland, Milwaukee, and Detroit are no longer in the top 50 today...
🔑 New Interview with Adriane Schwager (built a $5 Million+ offshore hiring business)
You can listen on Apple Podcasts, Spotify and my new YouTube channel.
Have a great week,
Sieva
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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.
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