Business Durability Test

When evaluating businesses for acquisition, the focus is on finding durable companies with strong market positions and scalable leadership teams.

Key Business Assessment Criteria

• Protected market position

  • Looking for businesses with "something unusual" that differentiates them
  • Avoid commodity-type businesses
  • Must have defendable competitive advantages

• Leadership Team Capabilities

  • Team must have base skills and excellence in their domain
  • Ability and desire to scale beyond current size
  • Willingness to professionalize the business
  • Not dependent on founder/owner for daily operations

Red Flags

• Founder dependency
  • When goodwill is tied primarily to founder relationships
  • Lack of repeatable processes
  • No clear way to transition relationships/expertise
• "Hit by bus" risk
  • Any single person whose loss would destroy business value
  • Lack of redundancy in key positions
  • Missing layer of non-owner management

Path to Reduced Owner Dependency

• Gradual offloading of responsibilities

  • Start with tasks owner isn't good at or dislikes
  • Continue delegating until owner has flexibility to engage optionally
  • Build repeatable processes that don't require owner

• Signs of true owner independence

  • Ability to take extended time away
  • Strong management team in place
  • Business runs smoothly without daily owner involvement
  • Clear succession/contingency plans

Deal Structure Considerations

• ~400 decisions needed during acquisition process
• Must align on price and terms acceptable to both parties
• Structure deals to maintain leadership team incentives
• Focus on businesses where leadership team is separate from ownership