Perfect Logic for Picking a Spouse, Bad Logic for Picking a Business

“Buying a business because you love it is a terrible reason to buy a business.” Jeff (not his real name) seemed surprised by my comment. “Why’s that?” he asked, “I’ve heard it said if you find your passion you’ll never work a day in your life. Are you telling me that’s not true?”

 I frequently meet with folks who say they want to leave corporate life and become an entrepreneur. The desire to do your own thing and control your own destiny is in the DNA of many Americans. I guess we should be grateful; that is the same energy that led people to load up wagons and trek across the barren and dangerous west for a better life in California.

Taking crazy risks has indeed made America great. But leaving the comfortable to do the uncertain is inherently illogical. I think one way aspiring entrepreneurs try to mitigate that uncertainty is to find an opportunity they are passionate about. The theory goes if you love what you are doing it, doing it will be easier.

Jeff and I had met to discuss his interest in a business I was selling. It was one of those businesses that would not impress friends in his golf group. It was a business that might require jeans and t-shirts, not khaki slacks and shirts with button-down collars. It was a business that would take him from his life of polite meetings around a mahogany table for quick meetings around a folding table in the lunchroom. Instead of driving to work in one of Nashville’s finest suburban office parks, he’d have to drive 35 minutes into the countryside to reach the office. His closest alternative for lunch would be the Subway in a nearby gas station, not J Alexanders.

You get the picture, there wasn’t much to love with the business I was selling, except the business model. The business had gross margins of 40% and net operating margins close to 20%. The 75-year old owner had started the business 30 years ago, but in recent years his marketing lagged and the business lost two big customers. But what I saw as an opportunity to create value, Jeff saw as a business in decline.

Glass half empty or half full?

I don’t love it,” Jeff said to me last week over coffee, “Let’s keep looking for a business I can feel passionate about.”

That last line was my cue, Jeff wasn’t going to buy a business. That’s when I shared my opinion that passion was a bad way to evaluate a business. Most likely, Jeff was just dissatisfied with his corporate job and wanted to blue-sky his options. It’s the equivalent of going through open houses on a Sunday afternoon when you have nothing else to do. You aren’t really serious about moving, but you have time to kill and like to see what’s on the market.

Passion is great logic when picking a spouse, but dumb logic when picking a business. When overcome by that immutable DNA to be your own boss, instead of asking “do I love the business?” ask questions like “how does it make money?” or “does the product/service deliver a value-add for which customers are happy to pay?” How you answer those questions will be the clue you are ready to start your trek across a treacherous and barren wasteland in hopes of a brighter future.

 

JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee.

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Tennessee Valley Group

Jim Cumbee established Tennessee Valley Group to help business owners fulfill their dreams for life after business ownership. It’s a mission that his 30+ year career history had prepared him well for—in addition to being an attorney, transition mediator and business broker, Jim has been a buyer, seller, and entrepreneur. His broad range of experience gives him unique insight into how business buyers and sellers can achieve their goals.

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