Feb 25, 2013

Buy a Business with Good Economics First, Passion is Secondary

In the landmark book, “Good to Great”, Jim Collins identifies what he calls the Hedgehog concept, which is the sweet spot for companies who’ve successfully identified and practice doing 1) what they’re deeply passionate about, 2) what they believe they can become the best in the world at, and 3) what drives their economic engine. 

In your search for a business, you may focus much of you attention on what you’re passionate about, at the expense of what truly makes good economic sense. 

Case in point: you’re creative, and you love journalism and writing.  You decide to apply your number one passions into the public relations or marketing fields.  You’ve neglected to view the market as a whole however, and you wonder why the first few years in business (enjoying what little work you may actually receive) are a complete financial failure.  There are millions of people who love that type of work.  Could you be the best in the world at it?  Hopefully you believe it before you set out upon that well-worn path to mediocre wealth.  But the truth is, it’s a crowded space. 

Compare with the entrepreneur who sees an opportunity in the market, such as picking up dog crap, or managing property, or digging big holes for home-builders needing basements.  These are not attractive businesses most people are normally intrinsically drawn towards (passionate about), but the truth is, all three of these businesses typically do very very well financially.  Being the best in the world at these activities may not be as challenging as you’d think because, there’s not a lot of people competing in these spaces.  Go where people hate to go, to do a job that needs doing that nobody else wants to do, and you’re on the right course from a financial standpoint. 

Most people start with what they’re already passionate about, and using that narrow list to then work backwards towards what will procure them the most decent living (this is the typical strategic buyer).  My suggestion is you start from the end and work backwards.  Start with the companies or types of business that make good economic sense, and then find a way to love the business that will serve you well.  Be a financial buyer first.

No comments:

Post a Comment