I found a business that is very interesting. I just love the product it sells. Unfortunately, it is not profitable. However, this product (which I can't disclose - sorry) seems like a winner. The seller has been trying to break into the market for three years without much success. Am I crazy to pursue this business?
This is a great question. In fact, one of the 10 Commandments of my course for business buyers (How To Buy A Good Business At A Great Price©) deals with this issue specifically.
The Commandment is: "Fall in Love with the Profit NOT the Product". Here is the more detailed explanation:
A product or service without a customer is just excess inventory. When looking at a business, focus upon how much profit you can generate from the business and not on how "exciting" the product is. You would not believe the number of people who buy a business for the product and forget about profit. Here's what happens: they find an interesting listing. They visit the business. They like what they see (but haven't seen the right things). They then spend the next few hours, days, etc., dreaming about all of the wonderful things about the product, and they completely overlook whether or not they're in the real world about the business' profitability.
The most likely candidates to make this mistake are those that decide to turn a hobby into a business. For example, imagine that you are an avid golfer and you decide to buy a golf equipment store because of your love of the sport. For one thing, I guarantee that you will be playing much less golf (too busy working). Second, if the business goes sour you will quickly learn to dislike the sport and golfers themselves.
Profit, not product, is what pays the bills. The owner of any profitable business loves their product while the opposite holds true for a money-losing operation.
At times, the most profitable businesses are those with the most drab product lines (i.e. valves or shoelaces). I love the least sexy businesses imaginable. Conversely, a wonderful product that has limited demand is meaningless. Be certain that the product that any business offers has a ready market available to sell. In other words, do not get into a business where you have to create the demand and awareness for the product or service that you offer. This is a daunting and expensive undertaking (see dot-coms).
So when all else fails remember one thing: profit, not product, is what pays the bills.
|Get more expert advice in Richard Parker's How To Buy A Good Business At A Great Price - the most widely
used reference resource and strategy guide for buying a business.
|Richard Parker is the author of: How To Buy A Good Business At A Great Price, the most widely used reference resource and strategy guide for buying a business. He has purchased ten businesses in his career and has helped thousands of prospective buyers worldwide learn how to buy the right business for sale. He is also founder and President of Diomo Corporation - The Business Buyer Resource Center.|