Develop specific, concrete acquisition criteria for business buying success

There is an experiment in Chip and Dan Heath’s book “Made to Stick” which is instructive for many prospective business buyers.  You can try the experiment on one of your friends.  First, give them a sheet of paper and a pen, then ask them to write down as many things as they can think of that are white in color over the course of 15 seconds.  After they complete that task ask them to write down as many things as they can think of that are white in color that are typically found in a refrigerator given the same 15-second time limit.  What you will find with most people is that the list they are able to make when thinking of the items in the refrigerator will be significantly longer than when they make a list of anything at all that they can think of that is white.  The concreteness and specificity of the refrigerator helps to focus the mind and allow greater visualization and memory.  It seems a bit counter-intuitive, doesn’t it?  It would seem like there are almost an infinite number of white objects in the world, and yet there are probably just a few dozen common white things found in a typical refrigerator – so shouldn’t it be easier to come up with a greater number of general white things?  Apparently not. 

So how does this apply to buying a business?  It is fairly common for business brokers to be contacted by prospective buyers who say, “I want to buy a business.  I’m open to just about anything, as long as it has cash flow of at least $150,000 and is priced at less than $1 million.”  The criteria are so broad that it leaves so many abstract possibilities out there that it makes it difficult for a business broker, cpa, banker, or attorney to be able focus their thoughts much.  A far better approach would be to provide far more concrete criteria such as, “I am looking for a highly systematized manufacturing company that employs fewer than 10 people.  Ideally it would manufacture health care-related products, will have at least a regional distribution network, will not do retail sales, be based in the Portland-metro area, have EBITDA margins in excess of 20%, and have between $150k and $500k in cash flow.”  A concrete description like this will more likely result in acquisition leads from business brokers and other professionals than an “I’m open to anything” approach.