What Do You Wish You Knew About Industry Search at the Start?

August 08, 2024

by a searcher from Georgetown University - The McDonough School of Business in Los Angeles, CA, USA

Such a green question from a person who just started the ETA journey.

I’m curious—what do you wish you knew about identifying the right industry when you first started your search?

Specifically, how did you approach industry identification, and what key metrics did you find most valuable in evaluating potential opportunities early on? Also, any insights on leveraging brokers effectively from the get-go would be incredibly helpful.

Looking forward to hearing your experiences and advice!

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Reply by a searcher
from Ohio State University in St. Petersburg, FL, USA

I'm relatively new too. I'm in my third month of my search and, honestly, I'm not too worried about the industry, I know that I don't want to do anything Main Street or a restaurant. I wrote my target statement with an emphasis on my SDE range and geography because those are limiting factors for me. Here's my target statement: "Looking to acquire a B2B products or services company with SDE of $700K - $1.2M within the greater Tampa Bay area." I still need to search to find businesses that fit and when I do, I evaluate whether I see my self in that industry. I also look at growth opportunities, customer concentration, competition, barriers to entry, competitive advantage, industry threats, skills transfer-ability, financials, etc. I'm getting ready to have my second seller meeting this week. I'm always willing to learn about how to do the search process better.

Reply by a searcher
from Bowling Green State University in Surrey, BC, Canada

After many years in commercial lending, I feel like I could write a book on this but sounds like there's a few out there already.
Long story short:
- recurring revenue (ie. consumables, rebuying, etc.)
- non-project-based (mostly)
- low customer concentration
- low seasonality
- high gross margin
- *your* new SG&A costs (not the prior owner - critical to understand)
- marketing spend (ie. ROAS, LTV/CAC) is ripe for bullshit; channel your inner GenX and trust no one
- low supplier concentration (esp. in marketing - ie. FB ads, google, etc)
- low capex
- the working capital cycle is the hearts and lungs of every company

As you start looking at companies, industries, and opportunities apply these factors to the business drivers. It's a start. Good luck

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