What makes a business "good" ?

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September 22, 2022

by a searcher from Minnesota State University, Mankato - College of Business in Seattle, WA, USA

Question for all:

Without diving into operational/financial metrics, how do you personally define a "good business" from a 30,000ft point-of-view?

Appreciate the responses & answers in advance. Looking forward to it!

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commentor profile
Reply by a searcher
from Campbell University in Emerald Isle, NC 28594, USA
This question takes me back to when I first set off to find a business to buy as one of the first things I did was draw up an "acquisition letter" that was given to any broker, attorney, accountant, business contact, etc. that could produce a lead for a business to buy (and it worked after 20 months of searching!). In the letter I listed these basic business characteristics that I was looking for in an acquisition:

1. Established and a good history of profitability.
2. Straightforward operations with low employee turnover
3. Low CAPEX requirements.
4. A durable competitive advantage
5. Not going to be competed away due to the likes of Amazon or technology changes.
6. A business I would be comfortable owning indefinitely

I focused on these mainly. Didn't get too much in to the macro view, and placed a lot of emphasis on #s 4 and 5 above. In my letter I also included why I would make a great buyer due to my education, professional experience, and financial capabilities (all before I knew what a search fund).
commentor profile
Reply by a searcher
from University of St. Thomas in 50 South 6th St #1301, Minneapolis, MN 55402, USA
Depends on perspective - as a searcher - decent FCF, good growth prospects, low valuation expectations, opportunity for management arbitrage. As an IB - a company with a hot technology, with growth, in an in-demand sector. Commercial bankers probably consider a "good company" to be great cash flow, no customer concentration, no risk.

Backing up to a higher-level, broader view, I personally like Drucker's viewpoint that says a good business is a business that predictably creates and keeps profitable customers. Profitability suggests real and perceived value in the product. Predictability suggests some level of systems and management in place. Repeat customers suggests decent product/market fit.
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