In today’s business world, it seems like the flashy, new startups are always stealing the spotlight.
But what about boring businesses?
Boring businesses might not be the most exciting, but they’re often the smartest businesses to invest in and purchase.
With 4.5 million companies expected to be on sale within the next decade (Forbes), this represents a tremendous opportunity.
In this article, I’m going to lay out 7 reasons boring businesses make the best investments. Before you write off a boring business, take a closer look at what makes them tick and you might find a compelling M&A opportunity hidden in plain sight.
Businesses That Never Fail: Why Boring Businesses?
What exactly does boring mean? I’m talking about old-school, tried-and-true business models that have been around for 30+ years. No apps or fancy technology.
Think about businesses that have consistently produced profits and have stood the test of time.
Boring Businesses that Make Money:
- Laundromats
- Construction skilled trades (electrician, plumber, painter, HVAC etc.)
- Car washes
- B2B services
- Housing / real estate management
- Education
- Events / parking
What do all of these have in common?
They are simple businesses and reliable staples that customers will need forever.
They are not glamorous, they do not disrupt industries, and don’t get headlines on the front page. But they still make money.
Here are 7 reasons why I recommend investing in boring businesses:
1. Boring businesses are usually profitable
2. Boring businesses usually have low debt levels
3. Boring businesses often have significant untapped potential
4. Boring businesses offer stability and predictability
5. Boring businesses typically have a fiercely loyal customer base
6. Boring businesses are often easy to operate and require minimal maintenance
7. Boring businesses are often discounted
Let’s take a more in-depth look at each of these points.
1. Boring businesses are usually profitable
Boring businesses are often unsexy, which is why they get overlooked. But the reality is that these businesses usually generate consistent profits year after year.
In many cases, boring businesses have been around for decades and have weathered multiple economic downturns. They may not be growing at breakneck speed, but they’re usually profitable.
These businesses have proven longevity and success, which is very impressive when you consider the staggeringly high failure rate of businesses.
When a business has been around that long, they have usually executed on the fundamentals.
They typically have a strong value proposition, loyal customers, and have strong, consistent cash flow. All of this culminates in a business that is likely to be highly profitable.
Recession Proof
When looking at businesses, think about recession-resistant sectors with items you’ll always need.
Some of the most reliable and profitable businesses are those that provide essential goods and services that people will always need, no matter what the economy is doing.
Boring businesses continue to do well during tough times because people still need basic services even when they’re struggling financially.
2. Boring businesses usually have low debt levels
Since boring businesses are often profitable, they tend to have the cash on hand to pay down any debts they might have incurred over time.
Typically operational costs are low and these businesses are able to run with limited overhead.
This is in contrast to more “exciting” early-stage businesses, which may have taken on significant debt in order to finance rapid growth. While there’s nothing necessarily wrong with debt, it can make a business more vulnerable during tough economic times.
This low level of debt makes boring businesses even more appealing because it means there is less risk involved in the purchase. Who doesn’t love a low-risk investment?
If you go down the acquisition path, often times you’ll be able to purchase a boring business with little out of pocket using seller financing, equipment loans, or other “no money down” strategies.
3. Boring businesses often have significant untapped potential
Boring businesses are often easy to operate and have a low barrier to entry, which makes them an appealing investment for first-time entrepreneurs.
But just because these businesses are easy to operate does not mean they lack potential. In many cases, boring businesses have untapped potential that can be unlocked with the right strategy and execution.
For example, let’s say you purchase a small town laundromat.
It’s been in business for years and is profitable, but it has never been updated or modernized. It’s dated and in need of a facelift.
By investing some time and money into renovating the space and adding some new features (like self-service machines, a drop-off service, or a loyalty program), you could quickly increase profits and turn a boring business into a thriving one. You could even consider purchasing multiple locations, which would provide economies of scale and allow you to hire an operator.
Here are just a handful of marketing strategies you could implement as a new owner:
Growth Playbook
- Raise prices by 10% or more (usually they haven’t raised prices in years)
- Get to the top of local Google search results by improving SEO
- Focusing on value drivers for the business (will boost what the business is worth)
- Find and implement operational efficiencies
- Add technology to improve operations (i.e. ServiceTitan)
- Run an RFM analysis to boost profitability
- Improving customer retention and win back lost customers
- Transition to professional management, which can instantly improve your valuation
- Scale up your business operations and improve cash flow
- Get more 5 star reviews on Google
- Add a social media strategy
- Create raving fans with a customer loyalty ladder
- Improve your new customer onboarding process
- Find low-hanging profit and revenue opportunities
- Maximize customer lifetime value
- Implement a high ticket offer and value ladder for your best customers
Here’s another advantage: in many situations, these types of businesses are often underestimated by the competition. This means that there is often room for a boring business to gain market share by being more aggressive and innovative than its competitors expect.
4. Boring businesses offer stability and predictability
In today’s volatile world, stability is increasingly valuable. Boring businesses might not have the same upside potential as more exciting businesses, but they can provide a measure of stability in an uncertain world.
Of course, all investments come with some degree of risk; but, in general, boring businesses tend to be much less risky than their flashier counterparts.
This is because they usually have established customer bases, solid financial footing and tried-and-true models that have been proven to work over time.
This stability can be a great comfort to new owners, who can rest assured knowing that their investment is unlikely to take any major ups or downs.
With a boring business, you have a lot more room for error – you can be confident a small mistake won’t cripple the business.
Another benefit of boring businesses is that they tend to have staying power. The Lindy Effect says the longer something has been around for, the longer it’s likely to persist into the future.
Because they are not reliant on fads or trends, boring businesses can maintain their popularity even as consumer preferences change. This allows them to continue growing and prospering for years, or even decades, to come.
5. Boring businesses typically have a fiercely loyal customer base
One of the best things about boring businesses is their loyal customer base. These customers appreciate the dependability and consistency that these businesses offer, and they are often willing to pay a premium for it.
This loyalty can help boring businesses weather tough times and emerge stronger than ever.
What’s more, loyal customers can be a great marketing tool for boring businesses; after all, word-of-mouth is still one of the most powerful marketing tools available.
6. Boring businesses are often easy to operate and require minimal maintenance
Another great thing about boring businesses is that they are often easy to operate and require minimal maintenance.
This is because they usually have established systems and procedures in place that can be easily followed by new owners. This frees up your time to focus on other things.
You often won’t need specialized expertise or the need to hire a highly compensated operator to run a boring business successfully.
This limits key person dependency risk and makes these types of businesses much more stable and easy to run.
7. Boring businesses are often discounted
Since boring businesses can be seen as less exciting, they’re often discounted by the market.
This means that you can usually get a good deal on a boring business that is actually quite valuable.
Here are a few reasons why:
Limited Growth Prospects
Since these types of businesses are perceived as having limited growth potential, they are often not fully appreciated by buyers.
You can get a lot of bang for your buck when you buy a boring business.
Owner Operated = Lower Multiple of Earnings
Owner-operated businesses (lacking professional management) are less appealing to potential buyers, and on average are worth a lower multiple of their current earnings.
- Owner Operated: 2.5X
- Professional Management: 4.5X
This works in your favor, as owner operated businesses will sell for 2X less on average (across all industries).
Less Competition
You’ll often find less competition in the bidding process, so you can often acquire a boring business at a bargain price.
The best situation of all is you can find off-market deals to avoid competition all together and increase your likelihood of getting favorable deal terms.
How to Buy a Boring Business
If you’re interested in a deeper dive, I have a full series of articles to guide you through the business buying process.
Here’s where I recommend you start:
- M&A Acquisition Criteria: 15 Ways to Uncover a Perfect Target Acquisition
- Small Business Buyers: Don’t Make These 17 Mistakes When Buying a Biz
- Bolt On Acquisitions: 6 Little Known Secrets to External Growth
- How to Buy a Business With No Money Down (17 Proven Ways)
Conclusion
If you’re looking for a smart business to buy, don’t discount the boring businesses.
These 7 reasons show that there’s a lot of value in boring businesses – they’re often underestimated and undervalued. While they might not have the explosive growth potential of an early stage company, they’re also significantly less likely to fail.
I recommend looking for base hits, not home runs – boring businesses are typically incredibly stable and generate predictable strong returns.
So, the next time you see a boring business up for sale, take a closer look – you might be surprised at what you find.
