I’ve been saying for years that the next decade is going to hand acquisition entrepreneurs the best buying window most of us will ever see.

The numbers back it up: McKinsey projects that roughly six million small and mid-size businesses will change hands by 2035, representing up to $5 trillion in enterprise value, as baby boomer owners retire. Bloomberg put the broader boomer wealth transfer at $93 trillion in a piece this past July. I still believe that opportunity is real, and I’m not walking it back here.

But I’ve also learned to distrust how good a number like that feels the moment I hear it. A true statistic and the story people build on top of it are not the same thing, and the gap between them is exactly where deals go wrong.

Read as a headline, “$5 trillion changing hands” sounds like a wave of businesses about to hit the market with buyers having their pick. Read against the rest of the data, it’s more complicated: 92% of small-business exits currently end in closure, not sale. Only about 5% get sold as a going concern.

 

 

The gap between a real trend and the story that gets told about it is what this piece is about. As a business buyer, it’s important to be able to tell the two apart. You’ll see a lot of listings affected by trends, both good and bad. The deal you get depends on whether you verify the story or blindly believe it.

 

Why narratives fool smart people

The reason a headline can be technically accurate and still lead you to the wrong conclusion comes down to a well-documented quirk in how people estimate probability.

It’s called the availability heuristic: we judge how likely something is by how easily we can recall an example of it, not by how often it actually happens. A vivid, recent, heavily repeated story feels more probable than a boring, well-supported one, regardless of which is actually true.

This doesn’t just apply to negative trends. A confident and widely repeated growth story can make an overpriced deal feel like a sure bet. Both panic and hype are susceptible to the same type of bias, just in opposite directions.

I’ve personally acquired half a dozen companies and taken minority stakes in over two dozen more, and here’s the filter I’ve come to use. This helps me separate the story from the reality before I make an investment decision.

 

1. Separate the channel from the demand

When you hear a category is “dying,” ask whether the demand is disappearing or the delivery mechanism is just changing shape.

Publishing spent the better part of fifteen years being declared dead by ebooks. Instead, according to industry sales data compiled by TCK Publishing, print’s share of the U.S. book market actually rose from 69% in 2012 to 75% in 2022 while ebook sales plateaued in the mid-2010s and settled around 18% of the market. The format may have shifted, but the underlying demand for books never went anywhere. Anyone who exited print publishing because of the ebook narrative exited a business that was still doing fine a decade later.

 

2. Ask whether the number is a shock or a trend

Another mistake is treating a temporary spike as the new baseline.

Peloton during the pandemic is a prime example. According to CNBC’s account of the company’s rise and fall, sales jumped 232% year over year in November 2020, and quarterly revenue crossed a billion dollars for the first time as lockdown demand pulled forward years of adoption.

 

Source: Statista 

 

Peloton built its cost structure, its staffing, and its inventory commitments around that pace continuing, but it wasn’t a permanent shift in how people exercise – it was a temporary reaction. When demand normalized, Peloton posted a $2.83 billion net loss in a single fiscal year. 

The same question applies to any business whose last twelve months look nothing like the four years before it: is this the new normal, or did something temporary happen to land in this window?

 

3. Treat hype the same way you’d treat panic

Optimism doesn’t normally feel like a bias you need to check, but it is when it comes to parting with your hard-earned money.

In 2021, Amazon FBA aggregators raised a combined $12.3 billion chasing the thesis that buying up small ecommerce brands and running them at scale was a guaranteed roll-up play. Acquisition multiples for these businesses ran from roughly 2x to 7x EBITDA in the span of the frenzy, largely because everyone was riding off everyone else’s confidence. Thrasio, the category leader, raised more than $3 billion and still filed for Chapter 11 bankruptcy once the capital dried up and the prices it had paid turned out to be unsupportable.

 

Source: MDS

 

A narrative that makes you want to move fast deserves exactly as much scrutiny as one that makes you want to run.

 

4. Confidence from experts isn’t evidence

In 2022, a recession for 2023 was treated as close to a settled fact by serious institutions. Bloomberg put the probability at 100%. The Economist called a global recession “inevitable.” Neither happened. Claudia Sahm, the one prominent economist who publicly refused to treat it as inevitable, turned out to be right, and she was in the minority at the time.

A forecast stated with total certainty is still a forecast. It hasn’t happened yet.

The volume and the credentials behind a prediction may tell you how many people believe it, but it doesn’t tell you how true it will be.

 

5. Diagnose the cause, not the symptom

In 2020, empty shelves where toilet paper used to sit were explained as a production shortfall: manufacturers couldn’t keep up.

That explanation was wrong, but not for the reason people assumed. It wasn’t just panic buying either.

The real cause was more specific: most toilet paper mills are built to supply either the commercial channel (offices, schools, restaurants) or the retail channel, not both, because the paper grade, packaging, and equipment differ. When everyone went home at once, commercial demand collapsed and retail demand spiked. Households use roughly 40% more toilet paper when everyone’s home instead of at work or school, and mills couldn’t retool fast enough to shift capacity between the two. Manufacturers were running at 120% of normal capacity, and shelves were still empty.

 

Source: New York Post

 

Panic buying was real and made it worse, but it was layered on top of a genuine structural cause. The empty shelves and panicking customers looked the same either way. The only way to know which explanation is correct in any instance is to check what actually caused it, not to accept the first plausible story.

 

Where the edge actually comes from

I’m not saying to do nothing until certainty arrives. I wouldn’t have bought and invested in businesses if that were the case. Oftentimes, certainty and opportunity move in opposite directions.

However, in each of the examples I listed above, whatever edge existed in knowing something early ultimately went to whoever was willing to check the actual numbers – not just listening to everyone else repeat the loudest version of the story.

Ready to acquire a business in the next 12 months? The Acquisition Lab is your first stop. Reach out today and get on the fast track to becoming an acquisition entrepreneur.