Four Models for Building Value


It feels like the golden era for small business acquisition is upon us.

As the sometimes-harsh realities of the startup world continue to get more and more press, buyout activity in the small business world is booming like never before.

BuyBizSell reports that a record 5,383 businesses were sold in the first half of 2018 alone.

Why now? A friendlier regulatory environment and more accessible financing both factor into the equation.

Recent changes to SBA lending rules mean banks can now finance up to 90% of a small business purchase.

Buyers only need to put down 5% in cash now. (The other 5% can come in the form of seller financing.)

Meanwhile, in the time it takes to read this article, another bunch of Baby Boomers will reach the age of retirement. And Boomers currently make up around 54% of all small business owners.

That leaves the fate of many small businesses hanging in the balance at a time when entrepreneurship makes great sense financially.

But doesn’t everyone still want to be the next Steve Jobs?

The startup honeymoon phase may be coming to an end, and pure innovation plays face tougher odds with giants like Facebook and Google always on the prowl.

Last year, Jon Evans on TechCrunch declared the end of the startup era saying, “the web has been occupied and colonized by big business.”

He had a point. The glamorous stories of startups still have their allure, but the numbers just aren’t adding up anymore.

What’s an entrepreneur-minded tech-savvy individual to do? Enter Acquisition Entrepreneurship.


Acquiring a small business can be the perfect way to build the path to the future you’re after.

But first, take our advice and do not go into the search without knowing what to look for.

Besides knowing what a fair deal looks like, you also need to be ready to spot the right company… The one that’s uniquely suited for you to step into and take to the next level with your own blend of skills and assets.

For anyone looking to buy then build, the Acquisition Matrix breaks down the plethora of businesses you’ll encounter on the market into the following four models and helps you hone in on the type of business that’s best for you:

  1. The Eternally Profitable Company
  2. The Turnaround
  3. The High-Growth Company
  4. The Platform Company

Each model represents a distinct way to take an existing company and build a valuable asset.

In this quick guide, we’ll walk you through each model and point out the unique business skills required to create the maximum return on your investment.


First, let’s look at a useful analogy when distinguishing between the four models.

Imagine you were in the market for a piece of land and consider the following four comparable options:

1. The first is a fully landscaped property with mature plantings. The trees are strong and sturdy with well-established carefully-planned beds.

The plants have flourished here for decades and the property has been maintained with care.

If you step in now, you can add your own touch here and there, but mostly your job will be to continue maintaining what’s already in place.

This property corresponds to the Eternally Profitable Model.

2. The second is a bit of a wreck. Trees and plants stand where they’ve been for years, but the weeds have overtaken the place.

Grass grows across beds, and vines cover everything.

Here you have your work cut out for you to create a healthy environment again.

If you want to roll up your sleeves and dig into the dirt, you may be able to turn this place into something special.

This property corresponds to the Turnaround Model.

3. Next, you’re shown land that’s just been cleared and planted. Newly fertilized shrubs and flowers sprout up everywhere.

The place seems to be thriving, but since none of the trees and plants are established, it’s hard to say how things will develop.

Is the soil well drained? Will conditions remain hospitable?

If you choose this property, your job will be less cut-and-dried with more risk and require more resources as you seek to continue the growth that’s just begun.

This one corresponds to the High-Growth Model.

4. The final property shows something of a mix. The landscaping is established in many areas but not all.

Clear open space that’s yet to be planted balances out areas of old growth and well-groomed beds.

Here’s a property where you can make your mark.

You’ll continue what’s working but apply your own touch to the areas that remain undeveloped.

This property corresponds to the Platform Model.

Now let’s look at each model more closely. The one that will work best for you as an active investor depends largely on how you want to spend your time and where your greatest skills lie.

The idea is to match the opportunity profile of the business with your personal strengths and goals.


Are you looking for a relatively stable investment where you can build up owner equity over time?

If so, the eternally profitable model may be for you.

This is the type of business acquisition proposed by Harvard Business School Professors Royce Yudkoff and Richard Ruback who wrote the book, The HBR Guide to Buying a Small Business.

In it, they recommend looking for a business in a small defensible niche with cash flow between $750K and $2MM.

The examples they give include companies that provide high-rise window cleaning services and companies that process insurance claims for local emergency responders.

The companies that fall into this category have stable revenues and slow growth.

They rely on a stable market with a dependable customer base. The questions you’ll have to answer?

  • How do you differentiate your product and keep from competing solely on price?
  • In a potentially fragmented market, how serious is the threat of consolidation?

What you’ll need to bring to the table?

The cash to acquire it and the management ability to keep it running.

The advantages over a startup are clear:

  • You have immediate cash flow and customers in place.
  • You have historic financial records on which to base decisions and established credit.

But the advantages over the other three models may not be as clear, depending on your risk tolerance.

What you gain in safety with this model, you’ll give up in growth potential, and these businesses don’t come at a discount.

You’ll pay the price you can generally expect to receive if you were to sell.

On the matrix, the Eternally Profitable Company falls somewhere in the lower left corner.

This investment is not about movement or steep inclines in either revenues or value, but stability.


Are you an operations wizard, adept at making tough decisions and looking for an opportunity at a discount?

The Turnaround model is like recovering a fumbled ball and then running with it.

These deals are often distress sales where the company is in dire financial straits.

They may look like an enticing way to create value by figuring out what’s broken and fixing it, but it’s not always that simple.

It’s common in these situations for tensions with employees to run high and hard decisions like cutting jobs to come at you relentlessly.

Comeback stories like the rescue of Narragansett Brewing Company sound romantic, but the financial realities of a Turnaround are usually anything but.

The questions that need answering in a turnaround?

  • Is the product-market fit strong, and can the company still deliver value to its customers?
  • What’s the source of profit leakage, and how do you staunch the bleeding as quickly as possible?

Doug Yakola of McKinsey & Co. sums up the situation he sees with companies in crisis this way, “they’re often working under a set of paradigms that no longer apply and letting the power of inertia carry them along.”

What skills will you need to bring to the table?

First and foremost, experience.

  • Cash flow management.
  • Operational efficiency.
  • Financial analysis.

These will be the skill that eventually improve revenues and create value where there was none.

You’re buying a business in distress, and the disadvantages of this model include the headaches and sometimes heartache that come with that.

On the matrix, the Turnaround Company rests in the lower right quadrant.

You’re buying at a discount and betting that the changes you make will restore value.


Are you ready for the ride of your life and hoping to increase earnings hand over fist?

If you can take the increased risk, the High-Growth Model may be for you.

The risks and rewards of this type of acquisition are the opposite of those of a Turnaround.

The product is in great demand, and often the founders are in over their heads and ready for an exit…a profitable one.

You’ll pay a premium for the healthy revenues and upward trends in the financials.

The reason many business owners exit at this point is that despite growing revenues, growth is expensive. Companies require a consistent influx of cash to keep up with demand.

When Rob Walling sold Drip to LeadPages in 2016, for example, he was faced with the demand for additional servers and more developers to keep up with growing revenues.

And for that fast-growing MRR, LeadPages paid a hefty price.

The demand for your product in this type of company doesn’t remove risk by any means.

The questions to ask yourself:

  • Is the growth sustainable?
  • And if so, will you have the cash to cover the increasing demands for working capital to keep going?

Things to consider:

  • You’re likely to take on a good deal of debt for this type of acquisition, and that represents an extra monthly expense.
  • Wherever a new market has opened up, competitors, some with a great deal of cash to spend, won’t be far behind.

What you’ll bring to the table in this type of deal is an excellent grasp on cash-flow management principles and the risk tolerance necessary to face an uncertain, although potentially very profitable, future.

On the matrix the High-Growth Company sits in the top left quadrant due to the expensive price tag and the potential for continued revenue growth.


The Platform Model of acquisition provides a healthy balance of risk and reward.

In this type of deal, you’re looking for the potential to create value and grow revenues by applying your own special skill-set to the company.

While the Eternally Profitable Model focuses on stability, and the Turnaround Model depends on recovery, The Platform Model hinges on your ability to recognize the right opportunity.

The right Platform company has strengths to build on and weaknesses that you’ll be able to compensate for with your own experience.

For example, if you excel at email marketing, and you find a company with a strong product but an outdated marketing strategy and minimal email efforts, you may strike gold.

If branding is your particular genius, the ecommerce world might be your oyster.

Plenty of ecomm companies have product and distribution down but only know what they sell without really knowing who they sell it to. That spells opportunity.

If you have a knack for numbers and a passion for data analysis, again the sky can be the limit when you find a company that’s neglecting their customer data or ignoring margins.

Whatever your experience, the Platform Model let’s you spend your time doing what you do best and building value in the process.

It’s a win-win.

On the matrix, this model sits in the upper right corner because it affords you the opportunity to optimize revenues and increase company value at a steady pace by filling in the gaps.

The brilliance of this model rests on these facts:

  • Risk is minimized because you have product-market fit already.
  • The same advantages of the Eternally Profitable Model apply with the added benefit of huge growth potential.
  • The built-in infrastructure you gain with the purchase of the business can be leveraged to expand into new markets or create new companies.

The Platform Model is the one we recommend, because it carries less risk overall plus the greatest possibility for return when done right.

Overall acquisition entrepreneurship is about being an active investor and looking for the opportunity to create value.

The four models each provide different opportunities and a different risk/reward profile depending on how you want to spend your time and the unique skills you bring to the deal.


For more on acquisition entrepreneurship, check out the book Buy Then Build on Amazon.

Picture of Walker Deibel

Walker Deibel

Walker Deibel is an entrepreneur and advisor. He is the author of Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game and Creator of Acquisition Lab.

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