The Business Evaluation Trinity: A Proven Framework for Smart Acquisitions

Facebook
Twitter
LinkedIn

I’ve had former MBA classmates say to me, “You don’t actually use Porter’s Five Forces, do you?”

My response: “Yes, I do. Every single day.”

It surprises people that the same frameworks they left behind after business school are ones I regularly use to evaluate businesses. Porter’s Five Forces, for example, helps me identify risks in a transaction and understand who holds the power. These frameworks aren’t just theoretical – they’re practical tools for proper analysis.

Beyond that, I’ve also developed my own approach over the years to evaluate opportunities effectively. With 18 years of experience acquiring seven companies and investing in numerous others, my method combines practical experience with lessons from my MBA that I never thought I’d revisit.

Today, I want to share this framework with you. I use it not only when buying businesses outright but especially when evaluating fractional acquisitions – minority investments in teams or ventures.

Whether you’re doing a full acquisition and putting a team in place or making an investment and assessing how it might perform, this framework, which I call the “business evaluation trinity,” will help you break down and understand a business’s potential.

In this framework, we’re evaluating product, team, and capital in six different ways:

 

 

1. Offering: Vanilla with a Twist

The first thing I always look at is the offering. By that, I mean the product or service the business is taking to market.

I’m not usually interested in something overly flashy or “sexy” because, in my experience, the flashier it is, the less likely it has solid product-market fit.

What I look for instead is something I’d call “vanilla with a twist.” It should be a stable offering with some kind of differentiator that sets it apart from the rest of the market – a little je ne sais quoi that makes it unique while still rooted in something reliable and proven.

A real life example of transforming something mundane is the company Liquid Death, serving none other than drinking water.

 

Source: Marketing Week

 

How did Liquid Death turn water into a $1.4 billion beverage brand?

Liquid Death combined distinctive branding, using a dark and aggressive design, and canned packaging (being very anti-plastic) to stand out against other water competitors. That’s it.

Liquid Death disrupted the water market by reimagining drinking water, and in turn, adding the “twist” to the “vanilla” offering.

 

2. Existing Demand

The next thing I focus on is demand, which goes hand-in-hand with the offering.

If there’s no existing demand for a product or service, and we have to go out and create the market from scratch, which is *not* something I’m interested in.

I spent the first 20 years of my career in a world where entrepreneurship was often defined by flashy, sexy startups. Over time, I realized I value cash flow far more than trying to transform the world – because with enough cash flow, I can transform the world on my own terms.

Take NVIDIA as an example. Today, it’s one of the largest companies in the world, driven by insatiable demand. But if you’d invested in NVIDIA 25 years ago, you’d have been too early. The timing wasn’t right, and the demand hadn’t materialized yet.

 

Source: Fortune | Nvidia Stock Surge

 

Now, with its strong market presence and incredible demand, it’s a perfect example of how a great offering paired with existing demand creates a powerful, sustainable business.

 

3. Team: A-List Players

Next, I focus on the team – who is actually executing the business plan? For me, the team is maybe the most important part of the whole thing.

If I’m buying a company and stepping in as CEO, I know I’ll be the one guiding the business to its goals. But if I’m making a fractional acquisition or putting a team in place, the people running the show become the most critical factor.

You can have a great product and market demand, but without the right team to execute, none of it matters.

When I evaluate a team, I ask myself if they’re “on the list.” By that, I mean whether their credentials or track record qualify them to lead this business effectively. They don’t necessarily need to have done exactly the same thing before, but they need to have the momentum, skills, and potential to get the job done.

A personal example of this concept is when I wrote Buy Then Build. I first had the idea back in 2003–2004 when I started my search for businesses to acquire, because there was no information about buying small companies – the market was opaque, fragmented, and lacking best practices or frameworks.

I thought about writing a book, but I realized I wasn’t “on the list” yet. If I had written the book then, I would’ve been more like an intern interviewing people who had done it, trying to climb from level one to level two in my career. I didn’t have the authority or experience to write a book that would introduce this space to entrepreneurs everywhere.

Fast forward to 2018, when Buy Then Build finally came out.

 

 

By that point, I’d put my entire net worth on the line multiple times, had successful exits, and had even taught entrepreneurship through acquisition at the Olin School of Business.

It took two decades, four and a half years of dedicated writing, and significant personal investment, but I finally earned the right to write the book. I was “on the list.”

This concept applies to business acquisitions as well.

When I bought a manufacturing company, I brought in one of the top three aluminum fabricating executives in the country. Knowing I had someone of that caliber running the business gave me the confidence to execute our plan, knowing we could achieve it.

Finding key players who are “on the list” isn’t just about vanity metrics or a polished resume – bringing the right people on your team can literally make or break your investment.

 

4. Momentum: Predictable Transformation

Momentum is another critical factor I consider. For me, it’s all about what I call “predictable transformation.”

How do you identify predictable transformation within an industry? Determine whether existing demand is driving a clear and predictable shift in the market, and whether the business is positioned to capitalize on that transformation.

One example is when I invested in a video game development company. I saw that the gaming industry was still in its early stages of adoption by consumers, even though it was already larger than the film, television, and music industries combined – and it was continuing to grow rapidly.

The industry itself was undergoing a transformation, and I wanted to be part of that momentum.

This is one way of spotting predictable transformation – finding businesses selling something that are still in the early adoption stage:

 

Source: AKF Partners

 

Identifying those market trends and ensuring that the team and company have the momentum to succeed in that space help to carry a business forward, especially when it’s aligned with clear industry shifts.

 

5. Capital: Fueling the Journey

The last factor I always consider is capital. This might seem obvious, but it’s amazing how often people overlook the importance of having enough financial runway.

I ask myself, “Is this company going to fizzle out before it gets where it’s trying to go?” 

This question is especially important in fractional acquisitions, where I might have limited influence over the company’s capital structure. No matter how great the idea or the plan, without adequate financial resources, the company will never get to the finish line.

Here’s a hypothetical example. Imagine evaluating an e-commerce business with a solid product, strong market demand, and a capable team. On the surface, everything looks promising. But after digging into their financials, you realize a serious issue: their cash reserves are dangerously low.

The company’s growth plan hinges on scaling customer acquisition and developing key features to stay competitive. However, to get there, they need significant funding, and they’re relying on speculative revenue from an unfinalized partnership.

Without additional funding, they might run out of money before they even reach their next milestone.

Lack of financial runway is a huge red flag, not just for funding the current operations but also to ensure the business has the resources needed to reach the next stage of growth.

 

Source: FasterCapital

 

6. Exit Strategy: The Ultimate Bottom Line

On the flip side, capital ties directly to the exit strategy, which is perhaps the most overlooked aspect of acquisitions.

For me, every investment, especially fractional ones, starts with a clear understanding of how and when profits will be realized.

I always ask myself, “How will I make money?”

This is a question I ask myself every time I consider an investment. It’s shocking how many people enter fractional acquisitions or even buy a company outright without a clear exit strategy. For me, especially in fractional acquisitions, I need to know exactly when and how I’m going to make money, and what needs to happen to ensure that outcome.

By thinking through ROI, margin of safety, and upside potential, I can determine if an investment is going to be worth it. I go into this in detail in Buy Then Build, but it all boils down to ensuring that the capital is in place and the path to profitability is clear.

Ultimately, this primary focus on capital allows me to make financially smart and informed decisions every step of the way.

 

Applying the Business Evaluation Trinity

Whether you’re buying a company outright or making a fractional investment, evaluating a business’s offering, demand, team, momentum, capital, and your exit strategy will help you make smarter decisions. To recap:

Step 1: Evaluate the offering and ensure it’s solid with a unique twist.

Step 2: Validate market demand with data.

Step 3: Align yourself with a capable team.

Step 4: Look for momentum that signals growth.

Step 5: Verify there’s enough capital to meet key milestones.

Step 6: Have a clear plan for how and when you’ll make money.

This approach isn’t just theoretical – it’s based on years of experience and countless transactions. It simplifies complex decisions and keeps you focused on what matters most. Use this framework for the next deal you evaluate, and let me know how it works for you.

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

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.

Free 3-Day Video Series

Outsmart the Startup Game

Bypass the common struggles entrepreneurs face when creating a successful business.

No spam. Ever.

Free 3-Day Video Series

Outsmart the Startup Game

Bypass the common struggles entrepreneurs face when creating a successful business.

In this free training you'll learn how to: