Expert Answer

Lance Hood:               How in the heck do you get the customers and competitors of that specific business that you’re looking at to tell you everything that you need to know about that business before you buy it?

Richard Parker:           It is real easy. You call them. You call them and ask for a salesperson because they cannot stop talking, and then you really want to ask them questions as though you were going to be a potential client for their business. You obviously never want to disclose that you are thinking about buying the other business, but you are going to ask them questions.

We talked about earlier - one business that I was looking at years ago was a concrete restoration business. And what this business does is they do work on seawalls and any buildings that border the ocean because there’s a law that provides that every 40 years the integrity of the cement or the concrete along the seawall, or along the ocean rather, has to be investigated to make sure that it hasn’t diminished at all.

And so what happens is the companies go in and the only way that you can test, for example, a seawall is you have to bash a big hole in it. Well, the reason why I liked this business is even if the seawall’s in great shape you’ve got to fix the hole after, right? So this company benefited either way. It was a great business. Interesting business actually. And the seller disclosed to me that there were certain competitors in the business, and he gave me the figures and he had two crews and he said he was about a third of the business.

Sort of doing some rough math I realized that the other companies would probably have to have - there’d be another four crews that would represent the total amount of the business. I mean, I will not bore you with the math, but based upon what the seller told me, it basically came out with that he owned a third of the local market and the other players, divided it with them. But you basically would have - there were four other what they call crews to complete this work in this general area that would make up this whole market.

So I call up this competitor and I tell them I’ve got a condominium in Pompano Beach and it is 39 years old and I’ve got to check the concrete, and the guy - I asked to speak to a salesman of course and he got all hot and bothered right away, a condominium, that’s great, he knows what is involved with that work, it’s a pretty substantial contract, and I started asking him questions and, “how long have you been in business and how does it go with the work? And who gets the permits?” And I started asking some very basic client related questions of a perspective buyer, questions that immediately lulled him into being comfortable that I was a perspective customer of their business.

And then I said to him, “How many crews do you have working for you?” Again, I kept in mind that there should be four other crews into addition to the business I was looking at. The guy tells me, “Thirty-six.” Thirty-six. I said, “Are they all busy?” I started laughing. He said, “Oh yeah, we’re busy all the time.”

So that tells me right away that this business that I was looking at, he wasn’t a third of the market he was probably 1/18 of the market at best. Right?

Salespeople don’t shut up. So they will give you all the information. Obviously you never, ever, ever disclose that you’re thinking about the other business. And most sellers do not want you to meet their customers.

You talked about competitors; most of them don’t want you to meet their customers. And it is not always necessary, like in a retail business, for example. But it’s definitely something you must do before you buy a business where the case is that there may be a customer concentration issue or a long standing personal relationship between the seller and the customer. And the same is true with suppliers of the business. If it’s just a good very generic relationship with them and good important reciprocal relationship, oftentimes you don’t have to meet them, but oftentimes you do.

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