Private equity reimagined.
EDITION 06: INVEST ON PURPOSE
Editor’s note: This week, instead of exploring traditional private equity, we’re diving into an entrepreneurial angle inspired by a recent episode of The Prof G Pod with Scott Galloway “How to Build Wealth with Codie Sanchez”.
Did you know…
In the 1800s, 80% of Americans owned businesses; today, it’s only about 6%. The rise of industrialization and the corporate economy changed the landscape, and over time, business ownership shifted from individuals to corporations. Now, most people work for someone else rather than themselves.
But, baby boomers, who own a significant portion of the remaining small businesses, are reaching retirement age. This generational shift has created a paradox. On one hand, many boomers have built profitable businesses that have survived decades. On the other hand, fewer younger Americans are stepping up to take ownership of these businesses.
This disconnect has created a supply-and-demand imbalance: a bunch of small businesses ready to sell but too few buyers willing or prepared to take them on. For aspiring entrepreneurs, this is an unprecedented opportunity to step into the ownership gap, acquire established businesses with proven revenue, and continue the legacy of everyday businesses that have been the backbone of the economy for centuries.
Let’s dig into the opportunity.
Imagine this…
You’ve always dreamed of being an entrepreneur but felt paralyzed by the risks of starting something from scratch. The thought of building a business idea, securing funding, and hoping it all works out seems overwhelming.
Instead, you decide to take a different approach. You buy a local laundromat—an established business with steady cash flow and loyal customers. It’s not flashy, but you see its potential. By updating the machines, improving customer service, and adding a wash-and-fold option, you double its revenue in just two years. Now, you’re not only running your own business but proving that entrepreneurship doesn’t have to start with a leap into the unknown. You’re finally your own boss.
Welcome to private ownership.
Traditional private equity firms focus on buying undervalued or struggling companies, improving their operations, and selling them for a profit within 5 to 10 years. As an individual investor, you own a share of the private equity fund that manages these investments.
Private ownership, on the other hand, focuses on acquiring stable, profitable “main street” businesses. Instead of being a passive investor, you own the entire business and decide whether to operate it yourself or hire a manager. This approach offers a hands-on way to invest in proven businesses with growth potential, without the volatility of starting from scratch.
Why might this be interesting to investors? Because many local businesses provide essential services—like plumbing or cleaning—that people need regardless of economic conditions. This makes them more resilient during downturns compared to luxury or high-tech ventures. And if that wasn’t enough, as an investor, there’s creative and flexible financing available. Small Business Administration (SBA) loans can cover up to 90% of purchase costs, or, 60% of the time, the seller agrees to receive part of the payment over time, typically from the future profits of the business. So you don’t need a fortune to get started.
How to apply this…
This all sounds great, but there are some realities to consider:
Alignment is everything: Don't just buy a business—choose one that genuinely matches your skills and interests. This isn't about finding any opportunity, but the right opportunity. Your industry knowledge, professional background, and personal passion will be your most critical asset.
Do your homework: Go beyond the financials. Understand how the business operates, its customer base, ways to grow it, and any challenges it faces.
Financing isn't magic: While creative financing options exist, they're not a free pass. SBA loans and seller financing come with their own complexities. Understand the full financial picture—including your personal risk tolerance, potential debt servicing, and realistic return expectations.
Think long-term sustainability: This isn't about a quick flip. The most successful small business acquisitions are about continuing to build, not just making a quick buck.
In summary…
As people increasingly look for meaningful work and financial independence, this approach to private equity offers a way to reconnect with the entrepreneurial spirit of earlier generations. Buying everyday main street businesses combines strategic investment with practical, hands-on value creation—and might just redefine how you think about building your wealth.
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Sources
https://open.spotify.com/episode/1VOgL0Sq2bfEnpxYkCAgh1?si=iyQfAdBxTlmKlT5sLOTOtQ
https://ideas.darden.virginia.edu/entrepreneurship-through-acquisition
https://www.investopedia.com/terms/p/privateequity.asp#toc-private-equity-deal-types
https://www.moonfare.com/pe-masterclass/what-is-private-equity
