Welcome to Upper Market

Another week - another series of businesses have come on the market.

We’re anti-trash around here.

Unless we’re picking it up… and getting paid well for it

What’s ahead in this Newsletter

Can the Youth be inspired to give up vaping?

Maybe the prospect of owning a group of vape shops could be the… gateway.

I’m not close to being a parent anytime soon, but I would imagine that it would be a mixed bag of emotions seeing your child put harmful, phallic shaped objects in the hands of 13 year olds.

But then again…

Aiming for a $2.7m exit isn’t necessarily a bad innings

I respect the hustle, but I question the morals

The mechanics here work.

Small items —> Easy to Ship (e-commerce, import friendly-ish)

Addictive —> Repeat Customers (new flavours, paraphernalia and reasons to host events)

Community Orientated —> Your Staff are more Shaman, than employees.

Provided you’re set up with bollards, fog cannons and a panic button,

Selling should be pretty straightforward.

No profit figures, not my kinda deal, but if you know someone who might want it - then let me know.

Most people are unable to problem solve effectively.

I can’t blame them.

Buying a business seems complicated to most people.

At risk of sounding privileged, I never understood why.

To me, it’s always been a series of very straightforward steps.

So straightforward, that I could riff a free course on it - available here

But despite the process being simple, I realised recently that knowing the process actually reveals something very important to people who are just starting out.

It reveals glaringly obvious constraints

Constraints such as deal flow, access to capital and debt, limited knowledge, inability to build a thesis.

Absolutely everything.

That makes is hard for people to know how to tackle the task.

Over the next few weeks I’m going to be breaking down each of these constraints and giving actionable steps as to how you can start breaking through them.

In the meantime, there’s a useful book I can recommend for you. It’s called “The Goal”.

Mr Beast has talked about it recently in an interview with Google/YouTube. He mentioned the book and noted that his main focus to grow was to commit to solving the main constraint each step of the way.

Over the next few weeks, I’ll give space in the Newsletter to talk about these constraints.

Why they exist, what the constraints are, what they open up and exactly how to remove them.

Next week we’ll be starting with Deal Flow

Hospitality deals are precarious.

At a moments notice you can lose key staff, face a recession or need to haul out cash to refit an entire restaurant.

99% of them I would be staying away from. But here’s one that might break that rule.

And that’s based on the scale of the operation

This is a large-format venue doing serious numbers, with enough size that it starts to behave differently to your typical café or restaurant.

Once you get past a certain revenue & profit threshold, the game changes.

The first thing that stands out here is earnings at scale.

Most hospitality venues never get big enough to:

• properly cover overheads

• hire real management

• generate meaningful profit after paying everyone

They sit in that awkward middle ground where the owner is still required to make it work.

This has pushed past that.

At this level of trade, you can:

• absorb inefficiencies

• pay for capable people

• still have something left over

The second thing is it runs without you.

A “fully managed” hospitality business only exists when:

• the team knows what good looks like and strive to uphold standards

• systems are repeatable

• problems don’t escalate straight to the owner

Most businesses say they’re managed, but this isn’t always the case.

The third thing is throughput.

If the space is designed well and the operation can handle it, volume solves a lot of problems in hospitality.

At the same time, it can also smoke the operation. Large venues have big overheads. Unprofitable days can hurt much more - keep note

What I’d Want to Understand

First is how real the management layer is.

If the current owner disappeared for 3 months, what happens?

Second is how sensitive the business is to the location & ownership

Some venues work because of the operator, or because of where they are.

Location can work. Just be aware of lease agreements. Avoid Auckland CBD

Third is labour discipline.

At this scale, small inefficiencies get expensive quickly.

If labour isn’t tightly controlled, the profit disappears. How is this currently controlled and who does this?

Fourth is age of business

If this is something new, trendy and hasn’t been through over a decade of ownership. I wouldn’t be interested in it

New places get attention in the short term, but a quality establishment is what makes sure people keep coming back for more.

Final Thought

Most people underestimate how hard it is to build a hospitality business that:

• does real volume

• has proper management

• and doesn’t rely on the owner

That combination is what makes this an interesting opportunity to look at the IM for

If you want more details on either of these businesses or would like an introduction to the sellers, just reply to this email.

Trash isn’t boring - it’s sexy.

Construction, renovations, clean-outs and demolitions all generate waste. Someone has to collect it, transport it and dispose of it.

Two skip bin businesses are for sale this week, both located in Auckland.

Individually, these types of businesses are typically small owner-operated logistics operations. But when you see two appear in the same region at the same time, it raises an interesting question.

What happens if you combine them?

The first thing to understand about skip bin businesses is that the economics are largely driven by truck utilisation.

The business is effectively a “glorified” transport business

If the truck is moving bins throughout the day (dropping off, picking up and cycling through jobs efficiently) the business can generate strong operator earnings.

If the truck sits idle or spends too much time travelling between jobs, margins deteriorate.

Anecdotally, I’ve seen several others come up for sale over the last couple of years. This tells me there are more out there that are available for you to buy, build and grow through acquisition.

Waste removal isn’t discretionary.

Builders, renovators and landlords don’t debate whether they need a bin. The trash HAS to go. They simply need one delivered and collected.

Speed and reliability often matter more than price.

Which means operators who can deliver bins quickly and service jobs efficiently tend to capture repeat customers.

This is where scale begins to matter.

A slightly larger operator with more bins and more trucks is able to respond faster and handle higher demand without stretching capacity.

Here are a couple of things that I’d want to look at:

First is bin utilisation.

How many drops and pickups are happening per day? Understanding the current job volume is critical to determining whether the truck is already near capacity or whether there is room to grow.

Second is customer acquisition strategy & cost.

Who are their existing customers, how are they currently getting them and what’s the cost to this.

This gives you the inputs needed to understand costs on pushing up bin utilisation.

Third is customer mix.

Is the business primarily servicing residential customers doing clean-outs, or does it have relationships with builders and contractors who generate repeat work?

Construction-based clients tend to provide far more predictable demand. How did it get these customers and how can it get more of them?

The Drawbacks: Capital Expenditure

To grow, you’re going to need more bins. This is going to cost money. Capital expenditure can be painful in a business during its early stages.

That’s why in a fragmented industry, growth through acquisition is the ideal strategy to utilise. You’re going to end up spending money buying more bins, why wouldn’t you look to spend it on owning a competitor?

The Drawbacks: Hiring

Finding quality staff to operate the vehicle may be tricky. The blue collar world does exist, but you are unlikely to have a steady stream of high quality applicants looking to do this work.

Final Note: Businesses like this generate a lot of interest for one reason:

It’s simple to understand and operate.

If you want more details on either of these businesses or would like an introduction to the sellers, just reply to this email.