When it comes to acquisitions and exit planning, it is important for everyone in the transaction to understand the type of business that is being evaluated. Regardless of industry, all businesses fall into three simple categories.
A business is either a candy, a vitamin or a painkiller. Think about it. If you have the choice of receiving a piece of candy, a vitamin or a painkiller, which one do you need the most?
Most would agree that the answer would depend on the situation. A person with a toothache needs a painkiller more than a piece of candy, but a person with a vitamin deficiency may need a vitamin more. The candy may be more valuable for a person with low blood sugar.
In everyday life, there is a hierarchy of needs when people make decisions. People prioritize needs and are willing to make sacrifices for wants. In times of scarcity, wants are often the first items removed from a person’s budget. For those in-between (vitamin) items that people should get, some people will prioritize them in times of scarcity and others will stop buying them. The decision depends on how well customers understand the value of the product.
Candy businesses are “wants.” Vitamin businesses are “shoulds.” Painkiller businesses are “needs.”