A founder shares why he regrets buying his first ad agency, a struggling business with lost clients and falling revenue. Even with a good deal price, the math is brutal: a 50% drop needs a 100% gain to recover. In a recession, he now says, buy healthy businesses instead of turnarounds.
The upcoming recession is going to be a massive buying opportunity. So I wanted to share a couple of lessons I learned from buying small businesses. First things first, don't do a turnaround. The very first company that I bought was an ad agency and it was a turnaround situation. The revenue was falling, clients were leaving, the work that we were doing was no longer relevant. I decided to join the company. I eventually took over the company and I bought the company and I structured a deal that was a good deal overall. But ultimately, if I were to go back in time, I wouldn't have done the deal because when you think about a stock, Let's say a stock drops 50% in value. Well, in order to go back to the original value, you have to gain by 100%. So it's actually more work to go into a turnaround situation.
