At Alpin, when we consider any investment, we use the 5-5-5 model to help us make the decision.
Simply, if the idea makes sense after 5 minutes, we invest 5 hours in learning more.
If, after 5 hours it looks as good or better than it did after 5 minutes, we invest 5 days.
If, after 5 days it looks as good or better than it did after 5 hours, we proceed.
This piece is about the 3 questions we ask ourselves in the first 5 minutes.
When looking at buying a business or investing in a business, we find asking three basic questions and answering them in 5 minutes, is a great place to start.
Doing this before you get ahead of yourself, can save you time and money later on.
Our three questions are:
1) Is the business in an attractive market?
The market has to be, at the very least, growing with GDP. It’s very hard to make an investment in a declining market, even if you think you have a unique plan or idea. (we’ve learnt that the hard way – we didn’t lose money, but we didn’t make any either!)
2) Is the market well-served?
If the market is well served, then you may struggle to find a unique angle (see q3). To answer this question, you can quickly form a (high level) view on:
competitiveness of the environment
the barriers to entry
are the current players investing or on a glide?
3) Do you have a unique angle?
This bit is the secret sauce. What are you going to do differently to others to grow (strong maintainable earnings)?
Your angle may be things such as:
an existing capability or operating synergy with your other operations;
access to a new customer with a specific need for the product/service;
a relationship with the vendor enabling better terms;
relevant leadership capability;
contacts in new markets and/or geographies; or
simply heightened energy levels and engaged stakeholders.
Quickly answering those 3 questions should take 4 minutes.
With the last minute, think about your answers. If your gut says, ‘do it’, invest 5 hours in learning more.
Next time, we will elaborate on what we do when the 5- minute test is passed, and we invest 5 hours in an opportunity – stay tuned!
If you’re keen to know more or discuss a specific opportunity, please get in touch.