Our five-minute test to take before investing in a business.

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.