Pacific Lake Partners is one of the largest most successful search fund investment firms in the United States. Their 4+1 strategy is a great approach to search that is easy to understand. Here’s how it works:
Starting with a thesis is key for narrowing your search and finding an attractive industry. You need to ask yourself why the particular industry is growing and what are the factors attributing to this.
It can be hard to enter into a massive market, but you want to make sure the market is big enough for your business to grow. A very small industry will be difficult to build a business in due to the overall lack of success.
The business needs to stand out. Look for high margins and recurring revenue. Ultimately, you want the business to offer high quality service and products to customers.
Pacific Lake says that “penetration is the most commonly underrated industry characteristic by searchers.” Penetration can go hand in hand with growth, and an underpenetrated industry is a great market for growth.
QUALITY BUSINESS MODELS: THE PLUS ONE
The business models must be attractive for the searcher, because if you want to acquire the company, there needs to be potential for profit and overall success. As you develop through this process, you will build up more criteria to find out which companies are worth pursuing.