I own two distinct businesses: an event marketing company and a cleaning products manufacturer. I consider the marketing company to be a “sexy” business and the manufacturing firm to be squarely in the “non-sexy” camp.
Media pay a lot of attention to technology companies (the Facebook effect) but we rarely read about all the bricks-and-mortar businesses out there. Whether a sexy or a non-sexy business is the right fit for you boils down to the type of entrepreneur you are (or want to be), the lifestyle you desire, and your risk tolerance.
There are several sets of differences to consider:
It’s easier to land a loan for non-sexy businesses because a financial institution can lend against assets, such as machinery, inventory and equipment. Sexy businesses are often funded with equity rather than debt.
Sophistication of owners
Owners of sexy businesses are often well-educated and full of energy. Non-sexy owners tend to build enterprises from the ground up, and they learn from the school of hard knocks.
Barriers to entry
They tend to be lower for sexy businesses than they are for non-sexy.
Operating a non-sexy business can be more stable than running a sexy business. The products and services tend to be more practical and tangible.
Relationship management is considered more important for sexy businesses. Networking skills are crucial.
Market and industry characteristics
Non-sexy businesses are more likely to be stuck in stagnant industries with moderate growth. Sexy businesses veer toward higher growth. When you think about innovative tech businesses, for example, there’s a good chance their owners are building a new market.
If I had to put money on it, I’d bet the bulk of non-sexy founders are baby boomers and a higher number of sexy business owners are Gen Y.
Product versus service
Non-sexy businesses such as manufacturing and distribution are often product based, while sexy businesses tend to be service based.
Where am I going with all this? Let me explain why I’m interested in the manufacturing sector.
Most of my business-school peers aimed to wear a suit and tie, and to work for flashy companies. They couldn’t imagine going into a factory on a winter morning when, on any given day, the heating system might be broken. To me, this screamed opportunity: I wanted to enter an industry in which I didn’t fit the usual profile.
It’s a counterintuitive approach. All the entrepreneurs I know want to go into tech. They fit the profile.
Since few bright, young entrepreneurs want to buy non-sexy businesses, and given those businesses are generally operated by baby boomers, succession-planning problems loom large. What will these owners do if their kids don’t want to take over? There’s a good chance they have no succession plans at all.
If there are more sellers than buyers, it drives down acquisition multiples. If I can pick up non-sexy businesses for a low price, and there’s limited competition for acquisitions, I can roll them up and consolidate them.
This approach won’t help you build the next Facebook, but I think it’s a more practical long-term business strategy.
Billy Hennessey is the co-founder of Toronto-based events business Oxford Beach, and the owner of cleaning-products manufacturer RoyalPak, also based in the Toronto area. You can follow him on Tumblr at billysbusiness.tumblr.com, and on Twitter @billyhennessey.
Category: Startup Advice