The competitive advantage that protects you in acquisitions

Happy Tuesday!

When I’m evaluating any business to buy, one of the most important questions I ask is:

What would stop a competitor from coming in and taking these customers?

If the honest answer is “not much”, that’s a problem worth taking seriously before you commit to a deal.

Community Spotlight

Garrett bought a $1.7M accounting firm and is now making $264K/year in profit.

He went from not knowing how to evaluate deals to confidently closing on a million-dollar business.

👉 Want to learn how to read financials and evaluate deals like a pro? Book a call with our team here.

Why barrier to entry matters

A barrier to entry is anything that makes it genuinely difficult for a competitor to replicate what you’ve built and pull customers away from you.

Without one, you’re always one new entrant away from a pricing war.

And pricing wars in small business tend to end badly for everyone involved, especially the established operator who has more to lose.

With a strong barrier to entry, the picture looks very different.

Customers stay, pricing holds, and the business is significantly harder to disrupt (and significantly more valuable as a result).

What this looks like in practice

The most obvious barriers are regulatory.

Accounting firms require credentials that take years to earn.

Electricians, HVAC technicians, and other licensed tradespeople have to clear certification hurdles that take real time and investment.

Anyone who wants to compete with a credentialed operator has to go through the same process first, which limits how quickly new competition can materialize.

Geography is another underrated barrier.

In smaller or more rural markets, the population simply may not support multiple competitors.

If you’re the established operator in that area with years of local relationships, a new entrant faces a fundamentally different challenge than in a dense urban market.

And then there’s longevity itself.

A business that’s been operating for 30, 40, or 50 years has something no new competitor can buy: trust that’s been built across multiple generations of customers.

(In Acquisition Ace, members learn how to evaluate competitive moat as part of their deal screening process before spending weeks on due diligence. To hear about how our community could help you close your first deal, book a call with our team here.)

What weak barriers look like

Businesses with low barriers to entry tend to compete primarily on price, which compresses margins and makes ownership significantly more stressful.

Entry-level service businesses where startup costs are low and the skills required are minimal tend to fall into this category.

When the barrier to competing with you is essentially just showing up with basic equipment, the competitive pressure never really goes away.

That doesn’t mean those businesses are always bad acquisitions.

But it does mean you need to think carefully about what else - geography, scale, reputation, long-term contracts - might be creating protection that doesn’t show up immediately in the financials.

What this means for you

Businesses worth buying have something working in their favor beyond just generating cash flow today.

They operate in a space where it’s genuinely difficult for new competitors to displace them.

That’s what makes an acquisition not just profitable in year one, but durable over the long term.

When you find a business with that kind of protection built in, you’re buying a defensible position - a distinction that matters more than most first-time buyers realize going in.

If you’d like help identifying businesses that fit this profile, the Acquisition Ace community is built to help with exactly that.

👉 Book a call with my team here to see if it’s a good fit for you.