Too Small for the Smart Money

The older I get, the more convinced I am that the best investments are just old investments with a new lens on them.

Think about what built quiet wealth in this country for a hundred years. The corner store. The laundromat. The car wash. The guy who owned three of something boring and never brought it up at dinner. None of it was clever. None of it was creative. It was a small business that threw off cash, that one person could actually understand, bought at a price low enough that it paid for itself.

That idea never stopped working. The only thing that changed is the lens.

Today the corner store is a Shopify brand. The laundromat is an email list of 80,000 people who reorder the same thing every month. The car wash is a subscription box. Same model. Same cash. New lens. And almost nobody with real money is buying them, which is exactly why I think you should.

Let me back up.

Wealthy people have already figured out the hard part. They know that owning a thing beats renting exposure to it. They know control beats a quarterly statement. And they are putting real money behind it. The number of family offices investing in private markets has jumped 524% since 2016, from 651 to more than 4,000, according to Preqin data now owned by BlackRock. The average family office today holds somewhere between 40% and 55% of its money in alternatives, up from about 30% a decade ago. Preqin expects the total parked in alternatives to pass $32 trillion by 2030, and wealthy investors are the main reason it is growing.

So the idea is settled. They believe it. I believe it too.

Here is where I think they get it wrong.

They take all that money and pour it into the same place. Big private equity funds. Private credit. Infrastructure. The institutional end of the market. And the institutional end is where the easy money is already gone. When everybody agrees something is a good buy, the price gets bid up, the fees eat the return, and what you actually keep starts to look like the stock market you were trying to get away from. Except now your money is locked up for seven years.

Meanwhile the old idea is sitting right there. Small online businesses, real ones with real profit, selling for two to four times what they earn in a year. Too small for a fund to bother with. Too hands-on for passive money. Too unglamorous to put in a pitch deck. No sizzle, a lot of opportunity. That is usually where the diamonds are.

Forget the story for a second and just look at what these things pay.

A healthy e-commerce or content business in the lower middle market sells for about 2 to 4 times SDE. SDE is just the real profit, once you add back the owner's pay and the one-time stuff. The bigger ones, above $5M, that run like real companies, go for 6 to 10 times earnings. But the small end, the $500K to $3M range where most of these deals actually happen, lands closer to 3 times. Those are not my numbers. That is what Peak Business Valuation, Flippa, and the brokers who move these every week all report.

Think about what 3 times really means. If the business just holds steady, it hands you back everything you paid for it in three years. After that it is cash in your pocket. That is a 33% return on your money, before tax, every year.

Be conservative about it. Say you are an investor, not an operator, so you pay somebody 15% of the profit to run it. Say it slips 10% a year and you fight to hold it level. Even then you are still earning somewhere in the high teens to the mid twenties.

Now stack that against everything else the smart money is buying.

Nothing on that list gets you to 25%. A small online business bought at the right price does. And you can put your money to work in 60 to 90 days, not hand it to a fund and wait ten years to see it again.

Fair question. If the math is this good, why hasn't someone seized the opportunity?

They have. Everywhere the big money can reach, they have. The reason the small end is still standing is that the low price is not a mistake. It is a wage. A business sells for 3 times because it still needs an owner to show up and do some work. And that is the one thing a $2 billion fund cannot do. The deals are too small to matter to them, the homework costs too much for every dollar they put in, and nobody at the fund is going to go run a $1.5M Shopify store.

So a gap opens up. Below about $5M you are not bidding against KKR anymore. You are bidding against regular people and small holding companies. Thinner competition, less sophisticated. And the buyer who is willing to do a little work, or pay someone to, gets paid well for filling that gap.

This is the same play the MBA kids run when they buy some tired business that still keeps its books on paper. The thing looks dated, so it is cheap. But dated and broken are not the same word. Most of these are just under-managed. The work is not the problem. The work is the whole point. It is the thing keeping the return from getting beaten down to the price of an index fund.

It also means right now is a better time to buy than the boom was, not a worse one. Prices came down hard from the 2020 to 2022 frenzy that everybody now admits was crazy. Content sites have gotten especially cheap, because buyers are worried about what AI does to search traffic. That worry is a real risk. It is also your discount. You do not get to buy a clean, growing business at 3 times when the whole room is excited.

Here is the part that separates this from handing money to a fund. When you buy an online business, you own the whole machine. The store, the brand, the product, the suppliers, the customer list, the email file. You can see every part of it. More importantly, you can change every part of it.

That is what most investors miss. A good online business is not a lottery ticket you hold and pray on. It is a stack of levers. The email list the last owner barely mailed. The winning product he never put on Amazon. The checkout converts at 1.8% when a clean one does 3%. The supplier who would take 8 points off your cost if somebody just asked. Every one of those is money sitting on the table, and none of it takes a genius to collect. It takes an owner who shows up. That is why the work pays here. It is not a tax on the return. It is where a big piece of the return comes from.

To paraphrase Robert F. Smith, all companies taste like chicken. He meant software. I'd argue online businesses do too. Same bones every time. A product, some traffic, a checkout, a list, a supplier. Once you have looked at thirty of them, you stop seeing thirty different businesses and start seeing the same handful of levers in a different order. And most of them are poorly run. That is not a knock. That is the opportunity.

So when you look at one, look past the headline profit and look at what it actually owns. Traffic from several places instead of one. Real repeat customers, better yet on a subscription. An email list the business controls, not a rented audience living on somebody else's platform. Suppliers and inventory that transfer cleanly to you. A brand people search for by name. And an owner who is not buried in it 50 hours a week, because a business that needs its founder every single day is not an asset you can own from a distance. It is a job you paid too much for.

Put three or four of those together and you have built something real. A small group of online businesses that throw off cash, that you control, that you can actually grow. Not a slice of a fund. The real thing.

This market is more mature than most people think. There are real marketplaces now. Empire Flippers, Acquire.com, FE International, Flippa, Website Closers. They check the financials, broker the sale, and move the business over to you. This is not buying some random store off a forum and hoping.

A few things I'd keep in mind if you are serious.

Buy in the right size range. The $500K to $3M band is the sweet spot. Big enough to carry a manager and survive a slow quarter. Small enough that the funds leave you alone.

Use the deal structures sellers already accept. Above $500K, most of these close with seller financing and an earnout. You are not fronting all the cash, and the seller keeps skin in the game on the numbers he just sold you on. The trust gets built right into the deal.

Make sure the profit is real. This is where most buyers get hurt. A store can juice a few good months by cutting its ad spend, running down inventory, or riding one viral product, then list at a multiple of that peak. Look at the trend across two or three years, not the trailing twelve months. Ask what it earns in a normal month, not its best one. The gap between those two numbers is the whole game.

I'd be doing you a disservice if I sold you this as free money. It is not.

These are small businesses, and small businesses break. The platform risk is real. One search update or one suspended ad account can wipe out a quarter. AI really is changing the content and affiliate models that drove the last few years, and some of those businesses are not going to make it. If the whole thing leans on one person or one supplier, that is a real danger. And you cannot sell it on a Tuesday morning the way you sell a stock. The money is not liquid. On top of all that, this only works if you, or someone you hire, actually pays attention. Buy it and ignore it, and you will earn exactly what a man earns who bought it and ignored it.

That is why I think this belongs as one piece of your portfolio, not the whole thing. It is the high-return, hands-on, you-actually-own-it piece that sits next to your stocks, which give you liquidity, and your funds, which give you scale. Even 5 to 15% of your money parked here can do more for your blended return than another slug into some crowded private credit fund.

The wealthy already decided that owning beats renting. They voted for it with trillions. The only thing left is whether they follow that all the way down to where it actually pays, or stop at the door of the big funds where the fees are waiting.

The old guy with three car washes understood something the family office still hasn't. The boring thing that pays for itself, that you can see and touch and improve, is the whole game. The lens changed. The idea didn't.

That is where the diamonds are. They just have Shopify logins now.

If you've got the money but not the time to go find these, dig into them, and negotiate them yourself, that is the work I do. Cade & Co. works the buy side for investors buying online businesses in the $500K to $3M range. I build out what you're looking for, find the deals, get into the numbers behind the pitch, and structure the seller financing and earnouts that keep the seller honest. You bring the money and the thesis. I bring you a short list of businesses that actually fit.

If that's useful, book a criteria call and we'll figure out what you're after.

The comparison figures in "The math is the old math" are sourced in the notes below. They are long-run or current benchmarks and will move with the cycle.