Tomorrow’s Fortune

Welcome to the action-packed newsletter designed to help you navigate the world of business and investing. If you missed last week’s post, check it out here. 😎 

Today’s Digest: 

• Please Don’t Buy one of these Three Businesses… They have no competitive moat, burn cash and typically end poorly for investors

• What’s Happening in the Markets? PE Buying Childcare Centers, Fed Comments Saves the Markets, AMZN’s Intense Job Cuts, and NVDA Earnings

• Deal Review We found a cash flowing Child Care Center in Texas ($350K of Cash Flow). Click HERE for the listing (Deal Review Below)

• 🚨The Deal Team🚨: The private community for business buyers, owners and investors is finally launching next month! Will have all of the resources you need to buy / grow a business - community, model / doc templates, AMAs with me, deal reviews and super cool guest speakers! Applications dropping soon!

TOP STORY

The 3 Types of Businesses You Should Almost Never Buy

Most first-time buyers focus on upside.

Great investors and operators focus on downside.

Because the fastest way to win in small business is to avoid the traps — the business models that look attractive on the surface but structurally cannot produce stable, compounding returns.

Here are the three categories I tell my business buying friends to avoid 99% of the time.

1. Restaurants — The Illusion of “Busy = Profitable”

Everyone thinks they can run a great restaurant.
Almost nobody actually can.

Why restaurants are traps:

• Zero moat: Customers are only as loyal as the next brunch spot.

• Labor-intensive: High turnover, constant training, thin wage spreads.

• Razor-thin margins: The house wins on volume… until it doesn’t.

• Perishable inventory: Food waste silently eats profits.

• Heavy seasonality: If you miss summer or holiday traffic, the year is shot.

Even the good restaurants barely throw off free cash flow after a market-rate GM.

If your dream is to own a “cute local spot,” sure — but that’s a lifestyle choice, not an investment thesis.

2. Shopify Stores — No Moat, No Pricing Power, No Predictability

A Shopify business is not a business.
It’s a marketing arbitrage.

The problems:

• Anyone can copy your product in 48 hours

• Meta ad costs keep rising

• Margins collapse the moment a competitor undercuts you

• No recurring revenue, no switching costs

• Your entire business depends on paid traffic and algorithm whims

Unless you own:

• a protected brand,

• patented product features,

• real wholesale relationships,

• or a massive organic audience…

…you’re gambling, not investing.

If you want exposure to ecommerce, buy a brand with real distribution, not a website that makes $300K by praying to the Facebook Ads gods.

3. Retail / Fashion — Competing with Fast Fashion Is a Losing Game

Independent retail looks charming.
From the inside, it’s a grind.

Why I avoid it:

• Fast fashion wipes out pricing power

• Inventory risk is enormous

• Trends change faster than your cash cycle

• Heavy CapEx for displays, stock, and merchandising

• Foot traffic volatility can destroy cash flow

You are competing against Zara, Shein, Amazon, and TikTok-induced micro-trends with two-week product cycles.

Even great operators struggle to scale.
Most simply survive until the lease ends.

If you want to be in retail, own the real estate, not the business.

The Pattern Across All 3

They all fail the same way:

• No defensible moat

• High operational intensity

• Low switching costs

• High variability in revenue

• Thin margins that collapse under real labor costs

• High owner-dependency

These aren’t “bad people” businesses.
They’re bad investor businesses.

They don’t compound.
They don’t scale predictably.
They don’t produce durable free cash flow.

As a buyer, your job isn’t to find cute businesses.
It’s to find cash-flow engines you can improve.

Sorry if I offended anyone owning or operating in this space. Just my honest thoughts on allocating fresh capital to these spaces...

So many have asked! Here’s my 3 Books That I Think EVERY investor and business owner should read - latest YouTube Video!

WHAT’S HAPPENING IN THE MARKETS?

• Private Equity’s New Obsession: Child Care Roll-Ups

  Private equity firms are aggressively consolidating the U.S. child-care sector, targeting small independent centers with long waitlists and strong reputations. In affluent markets like Greenwich, CT, owners report nonstop outreach — calls, emails, even unsolicited gifts — as PE platforms seek to add capacity, standardize operations, and scale networks.

  Why It Matters:
  Child care is becoming the newest “essential services” roll-up, offering predictable revenue, real-estate optionality, and strong demographic demand. But the push toward efficiency raises questions about pricing, quality, and regulatory scrutiny. For investors, the sector has attractive fundamentals — but operational complexity is high, and consumer pushback could become a political flashpoint in 2026.

• A Single Fed Speech Stabilizes Markets — Again

  New York Fed President John Williams delivered remarks Friday that effectively calmed markets after a choppy week driven by AI-sector volatility and rate-cut uncertainty. Williams signaled openness to a December cut while reaffirming the Fed’s commitment to stable policy messaging — enough for traders to reverse positioning and price in renewed easing.

  Why It Matters:
  Williams is one of the Fed’s most market-sensitive communicators, and his commentary often serves as the “anchor” when volatility spikes around policy expectations. His remarks show the Fed is actively managing financial-conditions tightening triggered by AI-related equity swings. For macro investors, this reinforces a familiar playbook: Fed tone — not just data — is driving curve steepening, swap pricing, and tech-heavy equity sentiment.

• Amazon Layoffs Hit Engineering Core Despite “Innovation Push” Narrative

  Recent state filings show Amazon eliminated over 1,800 engineering roles — nearly 40% of its 4,700 layoffs — across Washington, California, New York, and New Jersey. Teams in video games, advertising tech, and AI-powered search saw material reductions, even as leadership publicly emphasizes the need for faster innovation.

  Why It Matters:
  This is a strategic realignment, not a cost-trim. Amazon is quietly reallocating engineering talent toward higher-ROI AI infrastructure and away from lower-growth consumer tech verticals. The cuts highlight margin discipline ahead of 2026 capex cycles. Competitors in e-commerce, ad tech, and cloud should expect a leaner but more focused Amazon — one that’s directing capital toward AWS, AI inferencing, and logistics automation rather than peripheral bets.

• Nvidia Posts Blowout Quarter — Bubble Talk Intensifies

  Nvidia reported another earnings beat with a bullish near-term forecast and CEO Jensen Huang doubling down on AI demand durability. Revenue strength continues across data center, training, and inference workloads. CFO Colette Kress acknowledged “geopolitical issues” weighing on China orders but emphasized that global demand more than offsets the drag.

  Why It Matters:
  Nvidia’s parabolic run — now accompanied by a “half-trillion-dollar quarter” forecast — is forcing funds to confront the core question: is this the peak of an AI super-cycle or the middle innings of a multi-year capex wave? While China softness looms, U.S. hyperscalers and sovereign AI infrastructure buildouts are still accelerating. For allocators, the risk isn’t that Nvidia slows — it’s being underweight if the AI spend curve proves longer and steeper than consensus expects.

SO YOU WANT TO BUY A BUSINESS… 🏦

Deal of the Week: Two-Location Child Care Center Portfolio – Asking $4.5M (Incl. $3.4M Real Estate)

Opportunity Overview

This offering bundles two long-established centers in the fast-growing Pflugerville / Austin corridor, anchored by a fully owned 2.1-acre, 10,000 sq. ft. flagship facility and a second leased Austin site. The centers have operated since 2007 and together generate ~$360K in SDE — though this is almost certainly owner-adjusted and not true EBITDA.

In a vacuum, a two-location portfolio with real estate in a top-tier Texas ZIP code looks compelling. But the economics require real discipline: roughly 75% of the $4.5M asking price is tied to real estate, leaving only ~$1.1M allocated to the operating business — yet the disclosed cash flow is still thin relative to the operational footprint (15 classrooms, ~15K sq. ft., two kitchens, and 12 employees).

This is not a franchise-backed, capacity-maximized, curriculum-driven center. It’s a community operator with meaningful underutilized space, unclear enrollment metrics, and no disclosed revenue. In child care M&A, opacity is a risk flag — not a neutral fact.

If the business is full, margins should be stronger. If margins are this light, the business probably isn’t full.

Cash Flow and Profitability

SDE of $360K across two centers implies:

• Under-enrollment,

• Overstaffing,

• Subscale classroom utilization, or

• Owner add-backs that won’t transfer (common in family-run centers).

For context, high-performing child care portfolios in strong Texas suburbs typically produce 15–22% EBITDA margins when at/near licensed capacity. To generate only $360K SDE on a 15K sq. ft. footprint suggests the business is running below potential.

At the implied $1.1M valuation for the business operations, the multiple is ~3× SDE — but after adjusting SDE → EBITDA (removing owner salary, admin add-backs, and correcting for staffing), the real multiple likely expands to 5–7×, which borders on platform-level pricing without platform-level performance.

You’re paying largely for dirt. The business economics need to be re-proven.

What We Like

Prime Texas Growth Market
Pflugerville/Austin has strong demographics: dual-income households, robust population growth, and extremely tight child care capacity post-COVID. Location quality here is undeniably strong.

Real Estate Included (Major Advantage)
Owning the flagship site removes the #1 industry risk — lease renewal exposure. The 2.1-acre parcel also creates defensibility and future expansion potential.

Established Reputation + Operating History
Operating since 2007 with experienced teachers and an assistant director. Tenured staff reduces transition friction and improves classroom continuity.

Capacity Expansion Optionality
The acreage allows potential:

• Building enlargement

• Modular classroom additions

• Infant room expansion (highest-margin segment)

Expansion is a real lever — but it requires capital and operational sophistication.

What We Don’t Like

No Revenue Disclosed (Biggest Red Flag)
High-quality centers proudly share enrollment + revenue. When operators hide it, it nearly always means occupancy issues.

Low Cash Flow Relative to Footprint
Two centers, 15+ classrooms, 15k+ sq. ft., and only $360K SDE? That’s far below industry benchmarks. Something is structurally off.

SDE ≠ EBITDA in Child Care
Add-backs often include:

• Owner wages

• Family admin labor

• Non-recurring classroom expenses

• Below-market rent (on owned real estate)

Actual EBITDA could be closer to $200–250K, which materially changes valuation.

12 Employees for 15 Classrooms ≠ Ratio- compliant
Texas ratios require more staffing. Either:

A) Enrollment is light, or
B) Staffing is supplemented with unpaid/undisclosed labor.

Either option creates diligence concerns.

Austin Location Is Leased
Mixed real estate structures create dual risk: one stable asset, one annually exposed to landlord leverage.

Limited Professionalization
No mention of curriculum, accreditation (NAEYC, TRS), POS/CRM systems, digital parent communication, or enrollment funnel KPIs. These are table stakes for modern centers.

Key Questions for Diligence

Enrollment & Capacity

• What is licensed capacity for each site?

• Current enrollment by age group? (Infant/Toddler/Preschool/Pre-K mix drives margin.)

• Historical occupancy for the last 36 months?

Financial Integrity

• Full P&L with wages broken out by role?

• Owner add-backs — what’s truly discretionary vs. required for licensing?

• What is the EBITDA after adjusting for market-rate director and assistant director wages?

Staffing & Ratios

• Are ratios currently compliant across all rooms?

• How many teachers are floaters vs. dedicated lead teachers?

• What is turnover and tenure by age group?

Real Estate & Facility

• What condition is the 2.1-acre property in? Deferred maintenance?

• Capacity of current classroom layout? Can additional classrooms be licensed?

• Remaining lease term and renewal risk for the Austin site?

Pricing & Market Positioning

• Tuition rates compared to local comps?

• Annual tuition increase cadence?

• Waitlist depth by age group?

Regulatory Compliance

• Any TX DFPS citations?

• Status of recent inspections?

• Security, playground, HVAC, and kitchen compliance?

Bottom Line — Verdict: ⚠️ Watchlist, Not a Bid (Yet)

This is a real estate-led listing with an underperforming operating business attached.

Could this become a great acquisition? Absolutely — if:

• Enrollment is materially below capacity,

• Tuition is underpriced,

• Staffing is misaligned, and

• The market supports rapid capacity growth.

That’s a classic PE play in child care: buy real estate → professionalize → maximize enrollment → expand → refinance.

But until we see:

• Licensed capacity

• Enrollment mix

• Historical revenue

• Normalized EBITDA

• Staffing ratios

• Compliance history

…it’s impossible to justify paying near-market multiples for a sub-market operator.

This is a deal with upside — but also real hidden fragility. Without data, it’s speculation.

If the numbers break right, it becomes a classic Texas child-care real estate + operations play.

If the numbers break wrong, you’re overpaying for a lightly enrolled center whose economics depend on add-backs and sentiment.

Verdict: Add to Watchlist — Issue NDA — Request Full Enrollment Package Before Advancing.

This is a “maybe,” not a “move.”

This newsletter is for informational purposes only and does not constitute investment advice. The content is based on publicly available information, and the author makes no representations about its accuracy or completeness. Readers should conduct their own research before making any investment decisions.