Connecting with Sellers
You only have one chance to make a first impression. When you speak to a business owner for the first time, you will either lay the groundwork for a relationship that will end in you buying a business, or you will miss out on that opportunity forever. That may sound dramatic, but in the current M&A environment, most quality businesses, even those with $2-$5 million of EBITDA, have been contacted by multiple interested buyers. What will differentiate you as a search fund entrepreneur is your ability to build a relationship with business owners. The basis for that relationship is both personal and professional. The personal connection results from your entrepreneurial passion and story. The professional connection results from becoming knowledgeable about the owner’s industry. Your ability to ask thoughtful questions, to reference other key players in the industry, and to analyze the seller’s business is a major differentiating factor from buyers who take a more opportunistic approach.
Maximizing Your Time
In a search, time is your most valuable resource. The ability to discard bad and mediocre deals quickly gets you closer to the good deal you will pursue. A thesis-driven deep dive into an industry will enable you to separate the wheat from the chafe without having to get up to speed on a relatively unfamiliar industry. When you spend time looking in an industry, you will begin to develop pattern recognition for what makes a business attractive in that space. Searchers who take a more opportunistic approach tend to spend a lot of time researching new and unrelated industries whenever a business owner responds to their outreach. This takes time and leads to a lot of wasted phone calls and hours spent on google.
Finding a great river guide can be the silver bullet of searching. While you are doing a deep dive into an industry, you will develop industry contacts and possible river guides. These individuals can help you get smart fast and can be a shortcut when evaluating businesses. Some of those folks may even provide warm introductions to potential sellers.
Controlling Your Destiny
Few things affect your success more than the industry in which you operate. Why not therefore be intentional about selecting that industry? You have the opportunity to become the CEO of an extraordinary business in a promising industry. Your two-year search process will fly by, but the reason you dedicate this period of time in your life to searching is because you want to maximize your odds of success as CEO. Investing the time upfront and throughout your search to identify macro trends and focus on industries that flow from those trends increases your likelihood of buying in an industry that is growing and attractive. Serendipity is a part of searching. Whether you buy in a good industry does not have to be serendipitous. Identify macro themes. Dive deep into industries. Control your destiny.