Are you a Search Fund entrepreneur?
Inspired to lead people and build something meaningful? Interested in working for yourself? Driven to succeed? If you said “yes” to these questions, then you may be in the select group of less than one percent of MBA graduates from top business schools around the world who choose to become a Search Fund entrepreneur.
According to the 2013 Search Fund Study published by the Stanford Graduate School of Business' Center for Entrepreneurial Studies, you have a 74% chance of buying a company. Pacific Lake Partners' searchers perform even better, with over 80% having successfully purchased a company. In the operating phase, according to Stanford, 63 percent of companies make money. In our experience, four out of five will make money, with three out of five on or above their base case plan.
This is a personal decision. We invest in solo entrepreneurs and partnerships and have seen success with both.
That said, the most recent Stanford study suggests correlation (not causation) between partnership Search Funds and top quartile outcomes...but we believe it's not that simple. The Stanford study does not control for the fact that the ratio of partnership to solo searches was roughly 3:2 during the studied time frame. Even if adjusted for this, there are unexplained, fund-level dynamics at play (e.g., an entrepreneur's listening skills, tendency to seek advice, and ability to detect good from bad guidance) that affect its eventual outcome.
At the end of the day, it's your call to make. If an entrepreneur does choose the solo route, one way he or she can inoculate her/himself from this phenomenon is to hire another recent MBA graduate or experienced operator early after acquisition.
Our experience overwhelmingly suggests that the quality of the company one buys and the industry in which it operates are the most influential factors in the entrepreneur's eventual outcome. Third most is the size of the acquired company; the bigger the better.
An industry focused search improves your odds of buying a good company. In an industry search, every interaction is additive, increasing the searcher's knowledge base. The searcher builds confidence and credibility that engenders trust with the eventual seller who decides to sell her/his business to the entrepreneur.
After acquisition, the bigger and better the industry, the more opportunity there is for a resourceful entrepreneur to build a meaningful company.
This is the toughest question that we get asked, but our criteria are both objective and subjective. In the objective part, we look at your search strategy, industries of interest, screening criteria for an attractive company, and your proposed terms. In the more subjective piece, we focus on you, your past experiences, why you want to be a Search Fund entrepreneur, your demonstrated history of resourcefulness or entrepreneurship, and your willingness to listen.
There is no "silver bullet," but a great entrepreneur who is driven, willing to listen, and who buys a solid company in an attractive industry is likely to succeed. A strong board can keep the entrepreneur from making any “body blow” mistakes early on while he or she learns how to manage and grow an organization.
Decide if this is the path for you.
The Search Fund community is very welcoming. We, and especially the entrepreneurs that have gone before you, will take your call. Find them (both searchers and operators), reach out, and listen.