Six Lessons from Six Months of Search

1. Pick up the phone.

• The more you pick up the phone and speak to brokers, business owners, investors, lenders, etc.

  • the better you get at telling your story,

  • the more deals you see,

  • the more owners you talk to,

  • the more feedback you get, and

  • the more confidence you gain.

2. It’s OK if your acquisition criteria evolves. Expect it to change as you get more experience.

• You will NOT find the “textbook perfect” small business.

• As you see more deals, you’ll start to get a feel for what criteria you want to change. Take action – nothing forces you to learn quite like experience.

3. Industry matters. You shouldn’t be completely agnostic.

• Industry selection matters - especially if you are using debt. You can’t escape certain industry dynamics like cyclicality, average payment terms, and capital intensity.

• Understand your personal strengths and weaknesses. The industry should match your skills, interests, lifestyle, and experience.

4. If you want to win deals, you MUST move fast.

• You should communicate valuation early. Don’t be afraid to make an offer fast. I didn’t initially use an indication of interest (IOI) because I felt like it was overkill, but I started using them now and have seen good results because it lets me get valuation discussions out early in the process.

• To move faster, use tools like Kumo to see deals right when they come to market, build a simple financial model you trust, build a template IOI you can use to get valuation out early, and have some comparable metrics / comps you can use that are specific to industries you are targeting.

5. Authenticity wins over generic “carry your legacy” pitches.

• Seemingly everyone looking to buy a business is saying they will “carry on the owner’s legacy,” and “shepherd your company through its next stage of growth.”

• To stand out with an owner, you should be authentically you and approach them with genuine curiosity about their history with the business, their goals, and what they care about.

• Owners can tell a difference between someone rattling off a set of prepared questions vs. having a genuine conversation with them.

6. Searching for a business to buy is tough– be prepared with a peer network and prepare your family.

• I highly recommend developing a network of peer searchers, investors, lenders, and others experienced in the ETA community.

• I can’t emphasize enough how important it is to have candid conversations with your spouse about what you are signing up for. I could NOT do this without the unwavering support I’ve gotten from my wife Elise.

1. Pick up the phone.

I don’t hear this shared much in the entrepreneurship through acquisition (ETA) community, so I listed this first.

It’s easy to get caught up reading books, listening to podcasts, building an acquisition scorecard, researching a new industry, building your website, creating an email signature, writing and sending cold emails, browsing BizBuySell, or completing dozens of other tasks.

It feels productive to check these things off your “to-do” list. But these activities are NOT what gets you closer to your goal of buying a business.

Here’s what does: picking up the phone and speaking directly with brokers, business owners, lenders, CPAs, lawyers, and investors. The more you do this:

• the better you get at telling your story,

• the more deals you see,

• the more owners you talk to,

• the more feedback you get,

• the more confidence you gain, and

• the more likely you’ll be taken seriously.

I’m not saying you shouldn’t research industries or build a website or check BizBuySell or do email campaigns. I’m saying that you should prioritize picking up the phone.

2. It’s OK if your acquisition criteria evolves. Expect it to change as you get more experience.

When I started this process, I thought I knew what a good business acquisition candidate ought to look like. And I had some relevant experience to guide those thoughts (5 years in M&A + small business sales & ops experience).

After all, with an estimated $7 trillion in baby-boomer led businesses set to change hands in the next 10 years, how hard could it be to find a capital light business from a retiring owner in a fast-growing, non-cyclical industry with high recurring revenue and healthy margins generating $1-2 million in EBITDA providing an essential service to a diverse and sticky customer base, with a good management team in place, and for a fair price of 4x EBITDA?

Turns out, not so easy.

Six months and 90 CIMs later, I’ve started asking simpler questions.

Do I like this industry?

Is the revenue generated by the business predictable (even if not “recurring”)?

_{Recommended reading from Johannes Hock:}

Does the cash flow from the business and asking price / valuation allow me to comfortably service my debt?

Do I trust the Seller? 

Of course, I still care about the underlying business characteristics. But I’m much less mechanical and can assess whether the business is a good candidate much faster. And as I’ve searched longer, I’m more willing to step into a smaller business.

Putting in the reps matter. And so does the industry.

3. Industry matters. You shouldn’t be completely agnostic.

As a self-funded searcher, there may be geographic and financial constraints that make it too challenging to target a tight set of 2-4 industries. That leads many self-funded searchers to conclude (as I did) that they will be “industry agnostic.”

The allure of being agnostic is understandable, but I think it’s dangerous to be completely industry agnostic. You should research industries and understand the business characteristics inherent in those industries. You should also be honest with yourself about your strengths and weaknesses.

You’ll be tempted to consider industries and businesses that aren’t a good fit for you if you aren’t deliberate up front about what matches your skills, interests, lifestyle, and experience.

 Here are some reasons I think choosing the right industry is critical:

1. Impact of Debt. Acquisition entrepreneurs are almost always taking on significant debt, which makes predictability of revenue and market dynamics of the chosen industry crucial. And there are certain industry dynamics—such as cyclicality, average payment terms, and capital intensity— that a business can’t escape. There are plenty of great industries and businesses that can thrive without debt, in good times and bad. But it gets MUCH more challenging when you add debt to the mix, which makes industry selection more important.

2. Industry Tailwinds and Headwinds. It’s fairly obvious that industries with tailwinds can make life easier on you post-acquisition. The downside is that it can be more challenging to find businesses for a reasonable price in highly desirable industries. For example, I looked at an HVAC business with $900K in EBITDA that traded at 8-9x and another with $625K in EBITDA that traded at ~7x. Those are prices you simply can’t pay as a searcher. But that doesn’t mean you should buy a business in a bad industry with declining demand, regulatory pressures, or other major headwinds just because it’s available at 1-2x EBITDA. Tailwinds are great, but stability is a must. A little work upfront can help you assess which industries you want to avoid.

3. First-Time CEO Considerations. Even if you have significant operating experience, this is likely your first CEO role. And if you are choosing an industry in which you don’t have direct experience, there will be a learning curve. That means you’re likely going to incur more costs up front than the Seller did. You might need to hire new employees sooner than you thought. And you may have growth plans that require more investment. Those all compress your margins and make cash flow even more important.

My approach to industry has evolved into a “hybrid” between picking a few specific industries and being completely agnostic.

I still describe my search as a broad, opportunistic one (looking for a service business, preference for B2B or home services, generating $500K to $2M in EBITDA, in specific regional geographies). But now when I talk to brokers and others about what I’m looking for, I follow-up with 7-8 concrete examples of industries I really like.

This last part has been an important and effective tweak I’ve made in the last few months. It’s helped brokers and potential referral sources get clear on what I’m looking for much faster and returned better results in deal flow.

I’ve also researched those industries enough to get some of the key metrics, determined a few key questions to ask early, and at least somewhat “speak the language” (even if it’s just at a 1^st grade level 😁).

If you want to lose credibility with brokers fast, then say you’re open to buying just about any kind of business and don’t offer any specifics on why you like certain industries vs. others. Brokers know that a serious buyer comes to the table with research, a plan, and specific criteria. If you seem open to “any opportunity,” they will think you’re either too unsure on what you want to close a deal, or that you just aren’t serious.

 4. If you want to win deals, you MUST move fast and demonstrate you are serious.

If you want to win a good deal, you MUST move fast. The minute that you think you’re excited about an opportunity, communicate that right away with the broker and/or owner. Be ready to explain why you are a good fit for the business.

And most importantly, be ready to make an offer / communicate valuation EARLY. 

Why? Because (1) you won’t waste time on deals that are too expensive for you, and (2) the broker / owner will treat you more seriously.  

When I started six months ago, I overanalyzed deals, moved far too slow, and sometimes sent brokers the wrong signals – suggesting I wasn’t a serious buyer.

Here’s an example of what I mean from an early deal I reviewed:

• I spent over a week with the confidential information memo (CIM) with zero communication back to the broker.

• I built a comprehensive list of questions I wanted answered before communicating any strong interest in the business.

• I didn’t sell myself enough on why my background and career experience lent itself to successfully running this business.

• I didn’t ask about what the seller was looking for in an offer or ideal buyer. I didn’t consider what the Seller planned to do in retirement and what his financial or family situation was.

• After getting some key questions answered from the broker, I said I’d consider the information and get back in touch. I never once communicated valuation range (because how could I possibly talk valuation without meeting the owner?).

• I spent a few more days (and MANY hours) building a financial model and researching more about the company and the industry.

Consider this a bullet point list of what NOT to do. By the time I got “comfortable” that I liked the business (roughly 3-4 weeks after receiving the CIM), the broker told me the Seller was under LOI with another buyer. Bummer.

Now, my approach is much different. For a typical deal I will: (1) quickly review the CIM and record basic metrics, (2) call the broker immediately if I like the deal, (3) input numbers in a very basic “napkin” financial model, (4) if the deal “pencils,” and I like it, I draft an IOI outlining a valuation range. For a deal I really like, I now might accomplish all 4 steps in just a few hours.

I’ve seen a huge difference in how I’m treated by brokers and how quickly I can meet with the Seller when I’m communicating valuation and potential structure within a few days vs. several weeks later.

Here is what has helped me move faster on deals more consistently:

• Using KUMO to see deals right as they come to market.

• Building and getting comfortable with a VERY simple financial model that I trust.

• Building a template IOI and using it to make written offers quickly.

• Having a set of metrics / comps specific to certain industries that help me quickly compare new deals to past deals I’ve reviewed. 

5. Authenticity wins over generic “carry your legacy” pitches.

In the realm of search funds, there's a familiar pitch that is used when courting business owners:

• "I pledge to honor and build upon your legacy."

• "I aim to guide your company into its next era of growth."

Although these are common (admittedly there is similar language on my website), this doesn’t resonate with sellers without genuine connection.

Recently, I've shifted my own approach, engaging owners with authentic curiosity rather than a checklist of questions. There’s nuance to it - and the subtlety of this approach is hard to describe. But you likely recognize the difference between someone rattling off a set of prepared questions vs. having a genuine conversation with you.

In speaking with a few of my personal contacts who’ve been fortunate to sell their businesses, I’ve found a common theme: all of them told me they wanted to be confident the buyer would take care of their people.

You might say, “duh - of course they care about that.” But here’s an interesting thought exercise: how do you know if you are giving an owner confidence that you’ll take care of their people?

You can say it on your website. You can say it in a meeting. But they don’t need to hear it or see it. They need to feel it.

People - and business owners in particular - are REALLY good at recognizing BS. So it’s not enough to tell someone about your intention to treat their people well; the owner has to feel your commitment. And that’s why authenticity - truly being yourself - is the key to standing out.

6. Searching for a business to buy is tough– be prepared with a peer network and prepare your family. 

Many people in the ETA community will tell you that searching for a business to buy is HARD. Six months into my journey, I've realized it's challenging and mentally taxing in a unique way, but it is a very different kind of “hard” from my other career experiences thus far. I’ve done late nights as an M&A lawyer, navigated the startup world as SVP of Sales, and juggled work with an MBA and new fatherhood.

Search isn’t hard like that. And in many ways, my past experiences make me feel more aligned with people who say, “if you think searching for a business is hard, try operating one.”

But the search journey feels more out of my control and tests my patience more than past experiences. Patience is admittedly a virtue I struggle with. But I was convinced I’d be an exception to the “average timeline” and would find a business within ~6 months. Now I have more respect for why it takes the average self-funded searcher 13+ months. 

Self-doubt and second-guessing yourself is pretty much guaranteed during your search. That’s where I’ve found that having a strong network of peer searchers, investors, lenders, and most importantly a supportive spouse makes a huge difference.  

I have an almost indescribable amount of gratitude for Martin Lopez, a former classmate of mine at UCLA Anderson, a friend, and a recent “searcher turned CEO.” Martin just closed on his business this January (Dryeco) – and I couldn’t be more excited for him. He’s already broken the company’s record for sales in a single month!! He was one of my biggest supporters the past 6 months and I feel like he turbocharged how quickly I got up to speed. He is an amazing person and that unique combination of intelligent, humble, and encouraging. I’m proud to call him a friend and can’t thank him enough.

Kyle Pezzi, who is running a traditional search fund, also deserves a special call out. We had the pleasure of meeting through Jake Linton, my cousin-in-law who is brilliant and will likely be entering the search fund world himself. Being able to bounce ideas off Kyle, get his feedback, learn from him, and hear his perspective has been a blessing and I’m incredibly appreciative of his time and support. And there are many others in the ETA community (investors like Ben Bortner at Slack Water Capital, for example) and several SBA lenders whose support I’m very grateful for.  

But even with the support of peers and veterans in the ETA community, good luck doing a solo, self-funded search without a supportive spouse. I can’t emphasize enough how important it is to have candid conversations with your spouse about what you are signing up for. And by the way, it’s not just the search – it’s the lifestyle that will follow when you acquire the business!

If you think the stress and state of uncertainty with search is difficult, then taking on the role of CEO of a small business (which can be all-consuming) may be a shock to your family’s routine. Make sure you’ve discussed all of this with your spouse so you can count of them for support when you need it. 

My wife Elise has been my biggest supporter (and at times therapist) through this process. With two boys under 3 years old, it’s no exaggeration to say that I could NOT do this without her full support. We’ve now done a cross-country move from California to Florida, another move 6 months later, and are prepared to move again for the business. Any moment where I’ve wavered, no matter how brief, Elise was there to say, “Stop doubting yourself - you can do this.” She’s my rock and my best friend, and this wouldn’t be possible without her.