Are you properly settled in for the ride as a Blue-Chip Executive on the journey to buy a business?
The journey can be long and arduous, and you might get lost and never arrive, or crash on the way, or get distracted, or wind up at the wrong destination.
So, as you’re buckling your seatbelt, examine the ways your journey to buy a business could get derailed and then, take our tips to heart – they will help you stay on track.
1. Getting lost and never arriving
Instead, begin conversations early and often
You probably haven’t acquired a business before, as most individuals only make that investment once. That means you have a lot to learn and a lot of people to meet. Be willing to ask questions and seek out new connections. Buying a business, especially in the lower middle market, is complicated and relationship driven. Begin conversations early and often.
If you are hoping to source a deal using your own network, be prepared for at least 12 months of conversations.
We see most executives who successfully go it alone work an aggressive networking strategy – talking to anyone who will give them an appointment, and going to the usual suspects: attorneys, accountants, financial advisors, business owners, etc. These conversations are important, as these are the people that know the good businesses, and they are the best option to source a business you love and a hopefully a closed deal.
And just to be clear, by aggressive networking strategy we mean a minimum of eight new contact meetings per week during those 12 months.
But, it’s generally the case that those conversations will come up short. As good as your network may be, private business deal flow is hard to come by. Many of our clients spent 12 months shaking their money maker in the market to not find success, ultimately calling us. You could also save yourself some time, energy and hip health by calling us before you work that money maker. Read about how we create proprietary deal flow here.
2. Crashing on the way
Instead, know that private equity (or private investors) may love you, but they don’t need you
As a Blue-Chipper, you have likely had many conversations with private equity firms excited for you lead an acquisition and create great equity.
If you are a novice, be wary of this siren song. Or, at the very least, learn how the game is played and your position in the balance of power. It’s not that private equity is insincere in their desire to have you lead one of their companies but their mandate is first and foremost to deploy capital and only then to maximize returns.
In your various meetings, take note of how often you hear the key comment, “We’d love to back you if you can bring us a deal…”
The balance of power rests with the person that sourced and controls the negotiations with the acquisition target. If the private equity firm sourced the target, they might love you and really want to do a deal with you, but their obligation is to close the deal and maximize returns. You will be one of many potential CEOs considered.
Again, to be clear, know that Private Equity firms will not find you a deal.
You cannot go to them and expect to take your pick from some sort of large bank of deals that have been in limbo waiting for you to drop out of the sky. Wouldn’t that be awesome, though?
You need to realize the critical importance of that key comment as your guiding strategy – go find the deal yourself, and then go to them (and multiple of them).
3. Getting distracted
Instead, clarify and specify, but also strategically loosen and broaden, your goals and desires
Even as an individual buyer, you absolutely must have an investment thesis.
Clients come to us across the spectrum of goal clarity, but generally fall somewhere between two extremes.
One end of the spectrum has a very specific idea of the ideal business. They envision their dream company five minutes from their driveway in an incredibly niche industry they’ve worked in for 20 years, with great employees and seamless operations, and an owner that will let them join with a huge salary and buy the company over time with no money down.
On the other end of the spectrum others just ‘want something that makes money’, because ‘business is business, and I’m so good I can run anything’. Being a business owner is a dream of theirs and they feel like they have enough tools in the toolbelt to get by at most any company.
As is often the case, you need to be somewhere in the middle. At the one end of the spectrum, there are likely zero companies that exist to acquire, and at the other end of the spectrum you may find yourself married to a company that makes you miserable.
Define your standards for qualitative and quantitative measurements in your investment thesis, but have flexibility.
Don’t throw out just one line, but realize that you can’t cast a net over the entire ocean either.
It’s tough to find this middle ground. We have designed a workbook for our Blue-Chip Executive buyer clients to guide their goals into a prioritization that isn’t limiting. You can download this workbook here.
4. Winding up at the wrong destination
Instead, don’t take the emotion out of it
In your business acquisition process, you are working to satisfy the two personas inside of you – the investor and the operator.
The investor needs to care about the rewards and risks, and maintain discipline over the process. The operator wants to be fulfilled. You have to connect those two. Make a sound financial decision but remember you are also signing up for a job.
Don’t take the emotion out of it – that’s a significant piece driving your desire to be an entrepreneur versus some other corporate job.
Embrace the emotion.
Becoming a business owner adds a new dimension to your identity. It’s a weighty change, and the ability to maintain healthy emotion levels and subsequently your energy, is the dominant factor of success as an entrepreneur. Persistence drives success, and healthy energy drives persistence.
Don’t short change yourself by thinking the process is only financial.
Buying a business is anything but simple. The journey to a successful acquisition can have many twists, turns, flat tires, dead ends, empty tanks, back-seat drivers, wrong directions, construction zones and engine repairs. Continually getting back in the seat to keep driving is required.
You will have more success if you are willing to:
1. Learn and adjust
2. Know where your power lies with private investors
3. Have a rough investment thesis and maintain discipline
4. Leave the emotion in the process.
Success is rarely the result of an accident.