Is search right for you?
Searching almost sounds too good to be true! You want to be an entrepreneur, but have no “great idea”. You have just completed your MBA and dread jumping back into what you did before school. Or you have been working for a “paycheck” for 10 years and want to have equity ownership. Perhaps you are tired of working in a large organization or they got tired of you working for them! Perhaps you have heard that search is the path to riches! These may not necessarily the best reasons to set yourself down this arduous path.
Instead, ask yourself how important the qualities of autonomy, creativity and independence are in your role as a CEO. To Mike and Linda Katz, running their own business allowed them the flexibility to raise a family and for both to have a shot at running their business as CEO – another form of independence. On the other hand, Steve Divitkos, now CEO of Microdea, was striving to be a leader of an organization with a high degree of personal autonomy. Today, many investors are interested in supporting these goals, but also, are looking for high returns and large size, perhaps more risky, businesses to add to their portfolio.
Hurdles to Overcome
The business you buy will not have the support structure, the peer support/challenge and the war chest to fund “projects” and “ideas” that you may have become accustomed to. In all likelihood, there will be neglect, waste and people issues that have vexed the prior owners. It is like buying someone else’s home or even a used car – it will have problems that are both apparent in due diligence and ones that arise later.
You will be taking the previous owner’s idea, strategy, and operational approach and using it to shape your own vision. It will be a long time before you can claim it as your own imagination and creativity. The business will have inertia and take time to bring about change. In fact the Stanford GSB Studies on funded searches reports that the average length of running the business is 5-7 years. Self-funded searches are probably more like 7-12 years. Be prepared for the long haul. More importantly, does this time frame fits your (and your investors’) own personality, interests and timetable?
It is very far from the “startup” experience where growth, new ideas, aligned goals and being on the cutting edge of innovation brings physic satisfaction. You will be lonely, initially surrounded by people who will view you as an outsider and not willing to trust you. You quickly learn that, unlike in a start-up environment, you measure your success in years not months or weeks.
When running the business, you will learn that operating is also not all about you. It is not just the investors who have provided financial support, but employees with families rely on you, vendors depend on your relationship with them and customers are counting on you to deliver value. Failure, a very real possibility, does not just impact you, but the lives of many others. The “mantle of ownership” weighs heavily on your shoulders.
Autonomy and Not Riches
HBS Professor Noam Wasserman in his book, Founders Dilemma, asks all would-be entrepreneurs – do you want to be Rich or King. Search is certainly a path to being king – making key decisions, setting direction, being in charge and having an impact. The path to riches is much less certain – most searchers early in their careers have to do more than one search before they see payoff for themselves. Those who remain in their businesses may wait a couple of decades before cashing in, with some missed opportunities along the way and very probably some “hard times” financially. This doesn’t even measure taking a minimal salary during the search or funding the search yourself.
Besides not necessarily leading to short term financial success, searching is neither running a “Mini Private Equity Firm” nor “asset class investment”. While the search process itself feels in many ways like what PE firms do, you have only one company in your “portfolio” and with the exception of negotiations, the skills developed during the search have very little carry over to the operating phase of running the business you acquire.
While the thought of having multiple businesses is appealing, successful searchers must be “operators” and generally are not satisfied being an absentee owner. A successful outcome is dependent on how the business is run in addition to the terms of the deal, multiple paid, industry segment, growth prospects, and even the historical track record.
The long operational horizon brings with it an impact on lifestyle. The startup reality of frenetic pace, extremely long hours and weekend meetings does not generally apply. You can have a life beyond just your business. With an average of 5-7 years before exit, this time frame gives you much more freedom to be with your family, develop your personal interests and have balance in your life in addition to providing results to your investors.
Is it right for you?
Be sure you are doing this for the right reason. Don’t search because it is popular or trendy. The skill set for searching can be learned, but would you “hire” yourself as the “CEO”? There are plenty of other quicker paths to riches in the financial services, Venture Capital, Private Equity, consulting or hi-tech startup field. The search has outcomes that put you “last in line”.
Searchers who head down this path, end up “kings” of their own destinies. For me, building something that lasted beyond myself and provided value along the way to the many constituents dependent on it was a fantastic reward.
Feel free to share some of your own best practices or experiences in dealing with these issues in writing a blog comments. I encourage this dialog, allowing all to learn from both my views and the views of others – a virtuous learning cycle. Jump right in! Also, I frequently update individual blog posts, add to the Reference section and Search tips, so visit the www.jimsteinsharpe.comwebsite regularly.