Blog Image - Wearing the Coat
Being a CEO early in your career is the most significant benefit of the search process. However, the reality of taking over the reins of an established business may not live up to your imagined expectations nor be your true calling. It is best to examine your assumptions before you start, while you are searching and certainly before closing on a business. You want to find as many opportunities as you can to try on the seller’s “coat” to see how well it fits you.

Fundamentally, the search process has the same exciting “deal flow” aspects as Private Equity and Investment Banking have and you may already be comfortable wearing that “suit”. In reality, only 15% of your journey will be devoted to searching, while the balance of your time is all about “running the business” that will become your new wardrobe.

Many searchers wish they had spent more time thinking about the challenges they would face “living” with the business after purchase. It is essential from the very first screening of a deal to actively question “is this business really for me” and to develop a full understanding of the operational challenges you as the new business owner will face.

What you can expect at a search business

Great businesses are quickly snatched up by strategic or deep-pocketed financial buyers long before a searcher gets access to them. What is left are good businesses that may have suffered neglect, be growing slowly, need work, investment and time to develop. Most searchers report underestimating the time it takes to reinforce the core of the business, learn the nuances of the customers, develop a competent understanding of the product/service and fully appreciate the capabilities of the organization.

They realize they will have limited resources to grow the profitability of the business using internally-generated funds and struggle to attract a new team to replace the one they inherit. The flip-side of these constraints is underestimating the time it takes to reinforce the core of the business, learn the nuances of the customers,

The management team you inherit will be perhaps twice your age, used to doing things their way, and reluctant to accept change. Replacing them with “A” candidates is challenging since you have no “track record” as a leader and excellent candidates are taking positions at faster-growing firms with lots of opportunity for advancement. You will not be arriving with a “team” and may even be terrified that you could lose a few of the managers you deem critical to the operation. It may be that you find virtually no similarity between the formal organizational chart and “who really works for whom”, as one search team reported once they owned their business.

Another searcher found that “The relationship between the seller and their employees was not apparent until we got in there and found the situation to be really bad. It was strained to the breaking point and the owners were just trying to hold it together to sell the business – it will take years to repair and rebuild.” Searchers are sometimes grateful not to discover these serious “flaws” during due diligence, which might have caused them to “walk away”, but instead point out that once they “own” the business, they find solutions to these difficult situations. Having a business with some “hair” is a lot better than failing to close!

Customers may use the opportunity of a change in ownership to re-assess their supplier base. Sharp competitors will remind them that it may be a good time to finally give them a shot at the business. It may be difficult to replicate the one-on-one relationships the seller had with key customers and hold on to the inertia of the past practice.

There will be entrenched vendors and suppliers who may not have been challenged as strongly on their pricing, quality and delivery performance. The risk of replacing them too early may result in integration problems with a new vendor or mis-assessment of what might be a critical supplier. More significantly, wrestling away the “relationships” suppliers have with your employees is easy to underestimate; they have become loyal to them. Qualifying new suppliers takes time, and in some instances, your own customer approval.

Systems may be wholly inadequate. Trish Higgins at Chenmark Capital, discovered their internet service was still and incapable of speeds for voice and videoconference calls. More significantly, many employees had to be trained in how to use email, enter data in spreadsheets and save files on the cloud. This was not 15 years ago, but in 2015!

The culture of the organization takes the longest to change with new ownership. In my own case, it was about 5 years before the “old ways” of doing things were finally gone and the organization was focused in a new direction. Ari Madoff from Nurse Care of North Carolina also observes that “Operating a 24/7, 365 business presents all sorts of challenges. 168 hours is a lot of hours in any given week!”

How to get some experience

You may seek out some “first order” learning working at an SME for a summer or on a project basis, either paid or unpaid. While some searchers offer summer internships at the business they purchased, you may consider to pass on this. Instead, don’t miss the tremendous learning opportunity of seeing how a prospective seller operates and thinks about their business; a searcher would have a different attitude about growth, investment and the future.

While a start-up might seem attractive way to gain some skills, there are such wide differences between an acquired business and a new venture that it is not often worthwhile. Most start-ups are focused on growth, almost at any cost, and have deep-pocketed investors with active interest in follow-on Series A/B/C rounds. Many do not have recurring revenue and less need to address customer retention. Almost all have younger founders who are not looking to protect their legacy, but their wallet instead! Finally, staff and operations employees are generally less risk averse, and are “JOAT’s (Jacks of all Trades)” instead of specialists.

MBA’s considering a summer assignment are also better advised to avoid PE or IB opportunities in favor of operational/line positions to strengthen their HR skills. Generally, many of the skills honed in the PE/IB arena have to be “unlearned” in order to distinguish yourself from PE firms by dipping down into the smaller size businesses. Adam Barker from New Forest observes that “I think that having any exposure to people from various walks of life and translating complex tasks into simple actions is really useful experience.”, not something you find at PE/IB assignment.

Ben Murray observed a change in his own thought process as he followed along this path, “before the search I spent time trying to get experience of deal making by working in PE deals…now I am far more thankful that earlier in my career I was forced to manage line staff, learn how to give feedback, interview candidates, hold people accountable, and keep discipline. If you can’t imagine how you would give someone a negative review or fire them then you probably shouldn’t be searching.”

Another useful skill set to develop is around IT systems. All searchers have to evaluate and implement a CRM and communication software to effectively keep track of their own prospecting and intern activity. Upon taking over a business, it is probable that various internal systems will have to be upgraded or implemented, such as quoting/bidding processes, order entry systems, customer feedback solutions and even more complicated ERP (Enterprise Resource Planning). Gravitating toward projects or assignments that give exposure to the implementation of these systems will be really useful after you own the business.

Reading case histories and researching stories about SME operations can be a “second order” learning option. Subscribing to blog posts about being a CEO of a small business may provide some useful “best practices”. Keep in touch with other searchers who are “ahead” of you in the process; perhaps offering to be on their advisory board after they buy a business.

One searcher reported that “Business School was a surprisingly effective preparation for being a CEO. While industry experience would also be an extremely valuable asset for a CEO, in the search world that’s hard to come by.” Another reported that “having a deep and fluent understanding of working capital is the most important skill set that a searcher might realistically be able add during, or in preparation for a search.”

Trying on the coat while searching

Every interaction with an owner yields more data on how the seller allocates their time, makes decisions and has dealt with limited resources and difficult personnel situations. Each business owner is unique and “imagining” yourself in their shoes can reinforce your desire to step in – or not! Use this to see if their particular “CEO coat” fits you.

Andrew Mondi at Lyndhurst Capital came to the conclusion that he would not be comfortable owning a business that he was “too familiar” with, and relates, “It seemed like a perfect match. The owner was motivated to sell, and I knew this highly specialized market inside and out. However, as discussions progressed, I grew bored and realized this was just “too close” to what I was doing before, so I passed.” He had “out-grown” that particular “coat”

Tyler Hogan and Mike Donovan found a good landscaping business at a great price, however “In retrospect it was easy to see that we were originally targeting industrial service businesses and this was quite the opposite. The deal was a distraction. It looked great on paper but didn’t “fit” us well as a team. It was a great way to test our own commitment.”

While it is relatively easy to screen out businesses based on their industry, specific financial history or the owner’s willingness to sell, Adam Barker at New Forest found that “the idea of what it would be like running the business is something I only really think about further down the line. For example, I try to steer well clear of businesses that rely entirely on buddy-to-buddy relationships formed through years of socializing together; it is just not my nature.” He goes on to explain that it is not always apparent to him until he has moved forward with a signed LOI, “under LOI, the owner is opening up about what really makes the business tick and I start realizing that this company is very relationship-heavy. At this point I get a sinking feeling in my gut and want to retreat.” Ben Murray, Adam’s partner, looked hard at a “yoga business, but I found it hard to imagine carrying credibility as the public face of that business.”

The LOI/Diligence phase gives you a final opportunity to assess your fit and commitment to transform the business. You can ask yourself, “is this really what I will be doing, and, what would I be doing differently than the seller?” One searcher cautions, “You have to develop the ability to force yourself beyond where you are comfortable. That’s not to say that intuition is not important, but just feeling uncomfortable about a situation is the norm not the exception for a searcher and sometimes you have to just get over it.” Beware of extrapolating from what you see prior to closing since it is difficult to predict where the business will be in 10 years.


For most searchers, their previous business exposure is with large organizations and generally not in operations nor with line responsibility for hiring and firing. The Stanford Search Fund Study 2016 shows a distinct shift in the last 7 years of searchers with Private Equity background now at 28% compared to 5% in the prior 7 years and a decline of investment banking and consulting. Line and general management increased slightly from 5% to 11%.

Trying on a variety of “coats”, will help develop confidence that being CEO of an SME is what your short and long term “sizing” is. Unlike a startup, you may be able to “tailor” the coat to fit who you are, in search it has to be a much closer “fit” the day you step in to run it. Most assuredly, the business you are running in 10 years won’t look much like the one you purchased, but you want to feel “comfortable” in the first few years. But, if the coat does not fit, don’w wear it!

Search on!

Feel free to share some of your own best practices or experiences in dealing with these issues in the blog comments. I encourage comments and dialog, allowing all to learn from both my views and the views of others – a virtuous learning cycle. Jump right in! I regularly update individual blog posts, add to the Reference section and Search tips, so visit the website regularly.