When to stop searching
No searcher wants to be a quitter, especially after “sacrificing” so much to head down the path to become a CEO. However, it is important to assess your progress, the impact you are having on those who are supporting you, and your own commitment to the end-game. If you do decide pull out of your search, you want to do so for the right reasons.
Don’t prolong the agony! Many searchers who have made the decision to shut down their search have said that they had known for a while that it was time to stop, but continued forward for a variety of reasons, that in retrospect where not well-formed.
Set a time limit and stick to it
Holding yourself accountable to a specific time frame is very important for your search and for those supporting you. The data from searchers who have successfully completed a transaction is that the average search time is 18, with a range of 10 to 30 months. To some extent, this range is market driven as traditional search fund investors have been supporting searchers through a 24-month process for over three decades.
It may take 3-4 months to get your search set up with its identity, processes, interns and systems for prospecting and dealing with sellers. On the back-end of the search, since the average time to close is 5.2 months, you realistically have about 16 months of productive search time.
Having a finite end to your process will help keep you focused. Funded searchers raise enough salary for 24 months, which acts as a “hard stop”. It is more difficult for self-funded searchers, due to their more uncertain cash flow. Rehmann Rayani at Mont Vista observed that “my funded search was a near risk-free call option for the searcher, which if thought of in that way leads to more rational and prudent behavior.
Without committed search capital, a searcher under financial pressure may quit the search prematurely, buy a sub-optimal business, or accept risky terms on a deal.” On the other hand, Varun Gupta at Zuna Capital in India felt “self-funded searchers can make a more practical decision without the emotions of its impact on others, taking away the heartburn and/or the self-inflicted complications of letting people down. You are also a more visible failure when you are a funded searcher as opposed to quietly receding as a self-funded searcher”.
At the 18th month mark it is time to realistically assess your progress. If you have a search partner, this is probably the most stressful time and an open dialog about winding down your prospecting “engine” will be a tough conversation. Your significant other and/or family members will also be keeping track of your progress and will be concerned about your success or failure. Reflecting on how well you are interacting with investors will help you forecast how they may react to your deals in the final six-month stretch. Stressed searchers have been known to present “desperation deals” as the deadline approaches. You want to avoid this “deal frenzy”.
Factors to consider when stopping your search
During your search, money buys you time. When your search capital, or savings, start to run low, you may have to abandon your search. In my own case, I only had about 8 months of runway in my first search and 4 years later had a “nest egg” to cover 24 months that felt much less stressful. Most searchers run into unexpected expenses, despite their best efforts. Travel expenses may creep northward. Busted deal costs may suck up more funds than predicted. Once an LOI falls apart, you may find that “restarting” your search and getting to another closing might be 6-9 months away and beyond your financial runway to support it.
After seeing so many sellers, searchers gain a much fuller understanding of their post-close responsibilities as day-to-day CEO. One searcher reported, “What the seller was doing just did not excite me. It seemed like a lot of busy work and checking on others’ activity. I concluded that I really would not enjoy this.” Another reflected, “I hadn’t seen any business I would want to own and operate for the next 7 years and the general excitement about being a CEO has faded.”
Other searchers are put off by how “people intensive” the businesses are, with seemingly insurmountable challenges in trying to hire good people, retain them and just plain motivate them to come to work each day. The importance of “wearing the coat” (See blog: Wearing the coat) of the seller’s businesses is critical before you take the reins for a commitment of 5-10 years or more.
As your search progresses, you may feel plenty of frustration, self-doubt and concern about whether the process will be successful. You may feel burned out with mental and emotional fatigue. Ignoring these self-flagellating thoughts that you could have done a better job, allows you to assess whether to proceed. This becomes particularly acute when you are within 6-months of the end of your runway, as one searcher said, “Being able to rationally assess your own motivations, prospecting momentum and investor support and confidence is a critical skill when you are a searcher and when you are a CEO.”
Family obligations may begin to weigh heavily on your mind as time passes. One search pointed out “You are low on emotional capital, either for yourself or the borrowed time you got from your significant others, children and family.” Your relations may become sick, incapacitated or needing more of your time and attention, and cannot be postponed. “Life happens” during search to those around you and perhaps even to yourself. Be prepared to face these challenges objectively. Now may just not be the optimal time for you to buy a business.
More than one searcher has reported that their advisor and investor preferences evolved over time, which began to negatively impact their search outcomes. One says, “my primary advisor and mentor was not always right and I trusted the advice too blindly. His own experience was very narrow and I found that every deal is different and needed more creative solutions.” Another found that their sole investor had some very narrow investing criteria and a lower risk profile that was not originally evident when selecting a “single source” of committed capital.
Making the choice to extend your search
Approximately 30% of searchers extend their search beyond 24-months. Most of these are in the final stages of closing on a single deal, had stopped active prospecting and had no other imminent deals in the pipeline. It is best to set these extensions in increments of 4-months to keep yourself “honest” about the probability of your success. One searcher wondered, “will prolonging the search just delay the inevitable?”, an important question.
For self-funded searchers, tapping deeper into savings for another intense six months of searching is a difficult choice. In one instance, a searcher took on some weekend work to supplement savings while another tabled the start of their search by six months to work on a paid assignment to give them a cushion at the end. You will want to secure the support of your significant other, your mentors and advisors, and prepare solid justification for “breaking the promise” on your search length.
For funded searchers, there are examples of searchers “raising” additional funds from their investors, especially if there is a clear path to success and a robust pipeline. Sometimes this is in the form of a loan, in other cases there may be agreement from the investors to continue salary payments beyond the 24-months if there are enough “leftover” funds from the initial raise. Full transparency is important, as this scenario was probably not spelled-out in the original PPM. A few searchers have stopped drawing a salary beyond the 24-months to demonstrate to investors their commitment to continue and one even “accrued” salary payments to avoid drawing down their cash position.”
Consider those who may be impacted by your decision to extend your search. One searcher reported that the “pressure” from their significant other rose intensely at this point. Another used the opportunity to separate from their search partner and to extend their own search alone for another 12-months with a complicated agreement with the “dropped” partner if a deal was completed. One searcher reports “This is hard! It is more difficult to decide when is the right time to stop, especially if you have good deals in your pipeline. You don’t want to have regrets nor to be too stubborn.”
When NOT to stop searching
Give your search at least 12-months and be sure you have funds to cover that amount of time. Most searchers take 3-6 months to come up to speed and may not have hit their stride until the one-year mark. Since repetition and practice are so important, you will have learned a huge amount in the first 12 months, and are more capable at the process than you think.
You don’t want to regret that you just did not give it enough “time” when you look back 20 years from now. Guilt is at the top of many searchers’ minds, says one, “You feel you have failed the test given to you by your investors and supporters. My pride clouded my objectivity since I personally had very few failures in my professional life and it was hard to accept that reality.”
Be sure you have multiple reasons to stop that are not based on the search process itself as described above. Searching is difficult for everyone who goes down this path. Just because you are frustrated, or have lost many bids, or your LOI’s have fallen apart does not mean you should bail out “early”. Perhaps you hate managing the interns, can’t face another prolonged negotiation with a seller or be in one more “auction” being conducted by a broker. Don’t blame the process, but instead re-examine it and refine your plan to move forward.
Turn away all “job offers”, whether they come from very sincere sellers who would love to hire you to run their business, your ex-employer who desperately needs you back on an exciting project or an investor who sees a great opportunity for you. On the other hand, you should have a Plan-B that you can fall back on, when you do decide to stop. But having no contingency plan is not a good reason not to stop. At the twelve month juncture, the best basis for not continuing is the realization that you don’t want to be a CEO of the type of business you are likely to buy.
For all searchers, stopping their process is painful and filled with regret, second thoughts and even some shame. However, most report learning more in the time they spent searching than others do in 5x the time. Ex-searchers do land on their feet and bring significant value to the next step in their career path (See Blog – Life after winding down search). The most significant learning comes from self-reflection and awareness that comes from being able to step back and assess you own progress, and motivations – before making a difficult life decision to end their search, or continue on.
Search on! …and know when to stop!
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 www.jimsteinsharpe.com website regularly.