Life after winding down search
Winding down your search is a difficult decision to make after devoting so much time and energy in pursuit of your dream to run your own business. However, searchers do move on to leverage their search experience and add significant value to the companies they join. An unsuccessful search does not mean you are a failure. (See Blog Post: When to Stop Searching)
In comparison to a start-up that winds down, searchers have much broader industry exposure and varied competency in negotiations, valuations, prospecting and “selling” themselves to business owners, investors and financial institutions. Many employers give a lot of value to the search experience.
There is no reason that you can’t “re-start” your search again later in your career if now is not the “right time”. In my own case, I initiated a search with a partner but after 6 six months struck out on my own for a few more months before ultimately closing my search down to join a large company for five years where I strengthened my general management skills. I then embarked on an 10-month search to acquire Extrusion Technology. Those intervening years made a world of difference in both searching and operating the business.
Career paths after search
Based on my own engagement with over a dozen searchers, the typical time it takes to “land” a position after winding down a search is about 6 months, with times ranging from a month to as long as 12 months. Typically, searchers treat their “campaign” to find the next position very similar to their search process, starting with their close contacts in a concerted prospecting effort and then targeting specific industry and positions. Seeking a job without a relocation is of paramount importance during the initial stages, but they broaden the geographic range as time goes on.
The most obvious path is to join a private equity or M&A firm which will directly utilize the skill-set developed during search. Mark De Ambrosis closed down Longreach Capital and moved back to Sydney, Australia, his country of origin, to join a private family investment fund in Australia which allowed him to draw on all of his search proficiencies.
Another track is the consulting field, with positions similar to what a graduating MBA would get, but with perhaps a faster promotional track given their search experience. Ben Kessler of Braxos Capital reviewed a number of alternatives including opportunities with a Private Equity firm and a SMB before deciding to join McKinsey as a consultant.
Searchers who want additional experience in a SMB may take on the CFO role with eventual expansion into operations or a CEO position. Tom Gioia secured the CFO position at a logistics company after winding down Longreach Capital that became a stepping stone to an operational EVP role within the same industry.
Others have used the opportunity to step into a start-up, and are valued for their sales and business development skills. Andrew Tam from Peakview Partners successfully followed this path, eventually joining apartmentlist.com after their Series A round of funding, and eventually securing a VP position.
Deciding when to stop searching
For funded searchers, the time window is well understood up front during the capital raise, with a budgeted salary commitment of 24 months. As they approach their 20th month, searchers begin to face the reality of winding down. Knowing that the end of funding is near, they become more focused on their existing pipeline, ramp down their search on the proprietary side while focusing more on brokered deals that may have a shorter time to close. “Trolling” back through the sellers who said “no for now” since the beginning of the process yields owners who have reconsidered their earlier decisions.
There are a few instances where searchers who are in the middle of a due diligence or with some very strong prospects in hand, have gone back to their funding investors to make the case for additional funding for as long as 6 months. In either case, upon search termination, investors are notified and a final distribution of “leftover” funds is paid out to the investors within a few months of formally closing down.
Self-funded searchers may have more flexibility as they approach the 24 month anniversary. Depending on their own personal savings, their “burn rate” and historical costs of “busted deals”, they often extend their search. One pair of self-funded searchers had a 11 month due diligence deal fall apart 18 months into their search and yet concluded that they were both comfortable with at least an additional 12-18 months of searching.
Without the “cushion” of a salary, self-funded searchers are constantly assessing the value of proceeding with their search. Regularly quarterly reviews are opportunities for self-reflection and many use their 1-year anniversary to pause and re-consider. Lee Swanson at Rock Lake closed up his self-funded search after 12 months.
Why stop searching?
Running out of money to support your search, whether you are funding on your own or supported by investors for the traditional 24 month time frame, is the most obvious and common reason for stopping a search. Having set either a time or funding limit prior to launching a search builds in a hard-stop review point.
More challenging is deciding to stop a search even when the option to proceed exists. Ben Kessler reports that he lost his passion to buy and run a business towards the end of his 30-month search. The stress from the emotional roller coaster of multiple LOI’s can be wearing on the searcher and their family. Staying close with peers often provides perspective and examples of how other searchers deal with the same issues and stresses. Some searchers just dig into inner strength to keep moving forward.
Lee Swanson of Rock Lake pointed out “how difficult instability is during the process” that has location uncertainty, no permanent office, a lack of permanence in the community, and the constant stress of picking the wrong company based on too little information. It is very difficult to detach during search; you are always “on”. Other elements of life get in the way: marriage, a 1st or 2nd child, an apartment lease running out, an illness in the extended family – all these factors put pressure on the decision to continue.
The more fundamental question is why a searcher did not “close” on a business. Valuation is at the top of the list of reasons cited as searchers strive to not over-pay for a business and are outbid by PE firms dipping lower into the market, synergistic buyers willing to pay high multiples for “bolt on” acquisitions, or financial buyers with deep pockets. Tom Gioia and Mark DeAmbrois at Longreach Capital point out that many other prospective buyers had a broad range of portfolios while they were seeking just one company! Many searchers admit that they were just targeting too high in the EBITDA range where the competition was the fiercest instead of looking at the “good” companies of smaller size at lower multiples.
But not all companies are over-priced. Searchers struggle with being too selective with companies and/or industries and thereby limit the quantity of prospects at the top of the “funnel”. This may also be coupled with a tight geographic constraint that results in searchers having to look at targets that are out of their operating comfort zone. Andrew Tam of Peakview admits to being too narrowly focused on the high-tech space with sky-high multiples during his search.
Faced with smaller sized businesses that are below the radar screen, searchers come face-to-face with the commitment to run a SMB for as long as a decade, perhaps signing personally for the debt and facing the same struggles and challenges that they are learning about from the passionate owners. Lee Swanson observed that while the basis for starting out might have been the “itch” to search and become an entrepreneur, in time it may have turned into a “rash” as he began to question his “fit” of being a small business owner.
Not surprisingly, solo searchers point to a great sense of loneliness and lack of camaraderie in both the search process and in projecting forward to running a business; causing them to reconsider their decision about not having a partner. Amusingly, partnered searchers report that despite seeing lots of compatibility with their partner in the beginning of their search, they point to significant disagreements in risk, interest, motivation and comfort with the seller as being one of the more important reasons for not getting to closing. Be careful what you wish for!
Most searchers who have moved on from their search observed that it was important to avoid the “academic exercise” of trying to optimize both the industry and the target company which narrows their field significantly. Instead, the come to realize that having a high quantity of prospects in the pipeline gave them more choices. Being too “picky” severely curtailed their ability to close.
In a number of instances, searchers knew in their own “gut” early on that search was not working out well for them. They felt driven to press on through the process, perhaps longer than they should have, even after their own learning had plateaued. Often cited is the feeling of not “letting down” their investors, advisors and support network. Getting to “no” fast was as applicable to them as it was in dealing with business owners. 12 months is enough time to give search a fair chance.
Searchers learn that this path has to be fully engaged with in order to develop their skills: just reading about it is not the same as knowing or feeling it. Listening to advice from others was often avoided in their goal to do it “my way”. An example is the role of interns, which is perceived as a management challenge for many searchers, yet can be a great aid in scaling up the prospecting campaign. Looking back, many say they should have accepted this “best practice” and used interns more extensively and earlier instead of pushing it away. You don’t have enough time to learn about all of the elements of a search. Seeking out best practices and implementing them is a critical discipline.
Almost all searchers warn not to get “locked” into just one deal. Maintaining objectivity during the LOI/due diligence phase is important while having on-going dialog with alternate prospects. Often, searchers ignore this advice during their first LOI, but not after their first “busted deal”! Setting aside 2 days a week to remain focused on alternatives is a healthy target but difficult to achieve early on in the search.
Many searchers expect more contribution, mentoring and support from their investor pool. They find as many as 30-50% of their investors to be un-supportive of their proposed deals, and learned that they were unable to please all of their investors all of the time. Varun Gupta of Zuna Capital suggests early engagement around an investment to surface the motives and interests of investors to avoid eventual surprises later in the search process.
Jake Nicholson from Danville Capital, worried that at age 30, he would have difficulty with sellers perceiving him as too young. Instead, he reports that “sellers were appreciative of the energy and relevant skills a young person could bring to the business”. Facing these perceived obstacles and overcoming them early in your process helps build confidence.
Ben Kessler at Braxos found, as he began to focus on businesses at the $750,000 EBITDA level, that they are more closely tied to their owner and often more difficult to bring to close as the sellers struggle with the reality of detaching themselves from their “personal identity”.
All lamented the fact that they did not spend enough time with their peers, both learning from each other and sharing their own experiences. Move quickly from viewing them as “competitors” and more as collaborators.
Finally, Morgan Franc of Karmeen searched in France and advises “do not neglect your significant other! Even if you are financially constrained, you need to spend quality time with him/her to invest in your relationship otherwise it will backfire on your search!”
Switching from your “business search” to a “job search” has many parallels. Executive recruiters and “head-hunters” replace the brokers in your outreach campaign and will need to be cultivated and regularly reminded of your availability and your resume. The direct approach to specific companies for a position utilizes similar tactics from your proprietary search: targeting industry segments, research to find companies, qualifying contact name email and mail addresses, sending out solicitations and repetitive reminders.
Your search “identity” needs to be re-aligned to focus on seeking a job instead of a business owner. Updating your resume, cleaning up your LinkedIn profile and turning off your website gives prospective employers no cause to worry about your continuing efforts to search. In fact, you will need to make a good case in your job interviewing that you are now “cured” of the “entrepreneurial bug” and ready to be an active contributor as an employee and team member.
Be prepared to deflect the inevitable calls/emails from your business owner prospects wondering if you are interested in reopening discussions—just pass them along to another searcher as a gift. Your job search is a full-time endeavor and despite the seductive nature of rekindling the search “flame”, be reminded that the power of search is in the “numbers” contained in your prospecting funnel; having only one prospect significantly reduces your chance of closing and will be hugely distracting to your job search campaign. Searching “on the side”, either while working or job-hunting, spreads you very thin and is easily detected by potential sellers who will write you off as an “unqualified” buyer – there was a good reason you spent 150% of your time searching!
Finally, allocate time to “grieve” the loss that winding down your search means. You have a long career ahead of you and there may be other opportunities to search down the road when you have accumulated financial resources, operational skill-sets, industry knowledge and a broad contact network. Moving beyond the pain of letting go of your dream, for now, will help in your job seeking efforts as employers assess your readiness to join their organization.
All searchers follow a circuitous path that may end in a closing or not. Each searcher and search is different and no matter the outcome, the personal learning and growth are unmatched in many other traditional career paths. Failure at search does not mean failure as an individual. There are no failed searchers, just unsuccessful searches.
Just as the searcher “network” supports each other, searchers who have moved on have an obligation to “share and support” those coming along behind them. A vibrant search community makes everyone stronger!
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!
The academic trap needs to be emphasized more! If you think of search like PE but with only one company rather than a portfolio then it makes no sense to search. The risk reward will never ‘look right’ if you adopt the PE mentality that business school implants in your brain. You need to have a feeling in your gut that no matter what happens you’ll have a shot at proving whether you can manage the business and be able to convince others you will figure it out.
I had a great conversation with a community banker about it this week. We agreed a 5 or 10 year projection is complete nonsense because no one knows what is going to happen! Not being comfortable with that is totally fine, because that isn’t most people. The only ‘failure’ or ‘unsuccessful’ outcome of this process is continuing to do something that you know is not right for you. We live once, no time for living a lie. Look at all these great opportunities searchers went on to have!
I am running a company acquired through a search fund. Just one comment…in the article you mentioned having no permanent office. Don’t do this as a search funder.
When I was a search funder, I sublet a desk from a small early stage VC fund. It was one of the best decisions I made. Having peers to interact with got me through my 20 months of search. I did a fair amount of cold calling and being able to step away and go to lunch with someone is actually really important. One of my “co-workers” later even became a very close friend that I am in touch with to this day despite living in a different city/state.
In any case, close or not…when you are doing a search fund, it’s important to set yourself up for going the distance; don’t do it from home. Find a company or fund and rent a desk. If it’s an M&A, PE, or VC fund you also end up giving and getting peer mentoring.
I believe that most searchers who are successful require a lot of self-discipline. Those with many years of experience tend to be more cautious and see too much potential risk in many situations. I also find that aligning your passion to your business is quite a difficult challenge.
Joanna, being disciplined and detail oriented is certainly a common successful searcher trait. There is no question that many find it difficult to see how “passionate” they can be about a business they find and move forward with. Most searchers find that after the fact, they become passionate about the businesses they are leading over time despite being skeptical in the early stages.