What to expect while searching
The path of searching is an experience full of surprises, disappointments and lessons. Throughout the process, there are many highs and lows. While the goal of finding a seller to turn his or her legacy over to you is at the forefront of your mind, there is very little in your prior experience that has prepared you for all of the elements of the process. 26% of searchers fail to find a business and you want to be in the 74% category; but, potential failure is always at the back of your mind.
Searching is a full time job to which you devote 150% of your physical and mental energy. The good news is that it is not a “career”. There are only a very few serial searchers so this process may occur just once in your life – you will be thankful for that, once it is behind you and you are running a company. There is a finite end point; you either run out of time or you find a business to buy.
The basic assumptions about yourself and your objectives for the search will be regularly tested along the way. Thinking over again why you are doing this and if this is the right time will haunt you as you face challenges and roadblocks. There will be lots of “distractions” that may divert you along the way. Here are some of them:
1) Options will present themselves
Prepare yourself mentally to say “no” to the job opportunities that come along and may pull you away from your search. Old employers, executive recruiters, colleagues at other firms, and start-up opportunities may offer a position or title that might look very attractive. During one of the many low points in your search, it might be tempting to explore that “dream job”. Understanding that these offers may come along will help you deflect them.
Even more alluring are the opportunities that come from prospective sellers. More than a couple will see you as a “source of funds” for their business or sideline venture. For others, you may be the answer to their retirement dream and more than one will offer you a share in profits, even some equity to “earn in”, while they slowly step away from the business. Having someone else run their business for them seems very attractive. After all, you found them, like their business and find it interesting enough to purchase, so why not just let you take over running it! On the surface, there is no capital to raise, you can pick up the CEO title, gain experience running a business and have an opportunity to learn their business. Moreover, this reduces your risk.
The biggest issue is control. If you decide to partner with a potential seller you will have lost it! While a few of these do work out, most end in disappointment. Your effort has contributed to the business success and it is now worth more than you started; extracting that value from the seller after the fact is now much harder. More importantly, your “sweat equity” is very difficult to recover. Just say no!
2) It is not only about you
No matter how hard you try to explain it, most will not understand what you are doing. They see that you don’t have a job and are unemployed. Many are worried about your physical and mental health.
Your search will test relationships with those close to you. Your partner will see a side of you that they have perhaps not experienced before. They will try to protect you from the pain of losing a deal, being stood up by a prospect, being disappointed by an intermediary, the “lull” during major holidays, refused a loan by the 13th banker in a row and needing to conjure up the mental energy to start your search up again after the 2nd deal falls apart. At least one searcher lost their fiancée in the process. Others have said their spouses had married them for “better, for worse, but not for search!”
Parents and family members, although perhaps a little more distant, also struggle with your professional path and the level of uncertainty that you have taken on – no job, no location, no business and no time for them. They are struggle with what they tell their own friends about what you are doing.
Of course, they think you are better than average, so never expect you to be still searching in your 18th month and pause awkwardly when you remind them about it. They also struggle with the excitement you have about your current “deal” and seem to pause when you remind them that the “last one” they remember most vividly was a dozen owners ago!
Regularly communicating your progress does seem to help a little. But don’t go overboard; too many details and “hurts of the day” may be difficult for others to regularly hear. Spend time speaking to your mirror or replaying some conversation while you are alone, driving the car. Consider writing some notes for your upcoming quarterly communications report. Don’t become too self-absorptive, keep focused on the future.
3) Losing a deal
One of the more devastating setbacks in your search comes after you have a signed LOI and the deal falls apart. The seller changes their mind, for reasoning that is not always clear, you discover some major discrepancies in the financial statements during due diligence, the ongoing financial results in the business seem to be deteriorating, a large lawsuit hits the sellers business, shareholders can’t agree on the exit, a significant account is lost, key employees leave to setup a competitive business, or a myriad of other reasons.
By this point, you have determined where you will park your car, the location of your office, what your first day speech will be to employees and where you will be focusing your time in the first 100 days – all for naught! And, more significantly, while you knew this might happen, you have not kept up as actively on developing your deal pipeline so there is a huge hole to dig out of to get your out-reach prospecting started up again. You will feel devastated!
And, this will happen multiple times! In my experience, searchers average about 25 IOI’s and 2-3 LOI’s per search, and one I know has had 9 “busted deals”.
4) Lies, lies and more lies
It will be difficult to ascertain the truth as you go along the search path. Sellers may tell you that your price is too low and have you bidding against yourself. However, they may just not want to sell their business to you because you are too young and have no experience in their business. Giving you unrealistic value expectation for their business may be easier for them than telling you they just don’t want to sell to you.
The negotiation and even the due diligence process may be filled with half-truths, misinformation and inaccurate information. The seller and broker have been doing this for years and despite what you would like, want to engage in some back and forth negotiations to be sure they get the “best outcome” in terms or price and structure.
They are in an ideal position since they have all the information you need and know that they have what you want so badly! Most business owners have been on both sides of this with their own customers and suppliers, so be prepared for “hard ball” techniques; it is just part of the process. But, as I have heard from more than one searcher, “Can’t we just get to their bottom-line, and skip the protracted and painful negotiating process”?
The feeling of exhaustion and being emotionally drained will lessen slightly with each round of IOI’s, but no deal will be easy. In fact, many searchers who have acquired their business point back to these negotiations as very useful skill development in their new position running the business.
I would like to offer two potential solutions that many searchers have found helpful.
Finding places to turn
One of the most valuable sources of support are those searchers in your own “cohort” of searchers, those 12 months ahead you and also searchers who have successfully purchased a business. Select a few from each category and work at consistently reaching out, supporting, listening and sharing – buddy up! It is very easy to get so focused in the process that these relationships are neglected. Just learning that others are experiencing the same thoughts, doubts and frustrations will help. Just because you are searching with a partner, does not mean you should not be reaching out – all healthy relationships thrive with some level outside contact. Sam Altman, founder of Y Combinator, addresses founder depression by urging you to reach out to others for support in one of his blog posts.
Building in “healthy distractions” can keep your from becoming too obsessive. Making time for exercise, every day, no matter what, will at least insure that you body does not fail you! Indeed, one searcher contracted pneumonia within a month of closing the deal and attributes it to not focusing on their own health during the search. Be sure to take breaks on weekends – do volunteer work, plan trips, travel. Indeed, the there will always be something more that you can do on your search. IT CAN WAIT! Enroll your interns and get them to remind you when you are not taking care of yourself…and them.
This is a lonely endeavor. Both the search and running your own business will test your ability to cope with the potential of failure. The “mantle of ownership” is not a light burden. Find people who will listen, care and be “cheerleaders for you”. Professional help is an excellent option to help you learn more about yourself during these tough times.
Time for second thoughts
Despite knowing the challenges and your ultimate goal, it does make sense to reflect on how you are doing. Time is your most precious commodity, and taking time each quarter to examine the “reality” of what it is like running your own business and how you feel about it is important. As the search progresses, you will have hundreds of opportunities to put yourself in the shoes of an entrepreneur Mike and Linda Katz, who purchased Molded Dimensions in 2001, call it “trying on the coat”. You will get to see up close how each owner deals with growth, human resource issues, customers, vendors, risk and the rewards.
While the search process itself is endurable, you always want to check back on your assumptions about why you are doing this…you may be running the same business for a few years to more than a decade; how does it feel at each reflection point? Remember, you are doing this for yourself, not for someone else or others expectations of you. Searching for and running a small or medium size enterprise may not be right for you.
Keep your eyes open, your search will feel like a roller coaster ride…enjoy the highs and prepare yourself for the lows. Take care of yourself. I remember clearly from my own search that it does feel better after you stop hitting your head against the wall during the search and are running your business. Those were the days when I had hair that could stand on end!
I encourage comments from readers and dialog about the topics which allows others to see the commentary and learn both from my views and the views of others; a virtuous learning cycle. Jump right in!