October 3, 2022

Take Five #023: Searching can be lonely. Here’s how to find your tribe & more

Take Five #023: Searching can be lonely. Here’s how to find your tribe & more

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Take Five #023: Searching can be lonely. Here’s how to find your tribe & more

1. Crowdsourcing your favorite type of (non-SBA) financing for a ~$5m business acquisition

86 comments on a single reddit post in /r/fatFIRE (a subreddit dedicated to the “Financial Independence, Retire Early” model for high-net worth individuals):

Has anyone recent come across non-SBA financing for the $3-10M business acquisition space? I am currently looking at a handful of companies but wanted to get recommendations on specific financing that I should look out for. Trying to stay away from the SBA space to secure the financing. Thank you!

Big range of responses in the comments:

From “Your favorite type of financing for a ~$5m business acquisition?” on /r/fatFIRE

2. Searching can be lonely. Here’s how to find your tribe

Great post from Guesswork Invest on how he built a group of 4-8 “thought partners” to walk with him on his search journey:

Search can be broadly broken up into three phases: pre-search/info gathering phase, search phase, and operating phase.

One consistent dynamic throughout – each phase is lonely.

Your existing peer & friend group, while great, is in a very different track for the most part. They are saving money, buying houses, buying cars, funding 401Ks, etc.

Meanwhile, you’re burning cash on rent and diligence costs for deals that end up dying.

The steady W-2 is a great track and makes sense for most people (including being very viable for most searchers).

As a result, it’s hard for them to make sense of search. You need like-minded folks just crazy enough to leave the W-2 world behind.

Don’t try to do this alone. I guess you could, but why? Give yourself the tools to succeed, and that starts with a support group that understands what you’re doing.

On the types of folks to look for in your group:

To make weekly or monthly calls useful, it’s ideal to have a diversity of experiences & opinions in your group.

This can include diversity of identity (can be tough in search world given how male & white it happens to be, so breaking out of that requires some conscious effort).

This can include variety of backgrounds (PE, operations, military, consulting, etc.), as each person brings a different set of skills to the table.

From personal experience, one of the most helpful has been working with folks at different stages of search. Ideally you can build a group that has some people early in search, some “grizzled veterans” on month 22 of search, some operators early in their deal, some operators 3-4 years into their deal. Maybe even someone who has exited their company.

These people can help put things in context thanks to their experience (how many deals to look at in a week, what normal deal terms are, how much to actually care about the seller note personal guarantee…). They’ve made the decisions you have to make now, and they’ve seen the consequences of them.

From “Community Support in Search” by Guesswork Invest

3. Why you might not be able to just swap an SBA loan for a conventional loan

Posting the short 4 part thread in its entirety here:

Heather Endresen @EndresenHeather

Here's a question we get asked often: "Can I get a conventional loan instead of an SBA loan to acquire this business?"If the business has EBITDA of less than $2 million, the answer is usually: "no"  Here's why, and how knowing this ahead of time might help you.  👇

Plus some nice back and forth with Heather (from Live Oak) and a few folks with SBA loan questions in the comments.

4. “Are there best practices for telling your employees you are selling?”

Interesting question from a seller’s POV—see this post on Searchfunder for the full set of crowdsourced comments:

A friend of mine has been approached by a PE company that wants to buy her company. Her employees are vital to the continued success of the company and she is concerned that they might leave when they find out about the change of management.

Would it be better to tell them ahead of time that she is thinking about selling? Give them an opportunity to put in their own bid? Wait to inform them after the transaction is complete?

Each method has its own pros and cons and I would be interested in hearing from someone who has successfully navigated this transition and any advice you might have.

One of the more substantive comments:

Here is what I did when I did a majority recap with a PE firm a few months ago:

My conversation approach:
1. What's happening
2. Why it's happening
3. How it ties into our strategy
4. What it means for my staff and their day-to-day
5. What's happening to me (I was staying on)

Rollout approach:
1. I read in my Executive Team a couple of weeks after my I-Bank began marketing. I followed the conversation approach above and I game-planned with them how we would conduct Management Presentations.

2. When we were deep in due diligence and close was certain, I had an all-hands and informed the rest of my company. Again, I followed the approach above. Everyone responded positively to it.

I think what helped was the following:
1. I was honest, genuine, and direct in my announcements
2. We've done acquisitions on the buy side, and many of our employees come from acquired companies, so they had all felt the positivity of those events.
3. My team knows the pillars of our strategy and our North Star, so this event nested well within those. I talk about strategy and culture often with people here.
4. A few months in, it's going as I said it would for everyone here and their day-to-day, which reinforces trust and acceptance of the change.

From “Are there best practices for telling your employees you are selling?” on Searchfunder

5. On gaining weight and trust during the first month of post-acquisition life

Always love how Jordan Novgrod publicly documents his progress on buying/building his business, and his snippet into the first month of SMB life post-acquisition is a great look into the day-the-day:

My goal in the first month was to gain a full perspective of the businesses most important asset, namely its employees. Because the office is set up in such a way that there is no privacy, and I wanted to get to know each of the employees at a personal level. I took them each to lunch individually.

The company has 9 employees, an independent contractor, the former owner, and me. I started by taking myself to lunch to see what I thought of the company I just bought. Actually, I did take myself to lunch the second day because I wanted to give enough warning to each employee so that they could plan for it. After that, I started with seniority and worked my way down.

The only downside to this approach is it added a few pounds to my waistline. In fact, several employees commented about how they appreciated this approach. They got to get to know me much quicker than had it only been normal work interactions, and I got to know them.

My main questions were about them and trying to understand where they grew up what they like to do outside of work, why they like the work, where they wanted their career to go, etc. I also answered every question they posed to me, including the tough ones.

This process started building trust, which has continued to grow. With this added to the fact that they are continuing to get paychecks, my credibility with them continues to grow.

From “Gaining Perspective” by Jordan Novrgod

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