Search Fund authority and Professor of Management Practice at Harvard Business School, Royce Yudkoff advocates that the most successful Searchers are constantly “bathing in deal flow.” The more opportunities you review the better the chances of securing the right business deal – the one that you are looking for.
Yes, it’s a numbers game. But just looking at a large number of opportunities isn’t enough. You also need to be able to compare these opportunities as well as ensure that strict, and difficult, criteria are met.
Successful searchers, and their interns and analysts, are constantly looking for and at potential acquisitions. It is a flow that needs to be maintained, and at the same time, there is a skill and discipline in reviewing and ascertaining the deals to push away, and the deals to take a closer look at.
Being successful in Search requires a different model to the common practice that many mid-career and aspiring entrepreneurs employ in Australia. Searching for a business to buy in their spare time, after hours, and relying upon a few business brokers will not deliver gold! The reality is that these opportunities will rarely have the “right” attributes.
This slow-burn and part-time approach usually ends unsuccessfully with no real opportunity identified, or much worse with tunnel vision and committing to an opportunity that you then pay for (literally and figuratively) until your painful exit (i.e. from the local coffee shop).
Some of the absolute truths of Search include:
- You must have a repeatable and disciplined approach to sourcing and analysing opportunities that fit your criteria. Why? You will need to source many more opportunities than you think. Stanford University Graduate School of Management has been measuring the stats on deal flow for 10 years1. Over the last two years the searchers that had completed an acquisition (median values):
a. Identified 386 businesses;
b. Approached 26 that met initial criteria;
c. Which resulted in 2 serious discussions; and
d. Led to 1 due diligence processes and acquisition.
- You need to be relationships driven. The opportunity you finally land on will most likely be with a business owner who still considers their business as their “baby.” They need to relate to someone that they feel and know will take the legacy they’ve created (and the staff they consider an extended family) to higher, better and more successful places.
- You will need to be a team builder and player. Think of your Search Fund as your own personal Private Equity firm where you employ arms and legs to enable you to leverage skills, accelerate the process and find your business.
At Second Squared we are here to accelerate the process. We enable searchers to identify and acquire their business as quickly and successfully as possible so that they can move into the most important phase – running the business and creating value.
For us, the Searcher is the centre of the eco-system. We provide the training and surround them with the right systems, processes and methodologies to search in Australia efficiently. At the same time we help source and find the analysts, interns, and professional specialists to provide the added momentum we know makes searchers succeed.
If you know that being the CEO of your own operating business is your next move, contact us at Second Squared – we accelerate private entrepreneurship
1 2018 Search Fund Study – Selected Observations, Case E-662 September 24, 2018