On the search grind

I wrote a post a few months ago that detailed my immediate takeaways after launching Rettig Partners. Given the continued outreach I’ve gotten from current and prospective searchers, I thought I’d follow up with an update.

To start with the obvious that cannot be stated clearly enough: search is a genuine grind. If you decide to search without a partner, it is a grind that also happens a lonely one. I don’t know a single searcher who would say it was anything but brutally difficult, including the dozens I’ve gotten to know who now own great businesses. In fact, that group would emphasize that the hardest days are ahead when you’re running the business you buy. It’s important to crystalize that knowledge. That perspective in no way reflects me being less optimistic about this path — great things are worth the sacrifice (and of course, if it was easy, everyone would do it). However, knowing something will be difficult and experiencing that difficulty firsthand are two incredibly different perspectives.

I remain incredibly excited about this path and believe wholeheartedly that it can lead to life-changing outcomes. The objective with these posts is to offer a genuine look inside a live search, and I feel there is real value in providing that to people who are considering this path. I don’t have time to jump on the phone with everyone who reaches out to learn about search, despite the fact that I wish I did. Writing is also helpful for me to step back and reflect just as greats like Warren Buffett and Howard Marks regularly do, using their writing as a tool to think and process. Reflecting on my journey can help me identify my own mistakes that I would miss if I didn’t pause.

Here’s a look at the inside.

• You have to remain confident in yourself and this path. It’s easy to feel beat down when most days you’re looking at bad businesses, getting told “no” on businesses you reach out, and dealing with people around you who seem unsure of this crazy path you’ve chosen. Despite the constant learning, progress is not tangible. Search is a binary outcome — you either close a deal or you don’t. Thick skin is essential and you have to put blinders on to push through the uncertainty. The search itself is what weeds most people out so your pain tolerance needs to be high.
• You signed up to be an investor AND a CEO. Don’t forget this — you have to do the former well to get the opportunity to do the latter. Combine these jobs by searching for and investing in a business that aligns with your skillset and the type of company you want to operate as CEO. You can have a grand vision for the technological changes you’ll implement, the culture you’ll build and the leader you’ll be… but you first need to make a sound investment in the right company and industry. Invest first, operate second.
• Pivots are completely acceptable in search. You can’t control interest rates, or the quality of deals coming on the market. However, you can control how you spend your time and what your search looks like. If something major feels off, don’t ignore it. The ability to navigate the market and change things up that aren’t working in your search is a skill in and of itself. Did you start off self-funded, but realize you’d prefer a traditional search fund with investors supporting you? Did you start off searching solo and realize you’d like to have a partner along for the ride? If something fundamental about your search or your criteria isn’t sitting well, make changes.
• Time is your most precious commodity in search. Because you’re looking for a business to buy, you’re going to be approached by people with all sorts of ideas for you through LinkedIn or even your website. “Let’s do a joint-venture!”, “Want to buy 30% of my business and partner up?”, “I’ll hire you and give you a huge piece of my company to help me grow it!” and “let’s build something together on top of my existing company!” are all unsolicited messages I’ve received recently. While some of these could be interesting, I’d bet most of these types of messages will lead you down a path to nowhere. Trust your gut; if you can tell from the first glance that it has a low opportunity of success, don’t waste time. Focus on the main thing.
• Stick to your kill list. Rather than having a plan for exactly what you want to buy, have a clear set of deal criteria you won’t transact on. Make sure your capital and skillset aligns with your chosen plan. You’re going to have businesses thrown at you left and right. Gas stations! Day cares! Manufacturing companies! Home services! Do you want to do a rollup? Do you want to buy and operate one company that is already generating strong profits and doesn’t require a ton of growth? Who do you want to compete with? What type of labor pool do you want to play in? The options are nearly endless.
• Vet sellers seriously. Make sure you only deal with sellers who actually wants to sell. This may seem obvious, but if they’re not serious about selling, they’ll move the goal posts on you throughout what will be a complex negotiation, and make continued demands until they’re convinced they’ve gotten the most out of you. Many business owners say they’d like to sell, but in reality, they will only sell if they get their home-run number. The best way to get a true understanding of this is to dig into why they are selling right away and set price expectations early. Ask tons of questions. If you’re confused about why someone who is still young and capable and not dealing with significant life changes wants to sell, trust that instinct and continue to pry. The answer should be clear. Having now dealt with multiple sellers who turned out to be tire-kickers, I learned the cost of this one the hard way. Had I pried harder, I would have saved myself significant heartburn.
• Stop looking for perfect because it doesn’t exist. All deals have hair (risks), so it’s important to know what hair you’re comfortable living with. Search is about being in a deal-making mindset and that means being comfortable with some risk. Immediately saying “no” to everything that hits your desk won’t get you to business ownership. Things like customer concentration, high CapEx, and project-based revenue are some of the many risks that can appear in smaller companies. It’s rare that you’ll find a deal without at least one challenging characteristic. It’s even more rare to find the perfect company that has 99% recurring revenue, low CapEx and no customer concentration. Even if that mythical company does exist, there’s no chance it’s going to be for sale at a reasonable price.
• Trust your gut. If you’re sitting with a seller and you get the feeling that you made a huge mistake by taking a meeting your probably did. If you’re looking at the business and can’t remotely find yourself getting excited about it, then you probably never will. You won’t succeed in operating it if you can’t find things that give you the energy and motivation you to push through the inevitable bad days.
• Know the differences between SDE, EBITDA and cash flow. This is essential knowledge because the seller likely doesn’t know this, and will often use these terms interchangeably. You’ll need to educate them continuously. You likely won’t learn about SDE business school, and you certainly won’t learn it in as a private equity investor. Here’s a post that explains the differences better than I ever could. This should be mandatory day one search reading.

A CEO with a firm finger on the pulse of their company has an innate sense of when they are not getting the results they want and makes changes accordingly. It’s important for searchers to have that same mindset and sense of urgency. Jump in, stay focused, and pivot throughout the journey.

P.S. I’d always appreciate introductions to potential acquisition targets or brokers, CPAs and other intermediaries (I am primarily targeting $750K-$2.5M+ of SDE or EBITDA, located in New Jersey, New York or the greater Philadelphia area)