GAINING TRACTION AS A SELF-FUNDED SEARCHER

SEARCHFUNDER INTERVIEW OF ROB JACKSON

We spoke to Rob Jackson, whose Scout View Partners acquired Integrated Precision Systems.

Thanks for doing this interview.

My pleasure. I enjoyed reading these during my search. Hope this can encourage another self-funded searcher.

How did you get on the search fund path?

My family owns businesses – manufacturing mostly. I grew up going to the factories in Los Angeles. My dad was a part owner of the family business. And, I always assumed I would be involved in small business ownership.

What appeals to you about small business ownership?

Owning the consequences of your decisions, for good and bad. I was a consultant at McKinsey and an engineer at Boeing. The large corporate structure and lack of true, ultimate ownership in the success or failures of your day-to-day work is a stark contrast to being the multi-hat wearing, decision-maker that is a small business owner. That role is exciting, rewarding and appealing to me.

Did you go to Sloan to get versed in and start your search fund?

I went to Sloan to round out my skills so I could prepare to own a small business. I still wanted more time to develop after business school so I went into consulting. Once I started feeling ready, I co-founded an on-demand dry cleaning service in New York City. Then, I became involved in search funds after exiting that business. I needed all that experience to gain the confidence and understanding needed to do the search and operate a business.

Tell me about your search?

I married a woman from Cleveland, Ohio, which brought me to Cleveland. There were a lot of life decisions that weighed into my search fund structure. Ultimately, I was trying to stay in a short radius of Cleveland and do a self-funded search. I wanted to target the geography as well as the type of business I wanted to do.

Because of your geographic focus, did you have a broad or focused industry lens?

My background made me biased towards manufacturing or services around manufacturing facilities. It’s what I grew up doing and what I am interested in. As I got 6 months into the search, the concept of true recurring revenue became more and more appealing and interesting. That made me pivot away from manufacturing into more service related businesses.

Did you find you had any particular challenges as a self-funded searcher?

It’s a trade off on challenges. When you look over the other side of the fence, you think, “Wow, wouldn’t it be nice to have all the money, wisdom and experience in a traditional seach fund.” On the other hand, no one was advising me that I had to follow. I wasn’t told “This is the industry you should look at.” It’s a game of tradeoffs. I had to be true to the fact that I wanted to own the majority or all the business, I wanted to choose the industry and its location. That drove the selection of being self-funded.

What about talking to business owners? Did you find that they were less reticent to speak with you because you were representing yourself?

I thought it was fantastic. It was a differentiator and a real leg up. These guys largely started the businesses themselves; they were out there on their own; they grew the business on their own; and they resonate with a local guy who wants to run their business.

Your search took about a year and half. How many LOIs did you do?

I probably submitted around 15 LOIs. I ultimately had 6 under LOI and then closed 1.

Were there any challenging ones?

They all were challenging. Deals fall apart for all kinds of reasons – sellers, financing, etc.

Were there any deals that you were really optimistic about and were disappointed once you started diving in deeper?

I don’t know how someone doesn’t get disappointed on every one that falls apart. This is a life commitment. When you sign that LOI, you are making a commitment.   

I was pretty far along with one transaction and discovered that they hadn’t been paying their payroll taxes. They were in a lot of trouble. It looked like a great business otherwise… I really liked the team and the owner. The payroll issue killed the deal.  

We have an interview from Jon Herzog and he mentions that’s a common issue with targets.

Did you have interns?

No.

You did the outreach yourself? About how many companies did you do outreach to?

A thousand. My sources were direct outreach, business intermediaries, brokers, investment bankers, and professional service groups. I was going to Lion’s Club-type events. That’s what you do when you are a local searcher. You really embed with your local community.

How did you ultimately find the company you acquired?

It ultimately came through a main street business broker. He called me and said, “Hey, take a look at this.”

How long was your diligence process?

It took 11 months to close.

What were the major issues?

Working capital seemed to be a challenge in all my deals. Defining that early and making sure everyone understands what they are agreeing to really helps.

In addition to the working capital, were there other issues?

Managing the sellers life transition is always hard as well. They were the founders and giving up ownership to their “baby” was hard. There was a lot of back and forth. It would have been nice to have them turn the deal over to their accountant or attorney and have them kick it out the other side to have a rational negotiation. As with all small businesses, the finances were a little messy which creates questions and adjustments.

Talk to me about Day 1, your first day when you announced the deal?

No one caught wind that this was happening even though the sellers had been at it for over a year and a half. It was a surprise. We called an all team meeting on a Friday afternoon. I was introduced as the new president. I had about an hour on site as Day 1. I was introduced, had a chance to speak, answer questions, and to begin to get to know everyone.

What was the initial reaction from the employee base?

Before they started to ask questions, I tried to answer “What does this mean for you” to the audience. I got very specific. Here’s what my day-to-day role will be. Here’s my overall vision for at least the next 6 months.” I was focused on anticipating their questions or concerns and projecting a positive energy that they could get behind.

In hindsight, it was the right move. We have not lost any employees. If anything, people are energized about the new vision that has been growing together with the team. We have not lost any customers as well.   

I think this “Business as usual. I am an add-on to the team” has been the nice message for the group.

How long will the sellers stay on?

One of the sellers has moved on and left the state. As for the other seller, we’re getting along well.

What were your initial priorities?

I was put in as the President as well as the CFO/Controller. For the first 3 months, I was doing everything in the finance department. I’ve since outsourced that. That period gave me a good chance to understand the flow of money, the real mechanics of the costs and the revenue. I also overhauled our CRM system. On Day 1, I had no idea what was in the pipeline and what we were forecasting for the next quarter. Within 2 months, we overhauled our CRM system. Now, I can pull it up on my phone and rest easy. That was a big, big focus.

How have people accepted the change over time?

I have started the Traction management system. Are you familiar with Traction? The Rockefeller Habits and Traction are in the same genre of taking a small business and implementing a management system and business operations system that is more advanced or mature. Are you familiar with Rockefeller Habits?

No, I’m not familiar with either book – and I went to business school.

You would never ever have heard of this in business school because it’s only about small businesses. It’s the same principle of: let’s have an org chart, in your org chart this is your job description, this is what you are accountable for, and let’s have metrics, and let’s meet once a week to talk about where the metrics are at and to address issues. It’s really fundamental stuff. Often small businesses aren’t mature and they don’t have those things. Instead of walking in and saying, “I’m going to change all these things. And, here’s the new vision,” I’ve been building those fundamentals with a leadership team of existing employees around these basic business principles. That has helped them feel engaged and involved in the change, ultimately assuming ownership of where we are headed.

What do you know now that you wish you had known on Day 1?

There’s so many things. One thing that resonates with me is the “sprint versus marathon” advice that you hear as searcher. I am six months into operating and remind myself of that advice every day. I can really focus on the top 3 to 5 things that need to be moved forward instead of racing/sprinting to change everything. I will do those 3 to 5 things much better; it will move the company further than trying to do it all. And, I might actually get some sleep that way too. I am now in a different phase than I was right after the acquisition. I am in the look ahead phase. I am appreciating that wisdom more and more. Having said that I am still sprinting because I am only 6 months in (chuckles) – but I do try to remind myself.

As you look ahead, what do you see over the next 6 months to a year?

Adding a General Manager. This will allow me to focus more on sales.

How many people are in the company?

We are a small group of 12 of us. We do a lot of outsource. We add capacity by bringing in other companies.

How has the people management been?

I’m doing a lot of people management. I’m giving everyone a chance to be a part of a role which in and of itself is a change. We are defining an org chart, roles and responsibilities. It is giving people a chance to grow and be held accountable for what they are supposed to do. It is a massive change for an individual who has done something well but in freeform for 15 years. Now, they are told: “You are in charge of this service group. Here’s your metrics. Here’s how we are going to deliver success. This is where you are taking that group.”

Any other advice you might wish to give to a searcher?

Remember where you want to be in 3 years. The day-to-day is hard when you are making the calls and digging into financial statements that are a mess. There is a longer-term vision that is really exciting. There are a lot of talented searchers out there who should be optimistic about that future.

When I was searching, I found myself getting into patterns of making calls and having a message in my head. When you are making the calls, you must be excited about your future. I did self-funded because it’s exactly in line of where I want my life to be.

Were you working out of your home during the search?

I got an office. (chuckles) There was no chance that I could get work done at home.

I had two kids during the search. My wife is wonder woman. She works at McKinsey and is still there. My kids are presently 10 months and 24 months.

How did you navigate having kids during the search?

If you get thrown into the wilderness, you’ll find a way to make fire and survive. It is tough but you manage it. We were treading water there for a while.

I find the unknown to be stressful. And, searching seems like 1 big unknown: Am I going to find a company or not?

I felt like I could find a company. For me, the question was “Am I going to find the right company?” There’s no back stop as a self-funded searcher.

Thanks for your time.

Thank you.

Summary of Insights

Here are our a few of the key takeaways from our discussion with Rob:

• • As you conduct your search, you may need to pivot away from first industry preferences.
• • Self-funded search may be an option for searchers who desire greater autonomy concerning their industry and location choices.
• • Closing the deal may require addressing the emotional issues of the sellers and may feel like engaging in “marriage therapy.”
• • Two helpful books are: Rockefeller Habits and Traction.
• • Be excited about the long term vision.