Converting lifestyle business into a professional enterprise

February 05, 2020

by a searcher in 1335 6th Ave, New York, NY 10019, USA

Interested in experienced searchers' perspective on transforming a lifestyle business into a professionally run organization.

Curious about the impact on culture, EE retention, decision-making/process/technology etc..

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Reply by a searcher
from Northwestern University in Los Gatos, CA, USA

We're perhaps not an exact match for this fact pattern, but not far off it either. There's a decent amount out there on our story, and I"m happy to chat as well. redacted Like an Owner (Episode 5) - https://www.alexbridgeman.com/podcast/nick-haschka-cub-investments-ep-5
Alternative Investor (Episode 38) - https://shows.acast.com/the-alternative-investor/episodes/we-talk-to-a-guy-who-bought-a-business-with-an-sba-loan-ep38
Enterprise Radio Podcast - https://epodcastnetwork.com/acquisition-based-entrepreneurship-a-new-spin-on-growth/
TWG in the Associated Press - https://www.apnews.com/4a8e96a6b5394693806e732b3d22b354
Searchfunder interviews- part I (https://www.searchfunder.com/post/redesigning-a-plant-services-company-for-growth) and part II (https://www.searchfunder.com/post/redesigning-a-plant-services-company-for-growth-part-ii)

Reply by a searcher
from University of Pennsylvania in Chicago, IL, USA

Very relevant consideration, and I think this is a big part of why a lot of investors don't want to own small companies. Professional organizations are built to survive - lifestyle businesses can disappear if the person who was the lifeblood of it gets sick, dies, etc. My perspective on this is that most smaller companies (sub 1-2mn EBITDA) are going to lack a lot of the things needed to make the organization seem more professionalized. Earnings aren't always a good read on this though, because a high revenue, low margin business that only has 1mn in net income but is producing a ton in terms of revenue and throughput, could very well be extremely professional. To keep this simple, my experience is that the transformation from lifestyle to professional is usually a tradeoff based on cost. Professionalizing is more expensive and a lot of the aspects of professionalizing don't necessarily translate to better earnings, however, the changes needed to support growth are essential. In the evaluation/DD phase it is crucial to try to figure out what the earnings look like after you have made the changes that you believe are necessary.

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