Operating - Reflections one year after close

I will have passed the one-year mark as a business owner in a few weeks. Looking back, I am still incredibly grateful for this opportunity. I also credit my friends and family for supporting me through this life changing endeavor.

Some reflections on operating and the final part of acquiring a successful SMB:

Your target company will have problems that you're aware of before you close. It is wise to only bring some things up with the seller before you close. I deliberately didn't dive deeper during the transaction on a few items I knew would be problems. Instead, like any good searcher, I opted to take on more debt! I mean by debt that those issues were problems that grew with interest. Here are some examples:

1. Office Space - I knew this would be an issue before I closed. The office was small and awkward, and the owner didn't work there. It presented many problems early on. I had no privacy. I couldn't just leave the office during the day because I needed to get to know my staff and learn the business. Unfortunately, I also had sensitive M&A stuff to discuss and work on. In addition, I couldn't lead the staff how I wanted because I was too close to them. There is an ideal separation between Staff, Clients, and the C-suite. That is both metaphorical and physical.

2. Technology - Old cell phones. Old computers. No tech support. Non-existent employee time tracking. Redundant, hard-to-read spreadsheets with duplicated information (see what I did there?). Old website. Lax cyber security. Regulatory Compliance was a complete afterthought (HIPAA compliance?!).

Who gets to handle all of this technology debt? You do, of course! My advice is to come up with a game plan with REALISTIC timeframes. It is unrealistic to give yourself 8 weeks to lose 25lbs and expect that change to last. You will need to make structural changes to the tech suite shortly after closing. Your staff will have various degrees of familiarity with technology. Make a realistic plan like you would for a lasting change to your body. Give yourself about###-###-#### months to implement the changes. Don't underestimate the amount of time it takes to change an organization.

3. Key staff - I had a key staff member who handled almost all our sales. I was uncomfortable with this before closing but I was unaware of how big of a deal this was until after I closing. I learned the first month after closing that this employee (a) Was not good at his job (b) Needed to be replaced ASAP (there was a him or us moment among key staff). I'm not the first person on here to say something like this. It has been one year, and I'm just now getting past this issue.
   Other reflections that I learned along the way: Personnel - I've heard a stat that search fund companies have high turnover rates after closing. This is true for mine as well. I had one employee stealing time. Another was always calling out. Most likely, this will be your world after you close.

Employee Pay - My business partners and board members helped me with this: Don't walk in and give certain people raises right away. I almost gave several people raises in the first two months because I was impressed at how much more they did versus their peers. Instead, on the advice of my board members, I took a slower and more calculated approach to better match those individuals' pay and position to their engagement in the company. Wait several months before changing pay. People will probably leave. Alternatively, retention bonuses worked really well at keeping the core, irreplaceable staff engaged.

Pick your North Star and stick to it - I'm aiming to build a high-quality company. That means explosive growth and EBITDA gain are second to excellent operations. I would never get past where the old owner was without my core operations being more finely tuned. She ran the company far more savagely and economically than I ever could. I'm better at building understandable, efficient, and moldable systems. That means we're moving and communicating more efficiently, and it's pleasing our customers. Growth and cost-cutting will come next.

My time during the workday - I was terrible at this at first. I'm getting better. Many days from 9am - 5pm I have almost no time to get to my emails. Those messages pile up, and once everyone leaves for the day, I can get to work. Many people write books on this topic. The struggle is real in my world. Staying on task and calendar blocks are good tools, but you'll still have many fire drills as a business owner throughout your week.

My Search I self-funded my search and partnered with SIG as a full-time searcher about 1 month after I started my FT search (Oct###-###-#### My search took 12 months and I burned between close to $100k. We all have different ways of accounting for the exact burn. This is a look at my balance sheet from Day 1 to the end of the month after I closed. Consider that this includes my life insurance, rental deposit at my new place, moving expenses, etc…

Plan for broken deal costs. Some highlights for me Trip to northern midwest ~$2500 Driving and meals solely related to opportunities in SoCal ~$1500 QoE, Phase 1 broken deal ~$9000 Your personal search burn rate during an active LOI will increase, and your search productivity will decrease proportionately with time during your first few months of due diligence. As you get deeper into a transaction, you'll have less time to engage with brokers and review CIMs, and you'll have more time spent with lawyers, their broker, etc… You're going to have less time to get groceries, cook, clean, and relax as your transaction gets closer to the finish line.

The month of closing, I sweat bullets that something would blow up in my face, and I'd be out a lot of money. Try to relax and focus on the things you control. I am sweating just reflecting on the month of closing. Arguably one of the most stressful events of my entire life. You're not alone if you're feeling overwhelmed or stressed out. This is a big deal (regardless of EV).

I broke up legal and due diligence into 2 purchase phases: QoE (Phases 1 and 2) and Legal (Phases 1 and 2). My professional services team rolled up their final phases, legal and QoE, into closing, which was covered by the bank debt. (Byline Bank, SBA 7a loan using WSJ Prime and a sub 200pt base rate. 80/10/10 style transaction)

I credit ^redacted‌, ^redacted‌, ^redacted‌, and the SIG team for making my close easier and more manageable. There were lots of little things that would have been fine without them. There are also many things I would have spent more money on or skipped if it wasn't for them. Looking back, I wouldn't have done it without them. This statement, by the way, has not been endorsed by them. I'm just grateful I had them on my side during the transaction.