I typically write about the analytical side of searching and operations, because the numbers give you nice and clean answers about the ideal course of action. But just as plotting the right course is essential for a sailor to reach the right destination, you won’t make it there without the mental resilience and support system to hold the course through any storm on the way. So in this posts we’ll talk about some of the emotional highs and lows of year 1.

If you are embarking on the search fund journey without prior small business experience, just like we did, the volatility of day-to-day operations of SMBs can surprise you. Whether you are coming from a large corporate, consulting or investing background, you’ve likely always been several layers removed from the volatility of day-to-day operations and you were dealing with a larger organization with more redundancies and back-ups.

Two employees calling out sick means you don’t have accounting, customer service or half your sales team for several days. While we obviously were aware of that reality intellectually, the emotional experience of going through those situations is a different animal. There are a lot of things that need to work out “under-the-hood” of the business just to produce the monthly financials you look at during diligence.

Talking to seasoned operators, the emotional roller coaster of the first year seems to be a rite of passage to becoming an SMB operator. With every fire you put out, the next one feels a little smaller and you stop expecting smooth sailing after every small win.

While SMBs are certainly more volatile than large companies, it’s really the perceived volatility that makes especially the first few months such a roller coaster. Without the experience from prior years and without any historical data to rely on, the ups and downs get blown out of proportion, because there is no objective telling how good / bad something is. It’s like a three year old toddler learning that a little stumble and a big fall are not equally grave - hard to figure out without prior experience / data to compare it to.



However, just like the toddler, you eventually take enough tumbles and falls so not every slow lead days feels like your product/service might be obsolete and not every good week makes you feel like you’ll take over the world.

There are two clear lessons from year one:

1. Start tracking important KPIs as soon as possible. Use Excel and paper if you have to, but don’t wait months to implement the perfect solution. This data is the only crutch to lean on when the first bad day / week inevitably comes.

2. Prepare yourself for the roller coaster by understanding that you will likely have outsized emotional reactions, building a peer group to keep you sane and structuring your deal with enough liquidity runway out the gate.

Whenever I experienced one of the emotional extremes of the first few months, I made a note in my phone. You can read the full post of all the ups and downs on today's blog post: The Emotional Roller Coaster of First Year SMB Operations

If you are interested in reading more, I write an in depth blog post about searching, operating or investing in SMBs once a month on Buy Small Sell High and I'm also pretty active on Twitter @HockJohannes in between.