The Thesis in Action: Proprietary Deal Flow & Architect of the Future

An Investment Thesis is the foundation for all subsequent steps in the acquisition process, including post-close management, vertical/horizontal integration, roll-up, and value growth plans. In other words, the Thesis is your plan; your acquisition and management plan that transforms you from a Searcher into a Managing Partner. I recently observed in real-time how a Thesis guided a Managing Partner like a laser-guided missile. The Managing Partner used the Acorn Investor Lab’s Method to develop their Thesis. At a trade show, the Managing Partner utilized the Method to strengthen conviction in their Thesis, created Proprietary Deal Flow, and pull a "Moon Shot" vision into the immediate, executable horizon. The Context: The Moon Shot Vision The vision is to sell a turn-key manufacturing business to clients, operating much like a franchise. From the supply of raw materials and manufacturing equipment to buyers for the products, the solution would be comprehensive and complete. The Managing Partner’s Thesis is to acquire a business in the value chain and execute a vertical integration plan to acquire companies that build the critical technology-enabled components of this "Franchise-as-a-Platform" model. The Managing Partner would rely on strategic partners to provide the low-tech, low-margin products and services of the Platform. 1. The Thesis as a Guide When we walked through the door on the first day, the objective for the show was to ask a specific list of questions to specific exhibitors at the show. From time zero, the Thesis increased our efficiency. We weren't there to browse; we were there to resolve the uncertainties or risks in the Managing Partner’s Thesis. By asking the right questions and listening to the right people, we accomplished more in 48 hours than most achieve in months. Because of the work invested in building the thesis, we knew what we were looking for; and we found it. 2. The Art of the Pivot: Greenfield Builders Through conversations with participants across several links in the value chain, we identified a recurring friction: many leaders of existing potential customers are uncomfortable with technology investment, even when the ROI is undeniable. This is where the Managing Partner’s Art (Judgment) was applied. While an "Agnostic Searcher" might have viewed this as a dead end, the Managing Partner identified a different narrative: significant interest from groups desiring to enter the market by building new, manufacturing-heavy Greenfield operations. We immediately divided our customer set into two subsets: Greenfield (Comfortable with Technology) and Old-School (Uncomfortable with Technology). By shifting our "Tip of the Wedge" persona to the Greenfield, we validated that these customers responded enthusiastically to our integrated franchise model. 3. Gate 1: Mitigating the Cost of Goods Risk The biggest risk in the thesis was the cost of production. For our franchisee to dominate, they must produce at a competitive cost. During the initial Lab work, the Thesis identified a confidence gap in equipment availability. We knew the path to competitive cost was technically feasible, but we lacked proof that the equipment was available today. During the development of the Thesis, the Managing Partner decided to acquire the suppliers of the key technologies in our production process. We would rely on strategic partners to sell us the other components of the production process. So, to execute the full Moon Shot Vision, the equipment must operate at competitive costs and at prices that create attractive Return on Investment. A deep-dive calibration with suppliers at the show unleashed that confidence. The equipment exists today that delivers the target operating cost, and the equipment replaces 18 manual laborers for a one-time $180,000 investment. This validation moved the mitigation of the production cost risk from "visionary" to "verifiable today." Furthermore, we identified that the “sophistication gap” of the Old-School was the largest obstacle in the sales process for these equipment manufacturers. This gap represents our primary opportunity: as our Greenfield customers scale using the technology we provide, they will possess the price power to force the "Old School" out of the market. 4. Gate 2: Securing the Sales Channel With high confidence that the Managing Partner had mitigated the Cost of Goods risk, the Thesis immediately dictated the next priority: The Sales Channel. Earlier in the day, the Managing Partner spoke with the CEO about the Thesis. The CEO agreed with the thesis. They discussed the opportunity as medium-term because, at that time, the Managing Partner was focused on mitigating the Cost of Goods risk. With the cost of goods risk mitigated, the CEO was no longer just a contact; he became the final link required to transform a Moon Shot into an executable vision in the short term. The Managing Partner returned to talk again with the CEO. When the CEO provided buy-in to the Managing Partner, the Moon Shot moved from the long-term to the immediate term. 5. Proprietary Deal Flow The Method does more than create focus; it uncovers proprietary deal flow by positioning the Managing Partner as an Architect of the Future rather than a "Searcher" for a deal. Two business owners in the value chain expressed enthusiastic support for the Thesis during the show and indicated immediate interest in further discussions regarding the future of their operations and their potential transition into the platform. 6. The Lesson: Turning on the Lights When the Managing Partner reported this sequence of events at the show to the manufacturer who confirmed the cost and ROI of their equipment, the executive identified the "Big Picture" foresight as a rare ability. However, that foresight was simply the result of the Method that allowed for the real-time re-prioritization of focus as the Managing Partner mitigated risks identified during the initial Thesis construction. The Thesis provided the benchmarks that told the Managing Partner when a problem was solved and when it was time to jump to the next link. It turned a "dark puzzle" into a visible map. I am currently selecting just a few professionals for the Acorn Investor Lab. If you are ready to move from Searcher to Managing Partner, the first step is the Managing Partner DNA Audit. Feel free to DM me or find more info at: www.acorninvestorlab.com