This blog post has two parts. The most valuable part is understanding how to start a group for search funders in your region. The second part, is me explaining why we are no longer the host. I’ll start with part two. Skim over this and check out part one for the premium value.
Part Two: We are no longer hosting “The CEO Lunch” or signing “Executive-on-Deck” agreements. Why?
Search Funds and Searchers are nouns describing entrepreneurship through acquisition. I was not aware of these terms when launching Little Engine Ventures. After more than a few smart people asked me to investigate it, I read a few books, several white-papers, and began asking more experienced people some questions. Ultimately, Mikel and I decided Little Engine Ventures was kind of like a super-searcher, but also different in important ways. Rather than explain our distinctions, I preferred we just start acting according to our beliefs. Those that “get it” would be drawn in. Our monthly meetings would become our watering hole, or lightning rod, to attract interesting people. It would also batch up, and scale the “let’s grab a beer” crowd in a way we thought might scale. Our goal would be to find people that “get it” and leverage them toward increasing our deal flow.
We launched a program we dubbed “The CEO Lunch” (aspirational title) and drafted our “Executive-on-Deck” program (anticipatory description.) We wanted to amplify our differences (we are good at searching and fund-raising, you, the “searcher,” should be good at CEO-ing.) Our lunch agenda would be split into a few parts. We would have case studies on live prospective acquisitions and case studies on operating post-closing. We demanded the case studies be current and real. This would keep things interesting and less like a history lesson and more like a peer group. It would also give us a chance to observe prospective CEO’s interact with other big egos and how they handled themselves before, during and after the meetings.
We would not let in people that were not serious about buying or running a small business. This served us in part because we assumed the best way to find prospective CEO’s (our Executives-on-Deck) would be to draw them from a pool of wannabe buyers.
We would then take an abundance mindset–knowing there are far more deals available than we would buy ourselves– and encourage others to present case studies so the quality and creativity would be spurred on still further from outside points of view, rather than reverberating the LEV echo chamber. And so, our group would always be split between independent searchers and candidates that entered into our Executive-on-Deck exclusivity agreement. This balance would be what Mikel and I would manage.
Sounds great, so why stop now?
Well, we attracted great people. Nearly all have the personality and talent to be CEO’s of small businesses, if they were not already. Many were running small businesses and thinking about buying a second one. Several made purchases while they were “members” of The CEO Lunch. However, as we continued to raise our quality bar to higher heights, the overlap within the venn diagram in our geography began to grow thinner. We issued less EOD agreements. And ultimately, that portion of our objective sort of dried up.
Then, some new realities began to settle in: A great potential CEO of a small business is different from a great current CEO. A great prospective buyer is also different from a current owner. And a great leader is also different from a proven leader in an industry.
And while we met some folks that checked all of the boxes above, the cheesy EOD agreement I threw together seemed to be laughable to them. But frankly, I get it. The point wasn’t to have something complicated or heavy. The point was to find people that get it, and make for good partners.
Our format for the lunch needs to change. Mikel and I tossed around the idea of passing the host baton off to another person(s) who could benefit from the group more directly. We would be glad to participate but didn’t feel the need to host and promote it quite like we had before. We wanted to allocate our time toward other things.
We didn’t find anyone.
So, we figured the next most efficient way to find it, is to let go of it. Some one might appear. And if so, we would be glad to participate as members. Until then, our focus is going in a new direction (stay tuned.)
Part One: How to Launch a Searcher Group
If your goal is to model after what we did in your city or region and form a searcher group, we have some tips. Here are a few highlights. Send me an email if you want dig deeper. I’m glad to share our experience.
- Commit. Don’t do it half way. This doesn’t take much money, but it does take some cachet. Say what you are going to do. And then do it.
- Create a hurdle. Our first version required people to drive up from Indianapolis to Lafayette to sort of prove that they cared. We hosted at Matchbox which was cool because the space is awesome but also because Mikel is a co-founder. Our second iteration required them go to our brewery during a time of day that we were closed, we would unlock the doors, let them in, lock behind. We also made them pay for a years worth of lunches before they were invited back. Cool? Yes. Effective at creating a smile? Absolutely.
- Two free lunches. It’s not cool to make the club so exclusive that no one new is ever able to check it out. Invite people that are real to check it out, and meet the other members. Never have too many new members at once. You want people to interact before and after. After their second lunch, most people will say, “this is awesome.” Make them prove it with their wallet… and their time. Ask them to commit. Have them pay a small amount and bring a case study.
- Make sure the case studies are real and current. Nothing says snoozeville to a group of aggressive CEO types like a history lesson. We accidentally allowed this a few times (I tried to “teach” at a couple and they sucked real bad.) We also had a member bring a historical, big PE deal to one. (he kind of snuck it past us.) So, I turned it into a game, and asked everyone to write down the purchase price, the operational time frame and the exit price. The closest person would win. We had fun with that, because it became very real and in the moment. I also think people learned. That could work but it’s easier to just bring real and current. Bring heavy and hard stuff. Don’t go half way. If people care they will do their best to help. If they are not helpful, kick them out.
- Allow time before and after, but hold fast to the time frame. While we would set up meetings before and after the lunch, we also developed a culture of others doing the same. The doors of our building would be locked on Friday’s during lunch but would open up in the afternoon. People could linger and invite others in. Feel free to use the space. I know of several partnerships that were formed in and around the CEO Lunch. This is the part I will miss most (I’m not leaving, I’m changing.)
- No lookie-loo’s. Mikel and I loved (well, I loved) stiff-arming vendors and salesmen. If the person was not serious about buying or running a small business they were not allowed in. We occasionally would let a limited partner attend, but they had to contribute as well. We also sifted out big PE analysts and others that were just wanting to see how we did it so they could report back. None of that crap. It’s not a show. We’re trying to work here people.
- Work ahead. Mikel was awesome at filtering people, setting up calendar invites, gathering lunch orders and nagging about case studies. This was a lot of work. And, got really annoying on months when I had to be the backup. He also advertised on LinkedIN and ran all prospective CEO candidates through this process. We started calling it an extended interview. Which is kind of what happened… and that kind of sucks. Don’t do that.
- The host should have two new backup case studies every month. You need to make sure you have something interesting to talk about. If the group loses air it dies. Keep pumping life into it. I was the backup case study guy for our group. If individuals didn’t bring case studies then we knew I would have something serious to bring before the group. We get 3-10 direct contacts a week and several of the deals we closed were case studies, but not all of them. In our original plan we thought we would get a lot of deal flow from this group. As it turns out, those that are good at finding deals, and participate faithfully in this group don’t need us as partners. That’s also a good thing. But, sometimes they’re busy closing deals or running something they just bought. That’s fine. Be the stabilizing force. Bring the backup case studies. Every time.
- Have a consistent format. Our rhythm was to invite people to arrive 30 minutes early. We would start eating sharply at noon, and while people began to chew we did opening talk, introductions and case study verbal review. Whomever was hosting for the lunch would open with a standard script that laid out the purpose of the meeting, the rules of the meeting (“friend DA”) and the two types of case studies. If there were more than two new people we did a quick round of introductions. The group was always 10-15 people and we would sometimes say, “we are full.” 25 people is way too many. During transitions between case studies use a standard format/verbal cue to close the current one and start the next one. We liked asking “was that helpful?” Also, use a standard format on the print-outs for the case study. It needs some financials but also some other key aspects to give a sense of the people and soul of the business. We kept ours to one page and a verbal explanation followed by the big ask. Try to help. Allow group to ask background questions. The host and/or the Observer role should listen to the big ask and drive conversation back toward to help the presenter. Wrap the meeting on time and adjourn the formal section.
- Follow up with people afterward. One of our main objectives was to see where people were on their searcher journey. Did they have the cash and/or appetite to take on the deal themselves? Were they looking for partners? Already had them? Who are they? We also wanted to help them search within their networks for deals that we might do together. We did several meetings with prospective sellers and family and friends of EOD’s. They are really great people for opening up their networks to us. Some we never did find a fit for. And others we did and then situations change. The whole thing is very organic. Be open to that. Build relationships by investing the time with them to meet them where they are.
So, if you are thinking about forming a searcher group in your city or region, it is doable. We launched in Lafayette, moved to Indianapolis and did several in Fort Wayne and Indianapolis at the same time. We also went virtual and had people from around the country join in during stay-at-home orders. While the virtual thing probably increased the caliber of searchers the vibe wasn’t as good as unlocking the door to sneak people in or charging them to attend. The handshakes weren’t there. The commitment level wasn’t the same. And, frankly, I like the geographic density. It’s simple and it works. If you want help, email me. We’ll chat. It’s totally doable. And it works.
I look forward to connecting with business owners in our community and elsewhere. We are an odd bunch, no doubt. I have some ideas about how we might facilitate the community of business owners in the future with a similar structure. Our group drifted toward searchers. I’m cool with that, but I need someone else to take the helm on searchers. It’s not for me. I run an evergreen fund. Period. For now, I’m pausing on the searcher crowd and focusing on the owners, my current team and how we can help our customers accomplish their goals.
There are tons of opportunities that I wouldn’t see if I had not done this. Zero regrets. New methods to arrive soon.