Never eat alone: thoughts on search fund relationships
I recently read Never Eat Alone by Keith Ferrazzi. It’s a classic and a goodie, and I wish I had read it a long time ago. As might be inferred from the title, the book is about relationships. It’s about the power of a real, true network of friends that has the ability to build you personally and professionally. Some of Ferrazzi’s points hit home with me, and here I’ll put them in the context of a search fund.
1) Relationships are more like muscles than like cake.
Ferrazzi takes aim at the concept of spendable, consumable social capital. He says relationships are not consumables; by engaging in real relationships, you don’t use them up. Quite the contrary! He says that when you exercise those relationships regularly, they grow stronger, deeper, and more resilient.
Generosity and loyalty are key here, he says. By giving freely without keeping score, you are truly building those relationship. Give not because you expect something in return, but give out of true care for that person’s wellbeing.
How often do we see this in the search fund world? It’s not an easy question to answer. On one hand, the search fund ecosystem prides itself on its community, its generosity, its welcoming attitude. And indeed, many investors and veteran searchers often take calls from prospective searchers and attend or speak at conferences, and the resulting synergistic ecosystem is a big contributor to the model’s recent success, and I personally was a beneficiary of this pay-it-forward culture.
However, if we look deeper at the motivations behind these contributions, I think we’ll find a mix. Some are contributing out of genuine care for their fellow entrepreneurs or investors, while a few take a more transactional approach, looking for something in return. If you attend a conference, try to distinguish between the super-connector, who not only knows many people but has authentic relationships with them and wants to help you by introducing you to them, and the “networking jerk”, whose eyes dart around the room for the next most valuable person, never giving his or her full attention and care to you.
In truth, I think we can all admit to being on both sides of this story at various points in our past. Personally, while I try to draw on my foundations as a teacher, wanting nothing more than to help people grow and succeed, sometimes I just want something, and I act accordingly, neglecting the real relationship at stake. I don’t think this is uncommon, but it’s something we should be increasingly aware of and work to avoid.
Ferrazzi would encourage us all in this niche ecosystem to trash the scoreboard, the tit-for-tat mentality, and proactively and regularly seek ways to help people we meet. In that way, we will build the strength of the network, both individually and collectively, and as a result that network will grow increasingly powerful with each flex of the generosity muscle. Personally, I’m taking this mission to heart. I try to give all I can to each entrepreneur I meet. If you and I haven’t met, please reach out. I’d love to see how I can help you.
2) Build the network before you need it.
This one is so important and directly applicable to the search fund entrepreneur, yet it is very difficult to put into practice.
I often meet searchers who are deciding between going the funded route or the unfunded route. Of course, there are pros and cons to each, and there are certainly legitimate reasons to self-fund. (We’ll touch on this in another post.) But when I speak to these searchers, I emphasize the importance of the searcher-investor relationship.
At the risk of stating the obvious, investors are much more than a source of capital. When chosen and fostered adeptly, they can be a source of strategic insight, connections, mentorship, credibility, encouragement, and even friendship. However, without developing the proper relationship, they turn into just that - a source of capital, and you lose out on a ton of value they can provide.
The search fund model makes it easier to develop these relationships by aligning the economic interests of the searcher and investor. This alignment is weaker in the self-funded model, and for this reason I always advise self-funded searchers to build a network of investors as if they were raising search capital, but without asking for anything. Some take my advice by sending a quarterly newsletter to a group of investors; others don’t take my advice at all. Very few go the extra mile to actually develop a relationship with these investors, sometimes for fear of rejection - a legitimate fear. Some investors won’t be interested in speaking with you. But find those who will! You can build those into authentic, lasting, mutually beneficial relationships. When it comes time to raise capital, contribution will be far from guaranteed, but the conversation will be a natural continuation of the relationship.
And I will emphasize again, do look beyond the initial capital raise! Your relationship with your investors does not end there. You will have many peaks and valleys to traverse with them as you operate a business, as you seek an exit, and in whatever you choose to do next. Value, nurture, and treasure those relationships. They’re worth the time investment. The same is true with your other mentors, fellow searchers, lenders, and other people you meet along the search fund path.
However, I will note that when it comes to finding a business to buy, you will not increase your chances in any meaningful way by starting your relationship-building mission today. It’s a bit too late; you need to find a business to buy today, not years from now. Certainly call on those relationships you already have, but your deal is likely to come from outside your existing network.
3) Be a person. Be vulnerable.
This is often a hard one for businesspeople to swallow. Shouldn’t I project strength, control, and decisiveness? Shouldn’t I keep work at work and my personal life separate?
Ferrazzi says no. Not that you shouldn’t be strong and decisive, but that you should maintain your identity as a flawed human when building and maintaining relationships. People are not as interested in developing a relationship with a CEO (though they may want to be acquainted with one) as they are in developing a relationship with an interesting, caring person who runs an interesting business.
Again, this feels risky, and indeed some investors will cast judgement for showing signs of weakness - fear, skill gaps, worry. But I would argue that the right investors are the ones who acknowledge their own shortcomings, recognize that everyone has them, and will help you play to your strengths.
When I was raising capital to buy a software company in the Midwest, my lead investor was just the right kind of investor. He liked my deal, and he liked me, so he wanted to help me succeed. One of the ways he tried to do so was to identify my weaknesses - where my skills could use improvement and where I hated spending time. I told him I dreaded sitting in front of a spreadsheet all day; I wanted to be on my feet coaching people, meeting customers, and leading through action. I felt those were where my strengths and passions lay. He said, “Great, so the first thing we need to do after closing the deal is hire an all-star controller/CFO.” This was not only sound advice, but it made me feel understood, supported, and optimistic about my ability to add value. And it came because my lead investor asked me to admit my weaknesses.
When I was raising my search capital, my raise had stalled. I had a few committed investors and a number on the fence. Then I had breakfast with an investor who had previously been unresponsive and had a great reputation not only in the search fund community, but in the wider American business community. During that breakfast, we spent about 20% of our time discussing search and 80% discussing personal interests and stories. He learned that I had been an actor, which led to a longer conversation about his daughter in the performing arts and the value that experience on the stage brings to one’s life and to the community. He decided to invest on the spot, and, as a result, most of the fence-sitters came on board shortly thereafter.
It was a risk to share my background as an actor. It’s not clearly aligned with the goal of running a business, I was not a highly successful actor, and to my knowledge, no other successful searcher had previously been an actor. Yet the story painted me as a person rather than as a walking PPM, and it opened the door to a deeper relationship.
4) Strive for quantity of quality.
It’s not the number of hands you shake, but the number of true relationships you have. Ferrazzi even uses the term friendships, and he sets the minimum frequency with which you must communicate with someone to move that person from a contact to a friend.
Ferrazzi discusses conferences and trade shows in particular. He says that it’s much better to go to a conference with a handful of relationship goals in mind - specific people you’d like to meet and develop a relationship with. Learn something about these people ahead of time, and spend the conference really getting to know a handful of people rather than throwing around hundreds of business cards. (I’ve definitely been guilty of this.)
This is particularly applicable to the idea of a river guide. (I’ll express my full thoughts on this approach in another post.) The strategy didn’t work for me, but it has worked for others. Someone is much more likely to go out of his or her way to help an entrepreneur like you if a real relationship exists, or at least the foundation of one. A simple business card and referral fee is less likely to do the trick.
Action Items
Read Never Eat Alone. After you do, I’d love to hear your thoughts.
Create a list of people with whom you would like to form or develop an authentic, mutually beneficial relationship. Most of these people will likely be in your home country, where you’re looking to buy and operate a business for the coming decade. I find that even in today’s connected world, geographic proximity makes it easier to stay in touch, help each other, and deepen the relationship.
Prioritize this list and set a schedule for staying in touch. Organizing your contacts in a CRM will soon become habit if it isn’t already, so why not track your relationships in the same way? Be thoughtful and realistic with this schedule, and think about how often you’d like to meet, speak on the phone, or send a message… and then consider what you can realistically accomplish.
Choose a few people now with whom you’d like to have a deeper relationship, and find a way to help them. Browse their social media profiles, and talk to them! Find out what they need or want. Then dig through your network to find someone who might be able to help them, or get them one step closer to someone who can help them. It will feel good, and that good feeling will make it easier to do again and again.
