How I drove myself crazy while searching, and how you can avoid the same fate

Early in my search years ago, I was eager to secure the confidence of my full investor group. I was determined to find that one perfect deal they would all love and pat me on the back for.

I quickly found a few opportunities that I deemed worthy of presenting to my investors. With each deal, these investors would ask questions I didn’t have the answers to, and I would go back to the deal and dig some more. The more questions they asked, the more worried I became that perhaps they didn’t like the business I had presented.

And so I would move on to the next opportunity.

This happened a few times – I would find a promising business, my investors would poke holes I believed I couldn’t fix, I’d second-guess my selection, and drop the deal completely. It felt like the choices I was making were somehow missing the mark, and I didn’t quite know how to rectify that mismatch.

As this pattern emerged, I remember evaluating a particular label-printing business in Southern California and thinking of Graham Weaver, a successful searcher who had purchased a label-printing company. Inspired by his story, I was drawn to the industry. I found many businesses in this industry with predictable recurring revenue and fairly straightforward operations, and that were run by retirement-age owners. Overall, the industry seemed like a good fit. So I gathered a few such opportunities and brought them to the investor table.

Quite quickly, a few of the investors pushed back on the level of capital intensity. One machine could cost half a million dollars, and the companies I was looking at had between four and ten of them. The pattern then repeated itself - I shriveled back into my search hole, hoping to find another opportunity that would make the investors happy.

Next was a landscaping company in Texas with a couple hundred employees. Their work comprised mowing lawns, trimming hedges, and general landscaping duties for public spaces like office parks, shopping malls and residential buildings. The company had been around for almost two decades and displayed healthy growth, 30% EBITDA margins, and robust contracts generating recurring revenue. I was pleased to find relatively little heavy machinery, and I thought I had struck gold. My investors couldn’t complain that this one was too capital intensive!

Alas, some of my investors pointed out that the business seemed too labor intensive. The more the business grew, the more employees it would need, and the more complex the organization would get. Adding new layers of management would simply chip away at economies of scale and potentially at the company’s margins. To my dismay, it was back to the drawing board, only now I figured I would probably stay away from labor intensive businesses.

Eventually, I figured the ideal company would lie somewhere about halfway between labor and capital intensive but would be difficult to find. And this labor/capital spectrum was just one of the criteria my investors would use to evaluate a business - there were plenty more! How was I going to find that ideal business that would make them all happy?

After several months of this, I was going nuts trying to get my hands on a business that might check all the boxes of each of my investors. Much to my disappointment, the more I searched, the less likely that business seemed to even exist.

Then I spoke to Jim Sharpe, a name well known in search circles, and rightly so; he’s a fountain of wisdom. I shared my dilemma with Jim, and he said something along these lines (not a direct quote):

Jake, stop. Stop trying to find a company that will satisfy every one of your investors. It’s impossible, and you’ll drive yourself crazy. Find a business that works for you, one in which you can see yourself creating value. If you do that, enough of your investors will be on board for you to do the deal.

As always, I appreciated Jim’s bluntness and candor, but at the time the advice was difficult to swallow. Should I really prioritize my own assessment over that of an investor that criticized the deal? If one investor declined, wouldn’t that spoil the whole pool? What would happen to my reputation in the investor community if I decided to act against the advice of a couple of my investors, even if the rest were on board?

But it was the right advice. After all, I would be the one living and breathing that business for years to come, not my investors. (Also, in hindsight, investors fully expect that the original investor group may not be in full agreement on a deal, and that consequently not all of the search-phase investors may participate in the acquisition. In most cases, this results in zero bad blood or resentment; it’s simply the nature of the model.)

This was an incredibly clarifying moment for me, and it’s advice I now pass on to other searchers today. The hard truth is that there is no one perfect deal. Every deal’s going to have some hair on it; not every investor will feel the same about a deal as the searcher, or see the same merits, pitfalls, and opportunities as the searcher – and that’s okay! As long as your deal is within the bounds of what your original investment thesis, as long as you’re honestly convinced of its merits, and as long as some of your investors love it, have a little faith in the time, thought, and analysis you’ve put in – with a bit of wisdom and guidance from your mentors, your assessment is unlikely to be wildly misplaced.