The importance of being local
Over the past decade in the US, I’ve seen successful searchers with origins in India, China, France, Canada, Venezuela, and the UK, among others I’m sure. And over half of America’s billion-dollar startups have at least one immigrant founder. Despite growing anti-immigrant rhetoric, America has proven repeatedly to be a place where foreigners can succeed.
That said, it is clear that immigrant entrepreneurs face an additional hurdle as compared to native-born Americans, and that hurdle is quite pronounced depending on the path taken by the entrepreneur. An American-born entrepreneur can more easily develop rapport with other stakeholders, avoids the risk of being seen as “other” in new situations, and doesn’t have to worry about changes to immigration policy and anti-immigrant sentiment.
When pursuing the search fund path, an entrepreneur faces still greater challenges. Rather than endeavoring to operate a startup (which in many cases has foreign roots and a multicultural team anyway), she aims to acquire a 30-year-old, traditional, local business from a 75-year-old founder-owner. When we consider what the market looked like 30 years ago, when that founder-owner started the business, or 50 years ago, when she started her career, we begin to understand the frameworks and assumptions that may feed into that founder-owner’s worldview. When we look at the employees, partners, customers, and suppliers, they are often almost all local, and the founder-owner has had deep, nuanced relationships with them for decades.
It is not hard to envision the additional friction encountered by an immigrant entrepreneur with a non-local accent and a foreign-sounding name, who may not have sufficiently deep familiarity with baseball and Arizona politics for the seller’s comfort. Contrast that to the Captain America who not only looks and sounds like the owner, but who actually shares some common friends or acquaintances. They can reminisce about the ‘89 world series and Nick at Nite, and they can compare notes on Carolina BBQ vs. Memphis BBQ. All else being equal, this local knowledge and experience makes the local searcher more likely to develop that surrogate parent-child relationship with the seller than the foreign-born searcher.
And this is in the United States, the “salad bowl” where entrepreneurs have been chasing the “American dream” since before it became a nation, and Americans (again, despite the media fervor) have become relatively accustomed to working with immigrants. Imagine a German entrepreneur trying to operate in Italy, or a French person trying to operate in Malaysia, or an American trying to operate in Japan. These things do happen, but even if the operator has prior in-market experience and speaks the language, the cultural chasm in any of these scenarios can be far greater than the American example, which means that, on average, it will be significantly harder for that foreigner to successfully acquire and operate a business in these markets.
I was recently approached by two enterprising young gentlemen who had decided to launch a search fund and buy a company in Continental Europe. To preserve the anonymity of these entrepreneurs, let’s say the target market was Greece. One was from the UK, one was from Switzerland, neither had worked in Greece before, and neither spoke Greek (though they were studying hard). One of them had a spouse with a job in Greece, and together they had developed a high-level investment thesis that showed Greece as a great market for a search fund. This approach makes little sense, and frankly, unless I’m missing something, these otherwise-impressive young men should probably not be funded. With minimal knowledge of the local landscape, culture, or language, it will be very difficult for these guys to acquire a worthwhile business, and even if they do, it will be even more difficult for them to operate and grow it effectively. Finally, they will need at least several local, Greek investors on board to a) gain the confidence of most non-Greek investors, and b) contribute meaningfully as board members post-acquisition. Raising capital from Greek investors for a Greek project without speaking Greek and without experience in Greece… will be tough.
Harder does not mean impossible, however. And the degree of difficulty varies by market. The US is a good example of where foreign-born entrepreneurs can succeed despite additional barriers. Australia is another such example. I am technically a foreigner with a Yankee accent operating in Australia, but Australia is a developed, English-speaking country like the US, and nearly 30% of its population is foreign-born. Plus, given that I’m importing an American business model to Australia, my accent actually gives the story some authenticity. In the grand scheme of things, it’s not very difficult for me to operate effectively in Australia.
However, I’m not planning to acquire and operate an Australian company myself. That’s the job of the entrepreneurs with whom we partner, and who have very material domestic work experience and are usually Australian by birth. They, better than me, are able to tell the Australian story and build authentic relationships with Australian business owners.
Searching for a business to buy, and then running that business, are both very difficult. Whenever possible, avoid making the task even more challenging by trying to do it in a market where you are less than comfortable shooting the breeze with a retirement-age local for hours. Situate yourself where you are otherwise comfortable, and let the elements of search, not the culture or language, drive you out of your comfort zone.
Action Items
If you’re deciding on a market for your search, choose your native market if at all possible and scrap the other choices.
If your native market is not an option, seriously evaluate your chances of success before charging ahead. Think about your network, experience, credibility, and linguistic and cultural fluency. Try speaking with a few 75-year-old business owners who are native to your target market, and see how it goes. Be honest with yourself.
Prepare to self-fund your search. It may be difficult for you to raise search capital, but it’s always easier to raise capital once you have a deal on the table.
