EP 102: Selling to a Search Fund with 37th and Moss

So one of the big questions I get a lot it from business owners is like, you know, oh, my gosh, I get all these calls, I get something about search fund, you know, that they're, they're professional searchers. And it just seems like they call regularly. And I don't know what to do do about them, you know, are they? Are they a buyer? Are they a private eye? Or are they a private equity group? Are they a strategic buyer? Why are they and how did they find me? So any rate, today's episode, that's what it's about? Today, we're talking about search funds, and there's a search run, and it's, in this case, 37th. In Moss, you know, John, John Washington and Nick Smith, we were talking, you know, those are, those are the guys that are running the search fund. And these guys were kind enough to come on and kind of pull, pull the pull the curtain back and say I this is this is, this is how we operate. This is what we're looking for. This is why we do what we do. And this is how you can tell the signal from the noise. And these guys were so transparent in in and what they shared. And I'm so grateful for for their time. And a shout out to Heather Anderson from bio capital. She, she connected us. So for a lot of business owners, this is the path forward to your exit. You know, as far as you know, this type of buyer. So I hope I should say I hope I know you'll you'll enjoy this episode because it it certainly should be eye opening. Enjoy the show. Well, Nick and John, welcome to the show.

Nick Smith  2:07  
We're excited to be here. Thanks for having us.

Ed Mysogland  2:09  
Thank you. Yeah, it's it's awesome to, it's awesome to have folks like you talk a little bit about what a lot of business owners have no idea about, I am going to share this with you because this is I don't have I was gonna put it up on the camera. But last night, there was a movie, it was called the m&a movie, have you ever heard of this? No, there's a movie. And it's just lead gen. And this movie was all about just scaring the hell out of business owners, like people like you are going to come in, they're going to offer five times with the business's worth. And then at the last minute, they're going to come in, and they're going to take your take the value, and and you've invested so much time, energy and effort and money, doing diligence, do all this, that neither, and not and, and they, they come back and they say well, we can buy it. But it's only going to be about 25% of what we sell, it was worth and and I'm telling you I was in a room. So somebody had heard the podcast and they say yeah, why don't you to come? You know, listen to this thing. And I'm telling you, there was probably 80 business owners in in the, in the audience that were just scared to death when they walked out. It was crazy. So so that's why I'm excited about about, and the timing was great, that that we can talk about, you know, how people like you operate. So, on the introduction. You know, I talked, you know, a little bit about the two of you. But can you talk a little bit about 37th and moss, and how you guys formed how you guys operate? And just take it from there?

Nick Smith  4:00  
Sure, sure. Well, why don't I get started in the John, I can turn it over to you. Thanks again, Ed, for having us. We're, we're excited to be on today. John and I are entrepreneurs. You know, we're entrepreneurs, and we have a passion for small business ownership and operation. We worked together at a small software company before launching 30 Something moss, and really enjoyed building products for business owners working with a talented team. And we enjoyed the support of a really helpful group of advisers. When we launched our search, we wanted to replicate a lot of those attributes. And given our previous experience in software engineering, so far, we've been focused on b2b services and technology companies, but we always always enjoy connecting with business owners, regardless of the industry. But yeah, what did I miss there, John?

John Washington  4:53  
So yeah, one of the things that I'll point out here at first of all, is that the unfortunate sequence of events in And the movie that you've referenced is, is why Nick and I are doing what we're doing. We're entrepreneurs. And we've been around a lot of business sales, and we've operated companies. And as we approach this process, one of the things that we'd like to remind people is that we're operators, and we're looking for business to operate. And as we've gotten out into the world, and we've connected with entrepreneurs, and we've learned about the unique paths that they've taken, it's really just highlighted how diverse and incredibly interesting the American economy is. There are a lot of great companies, a lot of great entrepreneurs, each business is unique. And each one has an entrepreneur behind it, that drives it. And we love talking to each one of them and look forward to continuing to do so. Yeah, you know,

Ed Mysogland  5:45  
and that's, you know, I talked to I tried to talk to as many business cards as I could last, and I'm like, you know, that's this, you know, that this is all lead gen, right? This, this, this doesn't happen in the real world, this, this, this, in this case, it was a private equity group that was chasing this company. And, you know, they had people stalking, you know, the husband and, and the wife, and then the kid on the beach. And it was it was, and I'm like, none of this is, is accurate.

Nick Smith  6:18  
Is that a Halloween movie? I'm

Ed Mysogland  6:21  
telling you, I, you know, we've we've done 2200 deals, and I'm sitting here going I you know, this is not the way the world works in this space. And and I'm, and I'm sorry, for, you know, for them scaring the hell out of you. But yeah, yeah. But and I guess that's where we're, so people like you are different, you know, and, and you don't operate that way. And that. And so I guess, why don't we start with 37 DeMoss? How does number one where the Where did the name come from? And then number two, you know, how, how do you guys operate? Yeah,

Nick Smith  7:01  
well, let me let me give you a little bit of the origin story on 30. Well, I'll give you my personal reason for joining 30 symptom loss and jumping into it. And then we can give you I'll give you a little bit of the origin story of the name, and then I'll turn it back over to John. But I mean, listen, I grew up around small businesses grew up on a family farm. Many, many different small business ventures on that family farm, as you can imagine. But I didn't go into small business, I went to the Navy. So I flew F A teens as a pilot in the Navy for a dozen years. My favorite tour as an F 18. pilot was when I was working with teams of engineers on really tough problems in the test world. So that was a developmental test, prompt developmental test pilot. And we were trying to accomplish things that sometimes hadn't been done before, which created this entrepreneurial environment. And so when I got out of the Navy and thought about what do I want to do next, I wanted to work with a team. I wanted to work with a team full of people who thought like I did, and thought about new and unique ways to approach things. But I didn't know any thing about small business finance. So I went to a bank and started learning about Small Business Finance. That's where I met Heather Anderson, who introduced the two of us together. That's right. And she's She's so great. I learned a ton from her. I also got, that's where I started learning about search funds, because I was underwriting search fund deals at at Live Oak Bank. And then I met John and moved over the operating side in a software company. And when we started talking about what the next step could be, first of all, we knew that we wanted to partner together, reference back to that team thing. And then we knew that small business because we share this part of the reason we got along so well as we share this passion for small business ownership. We knew that that was in the cards. So the search fund really just made sense. So since we're a partnership 30 Something loss each of the names represent part of us. There's really two stories to this add to 37 loss. The first is the 37th parallel separates Virginia from North Carolina. So both of us live in Virginia, I was stationed in Virginia as an F 18 pilot for a while and John spent some time up in Richmond before both of us moved out in North Carolina. So there you go. The our search is based in North Carolina, which the southeast Spanish moss growing on trees. So that's that's the that's the story. We like to tell the other part of the story that we don't tell us often and we'll give you a little bit inside baseball here. John lives on 37th Street I live on moss tree drive. And and there you go. You just add it together and you've got a 37th in Moscow. You So that's the origins of the name. But I'll turn it turn it back over you. For the for more origin story.

John Washington  10:08  
Yeah, this. So this is what happens when to people who aren't creative, try to be creative, you end up with 37 and MOSFET. So I like to joke that, after working with Nick, I've learned that telling your story after an F 18 pilot tells their stories, always tough, tough group to follow up with bear. But about 10 years ago, I reconnected with a gentleman that I knew in college and this person was attempting to acquire a small business. And he intended to step in and operate the business after the acquisition. And this was the first time that I came across the idea of entrepreneurship through acquisition. And at that time, I was working for a professional services firm that advise business owners on capital raising business sales, things that you're very familiar with. And so I worked closely with a number of talented entrepreneurs, and really grew fond of the type of value that these folks were creating. And when I talked to my college contact, I remember thinking that I lacked the knowledge and the confidence required to run a business because I hadn't done that before. But this was kind of my eureka moment, not so much that I wanted to go buy a business, but I wanted to be an entrepreneur. So I left financial services and went to go work with an entrepreneur who had a few successful exits. And my goal was, was to learn to sit behind this person and learn and fast forward about nine years later. And it turns out that operating businesses has been extremely fulfilling for me. And one of the things that I enjoy about entrepreneurship is that I'm constantly learning about myself. For instance, along this journey, I've learned that I'm not as adept at formulating an idea as I am taking an idea that's already got momentum and working on that idea. And another lesson is that good entrepreneurs are problem solvers. And operating a business is an exercise in problem solving. So in thinking about a problem that Nick and I could solve, we started looking at some data and we came across a trend that really stood out to us. And that trend is that over half of US businesses are owned by someone aged 55 years or older. So there's this huge succession need in the US. And the combination of learning that my skill sets best suited to take a business from one to two, rather than from zero to one, combined with this really, really big succession need resulted in the desire to pursue pursue entrepreneurship through acquisition. And in doing so, hopefully, we can help solve a problem for business owner.

Ed Mysogland  12:45  
Nice, you know, the, the interesting thing that you just said is, and, and we bump into it a lot is, a lot of people don't understand what they're getting themselves into. I mean, it's it, you know, I, we, there are lots of people that can, can raise some capital, there's there, but they, but they failed to do the soul searching part, and they get down to the 11th hour, and, and they can't pull the trigger, because they haven't they haven't quantified their their personal risk, you know, what, what, what does this how does this change my life and, and, you know, and then we bump into the Retrade, because now all of a sudden, their risk is higher, and their value starts to, to to decrease. So I applaud both of you for, for being, you know, looking past the numbers and looking more inward on, you know, what is it that you want to do, collectively? And personally, not the numbers in the numbers? And, you know, as you guys know, I mean, you can't, you can't change the numbers, but you can't, but how well, how well, you know, yourself, and what you're going to add post acquisition is is, is so crucial to successful acquisition. So good for you guys.

Nick Smith  14:04  
Yeah, I think you'll find that that searchers want to be the man in the arena. You know what, that's what we're striving for, to be the doers. And depending on the background of the searcher that you're talking to, maybe they've had experience with that, and maybe this is their first time jumping into the arena. But I think to every searcher you talked to is, is is striving for that you know, striving to take the loss.

Ed Mysogland  14:28  
Yeah, I agree. I mean, I think we're seeing I think I think there's there's a level of saturation, saturation. So I think they're, I think the space is they're getting getting saturated with a lot of people that that haven't done their homework. They they they spin up a website, they talk about their acquisition criteria, that identity Hold to everybody else's Yeah. And now, all of a sudden they go to their library or wherever they get their information. And now they start peppering business owners that, you know, we're a fun. And that's what leads me to my next question is that all phones aren't created equal. So I'm where, tell tell me how, how you're how you're structured? And what makes you different? Because I do think you're different.

Nick Smith  15:27  
Yeah. And it's a great question. And I think that the popularity of this search fund model has grown so rapidly in the last few years. I mean, even in the last two years, what started as a handful of Stanford and Harvard MBA graduates, raising money from a few investors has evolved in this ecosystem, with many, many, many different models. There's really to it, there's a lot of different ways to slice this. But if you think about the two pillars of the search fund community, there's two different forms. One is the self funded searcher. And the other is the traditional search. And a self funded searcher is just what it sounds like. I mean, generally self funded, searchers will save up money in order to get ready for the search, and then live off their savings for up to 24 months while they try to find a company. Usually, to close the deal, they get an SBA loan, like an SBA seven a loan with a $5 million cap their balance and a personal guarantee to go with it. But you know, they're they're living off their savings. And it's a great, it's a great model for a specific type of company and a specific type of person. Traditional search funds, raise capital in two rounds. And from the get go, they're advised by a really experienced group of entrepreneurs and operators 37. DeMoss, is a traditional search fund. So we fall into this latter camp. But first, in a traditional search or traditional search fund, you go to the market, which is there's a very robust now, search fund investor market, as you can probably imagine, and go through a pretty extensive interview process. And the investors are give you capital for the search. So that helps set up a professionalized search process, due diligence, and some other things. But the biggest point is that throughout the search itself, and then even after the search, you're building deep relationships with the folks who've already given you capital. And then when you find the company, you, of course, lean on your advisors during the due diligence phase, but then they're already at the table. Right? So So you've already talked to them, you've been talking and then sometimes for two years, they're already at the table ready to invest in you. And that's that second round of capital raising in a traditional search fund. And there's a few there's a few ways that 37 fund losses, maybe even differentiate it from most traditional search funds, because I think there's about 200 active now. But alternative, or geologists kind of park it there and let John give more color.

John Washington  18:23  
So for for us, specifically, Nick and I are partnered search. So when you go down this path, one of the very first questions that you ask yourself is do I want to do this alone? Or do I want to do this with a partner. And based on the data that Nick and I have seen partner searches represent the minority of searches with solo searches representing the majority. So this is one aspect of our search that's unique. And since they want of my entrepreneurial journey, I felt that relying on partners and a strong team is important. And so the decision to pursue this with Nick and to do this with a partner was easy to make. Another thing that is important to consider here, and that differentiates searchers is background between us and they can have many years of experiences, operators and entrepreneurs. And when we kind of think about how we connect with business owners, we're often attempting to learn about patterns that we've identified while working in small businesses. So our backgrounds is operators give us a view that we think bodes well for partnering with a business and on that topic of being good partners. One of the things that Nick and I agreed very early on, is that we would try to differentiate our approach and our search by being good stewards to business owners and having what we call a gift to get mentality. So we're operators with entrepreneurial experience, but we're also folks that have experience with financial services. And so collectively, Nick and I have represented companies during the sale process, we've raised growth capital We've worked on underwriting for bank loans that funded Small Business acquisitions. And this all culminates in a combination of experience and exposure that we want to use to give back to the community. So Nick and I have published a lot of content, and we will continue to and we hope this content is useful for owners contemplating succession or a business sale.

Ed Mysogland  20:20  
Well, I'm hoping that you're gonna give me permission to link your your, your ebook to the show notes about the guide to selling your business. So if you guys are okay with it, and if you're not that, that's okay.

Nick Smith  20:34  
Certainly, certainly our mission

John Washington  20:36  
granted, don't break our website and too much too much web traffic.

Ed Mysogland  20:42  
I hope that we have that problem. Well, John, carry on with that. So how one of the questions that I always get is, How do you determine whether these people are legitimate? Now, how do I know? You know, I mean, what is their behavior? Is there? What, where's the signal? Because there's a lot of noise. But, but but I just don't know. I mean, we're having a conversation. I really liked you. But how do I know that you're legit, other than you have a website? Yeah.

John Washington  21:16  
Well, like liking us is a good start. That's certainly important. You should like the people that you ultimately contemplate doing a transaction with. I'm gonna let Nick get kicked off on this one. He's got some some good thoughts here that that I want to hear him share. And then I'll tag tech on the back end.

Nick Smith  21:34  
Yeah. I mean, one thing, just, just going back up to the previous question a little bit, I mean, certainly self funded, searchers have investors too, and they can have really robust advisors. So the investor question might not necessarily be the filter that you want to filter for. Certainly, there's a personal connection. That's important. And we talked about the fact that, you know, there's 200, traditional search funds that are active, give or take, there's many, many more self funded searches that are also active. I think it's really difficult to paint with a broad brush here, as every searcher is an entrepreneur, and they're all different. But I think we think the best way to build credibility is by delivering insight on the industry. Right? And John kind of mentioned this a little bit earlier, industry insight on the industry and inside the company, we're approaching before we reach out to companies, we've already done research on industry, chat trends, potential challenges the company might be facing and how I mean, how they could potentially address those. I mean, certainly no one knows the industry better than the owner that we talk to owners that we talked to, you know, it's very difficult for us even even going full time to get spooled up in an industry compared to an owner who's been in the industry for decades. I mean, the owner is going to know a lot more than we are. But if the searcher that you're talking to on the phone doesn't know anything about the industry, maybe that's the sign maybe that's that's fine that you're looking for John and I, John and I jumped in with both feet early on, you know, and burn the boats, in order to, in order to learn get spooled up as quickly as we can. But anyway, yeah, by fire,

Ed Mysogland  23:15  
Rocco.

Nick Smith  23:16  
That's right. That's right.

John Washington  23:19  
Yeah, and as we touched on here with with your, your introduction, and I think it's really important to spend time getting to know the searcher form a sense for their strengths, their leadership potential, do you feel comfortable in interpersonal communications? Can you see that working with your team and managing the team and kind of leading the team, there's, there's a lot of very talented individuals in the search ecosystem, and each person has a unique background, Nick, and I think that experience as an operator or working with teams is a good sign. Curiosity would be another indicator that somebody is capable of jumping into a business and learning the company learning the operations, learning the product. And then lastly, beyond personal attributes, think it's always good to validate that a buyer has access to the equity required to close a deal. So it's, it's always fair to ask prospective acquirer for information on investor groups, those individuals backgrounds or those groups backgrounds, just to make sure that there's credibility as it relates to being able to complete the transaction.

Ed Mysogland  24:28  
So how much time if I'm a business or how much time do you think I need to give you in order to make that assessment of what you just spoke about that, you know, you're good guys, you're good operators, you're you're going to operate the business that's going to support the employee sport growth. How long should I give you?

Nick Smith  24:50  
Are you saying from from like, Intro call to clothes?

Ed Mysogland  24:55  
Oh, no, no, I'm saying that. Yeah, I'm saying that the Bizon The feet, you know, the people that show up at my doorstep, they're like, look, you know, this guy has dragged me around for the last 90 days, asking me about all this information that come in, we talk. And I don't have time to do that. I'm taking my foot off the gas. So yeah, so that's kind of where I was heading is. Alright, so how much? How much of an investment on the front end? Yeah. Should should I be getting?

Nick Smith  25:26  
Yeah, that's a great question. And the the 90 day number is funny. We talked about that a lot in my former banker days, because that's really, that's really the minimum amount of time that you should expect to close the deal, I think, yeah, is three months. You know, I think three months is on the low end fro is why, from loi to close,

Ed Mysogland  25:50  
I'm talking just getting through the door, you, you call up? And you're like, hey, you know, and we start this report, you know, you're talking about a little bit about my business, it's clear that you've done some homework. It's clear that, you know, we've got some, you know, we've got some work kind of, you know, we have some alignment on some stuff. At what point am I, you know, because this backs up to the legitimacy of the funder, the Enquirer, you know, what am I? When do I say, Yeah, you know, what, you know, prove to me that you are what you say you are? And that's what I'm getting? As? Yeah. Well, certainly, I

Nick Smith  26:32  
think in those initial conversations, you can learn a lot about the person and I mentioned the industry, the figuring out via questions, and and you're the, you're the owner, or the expert on the industry that you're in. And if you can discern that the searcher that you're talking to hasn't done a lot of research about your company or the industry, then maybe that's a sign right from the beginning, but but for the searcher to figure out whether or not the current, the company that he's talking to under meets the meets the requirements, I mean, there's going to there's going to be has to be some level of diligence that moves beyond the report building. And they'll have to, they'll have to look at either hear your financials verbally, or look at an income statement or something to that effect. But that should be fast. That should be pretty quick. I mean, it shouldn't be 90 days,

Ed Mysogland  27:21  
I get it had more to do with the I'm the business owner, gatekeeper, I answer the phone and say, hey, you know, what? I've been, you know, I've been looking at your business, you know, at this industry, I'm really intrigued. And here's some, here's some things that I'm seeing. I don't know if you're seeing it in your business. But I certainly like to, to know, if you think if you're thinking about an exit down the road, I want to have an exploratory conversation with you and the business are sitting there saying, Yeah, this is the fourth call I've gotten this week, you know, how do I tell the signal from the noise? And that's, and again, you mentioned, I mean, you know, having some command of the domain and understand that's right, that's probably a good signal. Okay, so then the next question that I get, is, you know, are you a hold? You know, buy and hold? Or are you are you a building to sell it? You know, and, and I know, some are just hold goes, and they'll keep it forever? And they lead with that. But, I mean, what I guess what is what is 37 DeMoss? And then, you know, is there one that's superior to the other?

John Washington  28:38  
Yeah, so at 37, the moss and I would say this is generally true across search funds, the investment hold period is long term. And there's generally not an emphasis on on quick returns. And there are a few benefits that come from being buy and hold or long term holders versus short term holders. And one of those is that you can make decisions that will yield results over an extended period of time, maybe it's 24 months, maybe it's 36 months, depending on the type of decision. So these decisions tend to be less about near term revenue or expense optimization. And instead they're about sustainable, long term growth. And just a quick story, I met with someone recently who was working for an equipment rental business and this person shared an idea with me that really stood out about buy and hold or long term hold periods. And he said that in this order of importance, stability, profit and growth were the priorities for him stability, profit and growth. And this mentality really highlights that patience while seeking stability is important prior to shifting into profitable growth mode. And so the powerful benefit of of long term hold It is that the impact on compounding can be tremendous, right. And there's a long term wealth creation effect. And we need to look no farther than, you know the likes of Warren Buffett and Charlie Munger to understand the the powers of compounding, but to to touch on the kind of the more shorter holding period, however you want to characterize that strategy. And going back to the idea of, of knowing your strengths as an entrepreneur, there are a lot of folks who are talented at taking an idea, from inception, to product to product market fit, and then finally to scale distribution. And there's absolutely nothing wrong with with taking that approach. So from our vantage point, it's it's less about one being better than the other and about which is right for the entrepreneurs skill set. And for us at 37. Tomas, Nick and I are, you know, we're long term holders, we want to make decisions today that benefit us three years from now. And we're looking forward to benefiting from that compound growth, three years

Ed Mysogland  31:01  
long term for you.

John Washington  31:05  
It is when making a decision today. And when I make a decision today, with three years from now is as the output timeline if it certainly feels long.

Ed Mysogland  31:13  
Ah, I get it. Well, there is there. And I wish I years ago, I wish I would have started studying a little bit closer because I would be curious to know, the valuation comparison from Holdco versus somebody that's going to buy, build and sell my mice. My suspicion is that the the Holdco will pay a little bit more. And I think the the building sell is more more applicable for the recap where the owner is going to participate in some some capacity post sale. I think that yeah, I like said I wish I would have I wish I would have put pen to paper when I you know, but I Yeah, one day, maybe I'll go back and study. So um, so here's some of the questions that that I get. And these are the rapid fire questions. So how do you find? How do you? Everybody wants to know how the hell did they find me? Right? You know, I do my best. I don't answer any of them. I don't answer any calls. I tell them my none of their businesses, that kind of thing. So how do you find them? Yeah, I

Nick Smith  32:35  
think there's a couple different ways. But one thing that I'll say is we've touched on the fact that search popularity has grown. Well, of course, there's a market now for software that caters to search. And that is grown to databases that were previously only available to large private equity firms are now ubiquitous in the search fund community. And they're really powerful tools. And so generally, generally, the way some search, some searchers might write run broad filters against the database, and then reach out to whatever comes back. For us, what we do is we develop an industry thesis, and then look for comp after familiarizing ourselves with that industry. Look for companies within that industry try to connect with people who aren't necessarily business owners to learn about that industry. Before reaching out to business owners, and then meet business owners to the network. I mean, not just cold calling, but talking to people in person, can you believe it? And and having lunch or coffee or whatever it is. So the the software out there is pretty powerful. It makes it easy to find companies very quickly. But I think a differentiated approach is by focusing on an industry first.

Ed Mysogland  33:58  
It's fine. So I got scolded by we're, we're doing some solicitation ourselves. And I got scolded by this business owner and he he calls up and he's chewing me out. And I'm like, let me just show you how, how easy it is to find you. And, and so, I mean, we ended up having a friendly conversation. But I said here, I'm gonna send you I'm gonna send you a zoom link. We're gonna hop on and I'm gonna just show you what I saw. And why why I was targeting you. And it's kind of like, Oh, my God. Who, how did they get all that information? Oh, that's right. But I have no idea that it's out there. If it's

Nick Smith  34:42  
online, if it's online, then it is found. Right.

John Washington  34:46  
And they tell you converted that to a call to That's right. objection to getting on a zoom call to talk to talk to him. That

Nick Smith  34:55  
was well that's a pro right there.

Ed Mysogland  34:57  
No, no, it was, you know, But knows, and I hope the guy's not listening. I was, I was really upset by it because it was like, You know what? I'm just, we're just doing our job. I didn't mean to. I'm not a fan of interruption marketing, but whatever I eat, our client was looking for a company like yours. And, yeah, that's how I got to you. And I'm sorry, if you're not looking at growing through acquisition, I don't know what else to tell you. But, yeah, you know, or, you know, I'm sorry, if you're not, you're not a target for my client. But but, you know, to come to me out people. So it was out of anger, not not, not because I was a pro, I can assure you. So, so yeah, we touched on how do they know so much about me. And, you know, your industry recon coupled with, you know, getting into the network coupled with everything that's online, answers that question, right? I mean, is there anything that I missed on that? But yeah,

John Washington  36:05  
I would, first of all, I just want to say that I, I have come to appreciate every company I've ever worked for, that has sold a product, which is every business, because getting out and prospecting is hard. And for those of us that have been entrepreneurs, but have come up through paths that weren't sales, gaining an appreciation for how difficult it is to sell a product is important. And so as Nick and I have have gone out and worked with, you know, entrepreneurs and getting in front of them and talking to them, we've really grown to appreciate the value that every salesperson we've we've worked with is created. So just want to give that that quick plug for for salespeople. But to your question, you know, we actually don't know a lot about the business owners, we'd love to get to know them. And as Nick pointed out, publicly available information is the starting point. But from there we can typically do is glean insights into a business based on comparable public company data. So if we think about things like revenue per employee, or industry profit margins, or the industry's growth rate, we can use this information to kind of extrapolate a range that we would expect for the business to perform in or to exist in. But ultimately, we're relying on the owner to share insights once we connect with them about the team and the business so that we can act with an informed opinion.

Ed Mysogland  37:30  
So the business owner, well, the next question they always ask is what's going to happen to my people, you know, they've watched too many movies. And, you know, Grant, this dates me, but you got pretty woman, I'm coming in, I'm breaking up the company, and I'm going to sell off the pieces. And that doesn't happen. But But everybody's concerned about that. It might. So what do you, you know, what, what do you what do you normally do with people?

John Washington  37:57  
So Nick, and I were really excited that this question was posed as post because we ultimately think that this is a sign that someone cares about their people. And that's something we're looking for, we want a business that has a good team, and good people. And I think this is one of the most compelling angles of our model of the entrepreneurship through acquisition model. We don't want the team to go anywhere. As a matter of fact, we're going to rely on the team heavily to guide the continued growth of the business. And so we're looking for a great team, we want to become partners of that team. And we don't intend to introduce change to the team. And as a kind of, you know, testament to how this approach varies relative to some other opportunities for business sale. We're in a position such that we need the team, we want the team. And as operators, we don't know the business as well as the team, we'll be the first to admit that. And so our first job is to get in and to learn and we're going to depend on the team to do that. So for us, what happens to the team nothing we want the team and we want to work with the team.

Ed Mysogland  39:10  
So speaking of teams, one of the other one of the other things that a business owner gives me feedback on is oh my gosh, they came with their team and it's just me and and it's they and I know they're outgun I do you guys have you guys are looking at? I have to imagine many deals simultaneous. So you've so you've got the reps, and that business owner doesn't they feel and they feel or at least they they're doing their you know, they're doing their Google search. And there's they know that people like you are looking at deals simultaneously. And you've got a team and it's just them. So my question is when when Should they start thinking about a team? And, you know, is there? Do you see a particular time? I mean, is it the front end? Is it post LOI? Is that, you know, when when does that work for you? Yeah.

John Washington  40:15  
So the ad, first of all, you're, you're convincing Nick to leave me at home, so that business owners feel better when they when they meet with their new seven Dymocks? Now this, this is a really good question. And it's an important question, because, as you know, as this is a foreign process to a lot of business owners who have expertise in whatever discipline it is that they've ultimately scaled and turned into a business but not in finance, or selling a company or raising capital, or so forth. So generally, I'd like to think about this as kind of, if a business owner has a clear understanding of their goals and pursuing the transaction. Or if the owner has previously navigated a sale process, then the owner may be well positioned to consider working directly with the buyer. But it's really important to note that in any transaction, it's advisable to rely on the counsel of an attorney and accountant, folks who can give you guidance on on legal and tax matters. So I certainly think that, you know, depending on the business owners experience, there may or may not be in need for an advisor who's who's going to kind of usher them through the process of finding valuation and structuring the deal. But in almost every case, it's a good idea to have a lawyer and accountant, somebody come in early on and kind of walk you through the process to make sure you're thinking about things in a way that benefits you. Yeah, and

Nick Smith  41:41  
I'll add that the the attorney, experienced attorney, someone who's done, or experience in m&a, or experience in your industry has done this a few times, is very, very valuable. So using, using somebody who knows what they're looking at, is can just increase the efficiency, the deal, and I think that, especially when it comes to legal, and in some cases, accounting, that we'd always recommend getting getting advice from experienced m&a counsel, so

Ed Mysogland  42:23  
you're not going to hurt my feelings, because I have strong feelings on on on intermediary involvement. You know, my position is that I would much rather you go at it alone than have an incompetent inner being. So I guess I'm asking, you know, from your standpoint, you know, is is better, better or better or worse, or you got any horror stories or some good stories about, you know, if you've got a broker or an m&a advisor in between you and the owner?

John Washington  42:59  
Yeah, we so as we mentioned earlier, where we come from a background of of having experience with professional services, particularly financial services, and advisory services, and there's certainly a ton of value that can be created by, you know, a banker or broker. And I think one of the benefits that Nick and I have seen recently, is talking about valuations. So when when we talk to business owners that are looking at comps from two years ago, and not, you know, what type of transaction values are taking place in the past three to six months, typically, it creates a challenge for getting to overlap on the Venn diagram of valuation versus for deals that have brokers or bankers, that conversation has typically been had very early on, because you're probably not going to work with someone that says, I want, you know, 13 times revenue for my business, because, you know, the odds of getting that deal done are low, and you don't want to disappoint the seller.

Ed Mysogland  44:06  
Well, we got 17 people, and you would think that that would resonate with a lot of our guys. And clearly it does not at times, it's like how do you how are you possibly justifying this and, and we get sucked into that trap, too. And it's like, but But you have but and you pay the tuition in time. And now all of a sudden, it's like, look, you know, you're you have no activity, no one's going to touch it now. Alright, we went through the, so now we've paid the tuition. And now we're going to go back to where we said it was going to sell and but in the meantime, you know, you look at, you know, targeting folks like you and we look, no, look, you look bad. You know, you don't have you don't have command of your client. And so if you don't have command of your client on the front end, how in the hell are you going to have command to your client on the back? back in. And that's, you know, we were bumping into that a

Nick Smith  45:05  
Yes, John, as John mentioned, I mean, they're really difficult conversations to have the valuation conversation especially. But, you know, you're like we said, You're a pro. And so if you have them on the front end, then you know, it's much more the expectation is much more reasonable on the back end. Well,

Ed Mysogland  45:25  
you know, it likes it, it getting inventory for the sake of inventory, and this is where I try to tell all of our young guys is, it's just, it's not worth it. It just isn't worth it. And by taking on that engagement, you're endorsing their ludicrous value. If you say no, now, you know, because, and, and this is where the other side is, I tell the guys, you know, when that guy goes and says, Yeah, you know, these guys weren't able to sell my business. It wasn't because you're 13 times overpriced, it's because it didn't do his job. And you would think, after all, this time of the in the industry, that people would, yeah, that would be more normally nomenclature, you know, but it is what is. So the next question is, why do you need so much information? And, and what's appropriate? And when?

John Washington  46:29  
Yeah, yeah, I think it's, it's a question that really gets to a couple of key points. One is, the reality of selling a business is that there's no rinse and repeat formula, each business is unique, and properly, assessing the many moving parts of a business is an expensive undertaking. And owners obviously know their businesses inside and out because they live in the company. But for an outsider, like Nick or myself, it's often the case that getting a complete picture of the business requires more than just revenue and expenses, especially given variations and things like accounting methods, the way that a business makes strategic decisions, cash management, other kinds of discretionary decisions that that owners may. Now, if a prospective acquirer is attempting to determine interest from a buyer, and this, this kind of gets to the second point here, then I think it's always fair to go to that buyer and say, look, you've asked me for a ton of information, could you please tear this information, tell me which of these is tier one must have for you to determine whether continued interest is high or or doesn't exist. And then tier two information would be relevant from a follow up if the tier one information warrants further exploration. And I think this is important because business owners are, they're busy, right? There's no shortage of things for somebody that's running a company to do. And so given that there's there is this kind of balance that takes place between prospective buyer needs information, prospective seller has a lot on their plate, being able to parse out the things that can give the prospective acquire that early read on key points about the business that would warrant continued conversation is kind of a good middle ground for groups to strike.

Ed Mysogland  48:25  
Well, I'm bumping up on time. So I did want to get to this last question. And you've looked at all these deals. And I asked us of every guest that comes on. So in this case, I'm gonna ask to both of you. So hopefully, either, maybe you guys might have different answers, I don't know. But what if you had one piece of information or one piece of advice to give business owners and advisors that would have the most impact on their business from whether it's value, or scalability, or both? What would that be?

Nick Smith  49:03  
Yeah, I mean, this answer might sound. Yeah, this might answer might sound trite at first. But I'm gonna I'm gonna lean towards the latter part of your question, in that, even if a transition or secession isn't on the horizon, it's really important to think about what you want that eventual transition to look like, because it will happen eventually. And if and if, as a business owner, you take steps now, to start thinking about getting your business ready for sale, you can really maximize the value of your business. That can include things like delegating critical tasks and relationships to trusted VPS. Or even just moving from a cash to accrual accounting method. It can mean a lot of different things for depending on your business. But whatever the desired outcome, you'll improve it if you start Thinking about it and taking small steps early to prepare yourself for when that when that day does finally arrive.

John Washington  50:09  
Yeah, and I'll touch on the former part of of your comment about value there. And I think it's really important to understand unit economics, that term gets used kind of broadly. And folks, I think, you know, their attention may just divert elsewhere when they hear it. But it's very important because your unit economics will dictate a lot of the strategic decisions that you end up making in your business. And it helps you understand how much cash your products can produce to cover fixed expenses that your business has, which ultimately gives you a strong sense for things like capital structure, growth, funding, growth, the employee count that you need. And if unit economics is something that is either foreign to you, or you don't have a good grasp on, it could be a sign that an investment in accounting, infrastructure and finance and infrastructure is important. So if you haven't taken time to really look at your financials with a controller or a bookkeeper and understand the general ledger, understand how the books are being built, then I think that's a great step to take as you continue to educate yourself about your unit economics and think about how that makes things like growth or strategic decisions available to the business.

Ed Mysogland  51:24  
Well, I'll tell you, so. So Nick's answer I've heard before. I'm John, I'm telling you, you I think you guys are episode 102 Or three, haven't heard that one unit economics. Alright, that's a, that's a good one. Sorry, sorry, Nick. Oh, man, can help us. Alright, so. So what's the best way to connect with you guys?

Nick Smith  51:48  
Well, first off, we're just thrilled to talk to talk to whomever would like to reach out even if you're not a business owner, and you're listening, and you want to talk about what does a search fund mean? Feel feel free to reach out at any point, you can get either of us by email, me, Nick at 37, thin moss.com, or John John at 37, thin moss.com. We're also on LinkedIn. But like I said, happy to speak with anybody who's either interested in this path, or any business owners who want to chat about why these searchers keep calling them?

Ed Mysogland  52:24  
Well, I'll have all of all of your contact information in the show notes. So the deals that you're looking for, is, is that on the website? Or do you want to send me a deal sheet? And I'll include that in the show notes? Or do you want to give a high high kind of an overview of what you're looking for?

John Washington  52:43  
Now's the time to do it. Nick, you want to take it?

Nick Smith  52:47  
Sure. Sure. Yeah, absolutely. Oh, well, like we said, from the top, and we we like b2b services and technology companies, John and I have a background in software primarily. And in general we're looking for for software companies. That's kind of the core target with exposure to industrial and markets is the is a fancy MBO a way of saying, we like, we like software for manufacturing companies. And so that's the industry that we're focused on. Right now. We're headed to a conference next week. I know this probably won't air until after the conference. But if you're at South tech in Greenville, South Carolina, we'd love to say hello. And yeah, that's, that's who we're talking to. All right. Well,

Ed Mysogland  53:37  
I guess first things, Nick, thanks for your service. Thanks. No, it's Yeah, we don't we don't recognize people like you enough. So thanks for that. And thank you both for for coming on. And your transparency. You know, it's it's, yeah, a lot. I think a lot more deals would get done if there was just just more understanding that, yeah, there's bad actors in, in every industry. But, you know, here's how this really is supposed to work. And so I really applaud both of you for coming on and being transparent on Yeah, this is this is how we find you. This is our, you know, this is how this whole thing works. And, you know, are you the right deal for us? I don't know. But you know, it can't hurt to have the conversation. You and as business owners, yeah, you just need to be sensitive of your time. And I think that's one of the most important things that you shared today was what is the noise and what's the signal so, so thanks for coming on. It's It was great to have you.

John Washington  54:42  
Thank you, Ed.

Nick Smith  54:43  
Yeah, thanks so much for having us said.