Fifth quarter lessons
Q1 Y2 Update on White Cedar
As the search journey continues and each quarter unfolds, I'm reminded of how unique each one is and how much I learn. This fifth quarter provided valuable insights that will no doubt shape the next steps of the search. Let's dive into these lessons.
Calls with industry experts often yield more valuable insights than what’s typically found in online reports
The evolution of my search journey has reaffirmed a simple yet important lesson: interactions with seasoned industry veterans are irreplaceable repositories of knowledge. While online reports and market research provide a broad understanding, it's the conversations with these experts that truly enriched my perspective. Here's why:
Tapping into deep knowledge
Industry experts carry with them not just explicit knowledge but also a wealth of tacit knowledge – the kind that's cultivated from years of experience yet isn't documented anywhere. These insights, often woven into their stories and experiences, shed light on industry nuances that no report can capture. Sometimes experts do not even recognize how much they know and fall victim to the curse of knowledge.
Contextual understanding
These experts have witnessed the evolution of the industry in question. Their perspectives are rooted in real-world events, decisions, successes, and failures. And because of this, they offer a contextual understanding, helping me appreciate not just the 'what' but also the 'why' behind certain industry dynamics.
Forecasting & trend spotting
Their vantage point often allows them to foresee emerging trends, disrupting forces, and future challenges. These insights may validate your initial thinking or change it radically. Such forward-looking insights are invaluable, and the more of these you can have, the more likely you are to identify the right things that will impact the future of an industry.
Personalized interaction
Unlike static reports, conversations allow for back-and-forth, and these enabled me to probe deeper into areas of specific interest or uncertainty. This dynamic nature of dialogue ensures more pointed learning.
Go the extra mile, sometimes quite literally, to build a relationship with the seller
In search, as in life, relationships are pivotal. With potential sellers, it's about more than just understanding the numbers or the operational nuances of their business. It's about building a bond of trust, respect, and mutual understanding. Here's why and how going that extra mile (sometimes literally) makes all the difference:
A gesture of genuine interest
Taking the time and effort to visit a seller's operations, especially if it involves travel, signals a level of commitment and genuine interest that emails or calls simply cannot convey. It's an unmistakable sign that you're not just in it for the transaction but genuinely value their business and legacy.
Absorbing the unspoken
Being on the ground allows you to absorb aspects of the business that aren't captured in financial reports or operational manuals. How employees interact, the pride with which a seller showcases a specific process, or even the casual anecdotes shared over a cup of coffee can provide invaluable insights into the company's culture and values.
Breaking the formal barriers
Engaging in informal settings, be it a casual dinner or attending a company event, helps break down the formal barriers of business discussions. It paves the way for more candid conversations, fostering a deeper mutual understanding.
Demonstrating long-term commitment
Your willingness to invest time in getting to know them and their business personally assures sellers that you're looking at a long-term commitment, not just a quick transaction. This assurance can be crucial, especially when dealing with founders who have poured their heart and soul into the business.
Building trust
Trust is paramount. And trust isn't built over Zoom and email alone. It's built over shared meals, shared stories, and the realization that both parties are working towards a common goal: the continued success and growth of the business.
Keep focused on key questions
In the intricate dance of due diligence and relationship building, our questions play an important role. They shape the course of conversations, influence first impressions, and unveil the knowledge we seek. This quarter has solidified my belief in the art of focused questioning:
Depth over breadth
A long list of questions might cover many topics, but they risk skimming the surface. By focusing on fewer, more poignant queries, we can dive deeper into the crux of what truly matters as we aim to learn more about a business.
Respecting the seller's time
Just as we value our time, sellers value theirs. Prioritizing our questions showcases respect for their time, ensuring the engagements are both efficient and effective.
Building a conducive conversation atmosphere
An avalanche of questions can turn a conversation into an interrogation. By being selective, we foster a dialogue that is more balanced and collaborative, encouraging sellers to share openly.
A test of our understanding
The very act of narrowing down our questions forces us to critically evaluate what we already know and where our knowledge gaps lie. This self-assessment ensures we're always on top of our game.
Setting the stage for follow-ups
Initial conversations shouldn't aim to extract every piece of information. By covering the essentials first, we set the stage for subsequent, deeper dives, allowing the relationship and understanding to develop organically.
Be mindful of the amount of time spent on any given deal
Time, often hailed as our most valuable asset, becomes all the more critical as you go into the back half of your search. With each potential acquisition representing its own unique opportunities, the fifth quarter emphasized the significance of striking a balance between diligence and decisiveness:
Recognizing opportunity cost
Every hour dedicated to one deal means an hour not spent on another potential opportunity. Being conscious of this opportunity cost ensures that the time invested aligns with the prospective value of the deal.
Avoiding the "sunk cost" trap
It's easy to become overly invested in a deal due to the time already spent on it. Recognizing when to walk away, even after considerable time investment, is crucial. The ability to detach from sunk costs can save valuable future hours and potential missteps.
Efficiency in due diligence
While thoroughness is essential, there's a fine line between comprehensive due diligence and over-analysis. Streamlining this process, perhaps by leveraging past experiences or utilizing technological tools, can ensure time is well spent.
Setting milestones and checkpoints
Breaking down the process into stages with defined time frames can help maintain momentum. Regular checkpoints allow for introspection: Is the deal still promising? Is the time investment justified?
Parting thoughts
With each quarter, the journey becomes richer with experiences and insights. The fifth quarter has been a testament to the importance of deep industry conversations, relationship-building, strategic questioning, and time management. As we enter the next few quarters, these lessons will remain pivotal in refining the search process. I invite you to share your thoughts, reflections, or questions – thank you for reading!
For previous quarterly lessons: