My decision to search solo
To partner, or not to partner, that is the question.
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As I discussed in my article on assessing risk tolerance, the decision to pursue entrepreneurship often depends on an individual's comfort with taking on risk. Some people are natural risk-takers and feel comfortable with substantial risks, while others are more cautious and prefer to avoid potential pitfalls.
Interestingly, MBA students are often viewed as risk-averse and less likely to face the challenges of starting a new business. However, with the rise of entrepreneurship through acquisition (ETA) and its popularity among MBA programs and mid-career professionals, MBA students now have an alternative path to starting a business that improves their own Sharpe Ratio, often through partnership. Many times have I heard prospective searchers talking about how the path can maximize their risk-adjusted returns.
As long as you are not living under a rock, I am sure you’ve heard people praising the power of aligned incentives. And we cannot talk about incentives and one’s Sharpe Ratio without talking about returns, or in this case, expected compensation for the searcher(s). Those interested in the traditional search fund model have often referred to the Stanford Selected Observations study that provides a glimpse of how much one might get paid in the event that all goes well. Even for self-funded searchers, there is the new Search Investment Group study that sheds light on similar compensation data as the Stanford study. While internal rate of return (IRR) and multiple on invested capital (MOIC) to investors are the most important metrics highlighted in these studies, prospective searchers rightly want to know how they will benefit from the path.
As prospective searchers look to maximize their expected returns (through equity ownership, job performance, personal satisfaction, career opportunities, etc.) and lower their risk (failure to return investor capital or acquire a business, amongst other things), the decision of whether or not to partner up is an important one to consider.
What I find interesting is that the default answer to many MBAs appears to be, “Find a partner, and you’ll increase your odds of success.” That thinking may come from investor advice, statistics, personal biases, previous experiences, or peer pressure.
By the end of this post, I hope you can question your thinking around partnership more critically and remove some of the noise surrounding the topic. Deciding to pursue a partnered search is a highly personal one that you must work through diligently with yourself, your prospective partner, and likely your loved ones. It is not the decision you make because you’re looking to maximize your financial gain or because investors encourage you to do so. Today, I share my thoughts on partnership along with my decision to pursue the path solo.
What is the data saying on partnerships, if any at all
Pros and cons of going solo
Pros and cons of partnership