Qualifying conversations

Building an action-oriented game plan to keep you on track

Today, we'll delve into the art of having qualifying conversations with business owners, available to all subscribers. We've often talked about reaching out to potential acquisition targets and what the process looks like, but what happens when you get them on a call? I will guide you through a strategic plan to conduct a fruitful conversation to assess if the owner and their business align with your search fund's criteria.

Before diving in, please take a moment to consider subscribing to a paid membership. Paid subscribers of Maverick gain access to a wealth of knowledge in the form of extended articles about search funds and ETA, personal case studies, priority responses, and a host of additional search resources that serve as practical guides to help you with your search. Posts directly reflect my experience as a traditional searcher, where I hope to address many of the questions I receive from speaking with prospective and current searchers.

Now, let's set the scene. You've just had your outreach email reciprocated positively, and you're gearing up for that initial call. While it’s easy to feel the pressure, remember - the purpose of this call is not to close a deal but to see if there's potential for a fit.

The Approach: Building Rapport

On your first call with a business owner, maintaining a fine balance between efficiency and rapport-building is vital. You're not merely attempting a transaction but laying the groundwork for a potential long-term relationship. Start by giving them a glimpse into your world—why did their enterprise pique your interest? How did you come across their name? Providing context helps establish a conversational tone that invites them to reciprocate and share about their journey.

Remember, business owners have likely poured their heart and soul into their business. Show genuine interest in their story. Ask about their motivations, the challenges they overcame, and the milestones they've reached. Such an approach not only aids in relationship building but also provides valuable insights into the company's culture and operational philosophy.

The Key Questions

Your initial conversation should focus on swiftly assessing whether there's potential for a partnership that aligns with your search fund's criteria. To facilitate this, formulate a set of pivotal questions that must garner favorable responses for the deal to progress. If, for instance, you have a strict lower limit on the size of the company (say $5 million in annual revenue), ascertain this information early in the discussion.

Here are some critical questions to guide your conversation:

• Can you tell me more about your background and why you started this company?

• What is the size of the business in terms of annual revenue and employees?

• Is the company profitable? If so, what are the annual “net profits”?

  • Be mindful that not every business owner will know what EBITDA or FCF is…

• Is the company growing? How consistent has that growth been over the last few years?

• How much of the revenue is recurring? How many customers do you service on a recurring basis? Does one customer contribute significantly to the total business?

• What is your exit timeline and your level of involvement if you were to raise capital or sell your business?

• Do you want to sell a majority or minority stake?

• What is your unique value proposition or competitive advantage in the market?

• How have you been able to grow and maintain your customer base?

• Do you have a specific number or range in mind for how much your business is worth?

• Have you ever received an offer for your business in the past? If yes, why did it not go through?

While these questions offer a useful starting point, they need to be supplemented by queries specific to your unique investment criteria. Be agile and adapt your questions to the responses you receive, creating a dynamic flow of dialogue that reveals deeper insights.

Dealing with Challenges

The pathway to a successful qualifying conversation often involves navigating bumps and turns. You may face hurdles like incomplete information, limited time, or potential digressions by the business owner. To tackle these, preparation is key: research the company and industry beforehand, outline your discussion points, and always keep an open mind. Be careful not to invest too much time, however. My approach is to spend no more than 30 minutes to an hour prior to a first-round call.

Maintain focus during the conversation. Keep your goals in mind, steer the discussion when needed, and always respect the business owner's contributions. If the conversation starts deviating, gently guide it back on track without appearing dismissive or impatient. Remember, you're not simply seeking information but striving to establish a rapport. It's perfectly alright not to get all the information in one conversation; patience and persistence often pay dividends.

Planning Next Steps

Before you hang up that call, have a game plan for your next steps. Depending on how the conversation progresses, you might need to conduct more research, schedule a follow-up conversation, or request data to review the business’s financials preliminarily. But remember, not every call needs to lead directly to a deal. While not immediately fruitful, some conversations can offer valuable insights, foster connections, or even lead to referrals. Each interaction is a step forward on your search fund journey.

As we conclude, consider the profound influence of well-conducted conversations. They offer pathways to understand whether a business owner and their business align with your search fund's parameters. As a searcher, your objective extends beyond gathering information to building lasting relationships that could potentially evolve into fruitful partnerships. Embrace each conversation, irrespective of its outcome, as a unique opportunity for growth and learning.