The power of value propositions in search funds
Strategies for creating appeal and differentiating your fund
Welcome back. I took off posting last week to celebrate Independence Day and spend time with loved ones. I hope you had a chance to do the same, especially since every business owner appears to be on holiday for the next couple of weeks.
We will be continuing things today with a post on a search fund’s value proposition and my thoughts on how to create a compelling one that will differentiate you from other prospective buyers, including other searchers.
Before diving into today’s post, I’d like to welcome the dozens of new subscribers to the Maverick ETA community over the past couple of months. If you’ve made it to the newsletter and have subscribed, you likely know that I am a traditional searcher who’s leading a vertical software focused search.
I’ve been searching for a great business to buy over the past 15 months and have had numerous discussions with prospective searchers and peers who are also looking to buy great businesses. I’ve been grateful to make progress on a significant number of acquisition opportunities and excited for what’s to come with the remaining months in store for me.
Today, I will be putting back on my sales and marketing hat to discuss one of the most important elements of running a successful search process, along with my perspective on how to optimize your messaging for those moments when you’re getting peppered with questions from a business owner who wonders how a 30-year-old can successfully acquire and operate their business in a space with little to no prior experience. I will discuss the following topics:
What’s a value proposition?
Understanding seller priorities
Ideal seller profiles
Communicating the value proposition
What’s a value proposition?
Investopedia defines value proposition as, “the value a company promises to deliver to customers should they choose to buy their product.” What does that mean in the context of search funds and entrepreneurship through acquisition more broadly?
In my own words, the search fund’s value proposition refers to the value the searcher (and broader search fund) promises to deliver to a business owner should they choose to sell their business to the entrepreneur and its investors. This value could be in the form of financial gain, personal fulfillment, or assurance of the business's future prosperity.
In fact, this is often a common question I receive from owners all the time: “Why should I sell my business to you?”
Now, let’s look at that statement more closely. The business owner has their own objectives in mind with a sale that must benefit them. In most cases, they couldn't care less about where you went to school, who you worked for, or how great you are at Excel. How are you going to benefit them in taking over the business relative to other buyers?
Understanding seller priorities
Each business owner is unique, with their own set of objectives and considerations when it comes to selling their business. What may be a fantastic match for one owner might not resonate with another, even when all other variables remain the same.
Consider these key factors that an owner often balances in a transaction, each shaped by their personal circumstances. Reflect on how different owners may prioritize these elements differently:
Immediate cash at close
Total purchase price, inclusive of earnouts, seller notes, etc.
The speed, timing, and certainty of closing the acquisition
Preserving the culture and structure of the workforce
Anticipated involvement post-close
Possible financial upside and downside
Personal rapport with the buyer
Confidence in the buyer’s capability to successfully manage the business
Additional structural considerations, such as stock vs. asset sale
While owners indeed have preferences, finding a buyer who perfectly aligns with these needs isn't guaranteed. Even a buyer who could be an excellent match might be overlooked if they fail to communicate their value proposition effectively.
Understanding your ideal seller profile is pivotal in this context. This understanding not only aids in creating a value proposition that speaks to business owners but also sets you apart in the competitive landscape. This is especially true if you're initiating your search fund with minimal network or brand identity.
Ideal seller profiles
As you continue to delve deeper on what seller priorities are and how they differ, you should be able to come up with profiles that resemble the results of a personality assessment. What are some of the shared traits that make this type of individual an ideal seller profile for your search fund, and what are some of the factors that are important to them in selling a business?
For example, if one of your ideal seller profiles is a 60-something owner-founder who is looking to retire and preserve their legacy, their interests may be relatively consistent across that profile but vastly different from the 40-something serial entrepreneur who plans to start another business upon exit. Write this down in bullet points if you need to, or simply keep that visual in your head as you begin to articulate your value proposition.
As you have conversations with more and more owners, consistencies in profiles will emerge that can help you target those that meet the objectives and criteria of your search fund investment criteria. More importantly, these profiles will help you build a narrative that resonates with the owner where you’re focused on them and not why you are so great.
Communicating the value proposition
One of the most prominent ways that a searcher can communicate their value proposition to owners is through their website and one-pager they may send owners in advance of or after a qualifying conversation. When you’re in the early moments of trying to grab an owner’s attention and attract them, it’s critical that you keep messaging brief and focused on the most important ways that your search fund benefits the business owner.
I find that many venture-backed SaaS businesses are some of the best at articulating their value proposition, and this article by Invesp breaks down the elements of winning ones at some prominent technology companies: a catchy headline, a sub-headline, key benefits bullet points, and visuals. We’ll use three of their examples (Webflow, Hubstaff, and Asana) with their updated marketing copy.
The Catchy Headline
The goal of the headline is to build trust with the target audience and describe what the product or service is and how it is relevant to the business owner’s needs. It is all about driving action and engagement with a good first impression. Some examples of good headlines are the following:
Webflow: Build with the power of code — without writing any
Hubstaff: Propulsive productivity for work teams everywhere
Asana: The best platform for cross-functional work
Notice how each headline focuses on how the target audience benefits from each product in a catchy, concise manner. They are focused on solving a problem for the target audience without going into detail about the product’s features and functionality.
Supporting Sub-Headline
The goal of the sub-headline is to elaborate on the headline with more of a focus on telling the target audience what you do and how it benefits them. Here, It is more about providing context. Examples of sub-headlines continuing from previously:
Webflow: Take control of HTML, CSS, and JavaScript in a visual canvas. Webflow generates clean, semantic code that’s ready to publish or hand to developers.
Hubstaff: One app to automate time tracking processes, workforce management, and productivity metrics.
Asana: Want to drive efficiency across your organization? Asana is flexible and easy for all teams to use, so you can deliver quality work together, faster.
Notice how each sub-headline turns to more descriptive language than the headline. They share context with the reader on what the product does without going into too much detail.
Key Benefits Bullet Points
The goal of the bullet points is to provide more detail to the target audience about the key ways that one benefits from using the product, usually by showcasing certain product features in more detail. Examples of key benefits bullet points continuing on from previously:
Webflow:
Fully customize the structure of every page
Style your site exactly how you want
Create animations and interactions visually
Create content-rich pages with Webflow’s CMS
Choose how to publish your site
Hubstaff:
Instantly improve productivity
Automate team management
Find and fix money leaks
Asana:
Manage complex work easily
Prioritize revenue-driving work
What’s not shown here is how each company goes into further detail about what products and features benefit customers with visuals to support them. Less is more here, and it’s common for companies to use three key benefits. For a searcher, I cannot see using more than three, but it is entirely up to you.
Final thoughts
As you can see, there are many effective methods to communicate with business owners. While every searcher may have their own approach in style, language, format, and more, those that are able to accurately identify the needs of business owners in their target market while simply and clearly communicating their message will be a step ahead of those who just slap together the generic search fund website.
We all don’t have to communicate the same benefits of the search fund model either, and that’s the beauty of this path. Each of us will stress certain things that we believe to be most important to business owners and have our own ways of articulating them in a manner that resonates with our target audience.
At the end of the day, keeping things personal and focused on the owner is most important. Those that try to “prove” they’re the best buyer for a business owner will find themselves at a severe disadvantage. Taking the former approach that’s more focused on the owner's needs will also take pressure off of yourself and enable you to listen more effectively.
I hope you found this post helpful in crafting your own narrative. Do you have a favorite example of a company’s value proposition that was done exceptionally well? Feel free to share it below in the comments.