Deal Sourcing SOP: The “In-Laws” Method To Finding Your First Boring Business
Acquisition Aces - Issue 2
Read Time - 4 minutes
Deal Sourcing SOP: The “In-Laws” Method To Finding Your First Boring Business
When I was in the service, I was stationed in Germany. One of the best things about living in Europe is that there are so many cool places to visit. People will hit you up when they are on vacation to meet them. It makes for great memories. Sometimes it wouldn’t work out because of my schedule, but there were certain people I made it work for no matter what. Especially my in-laws, Chris and John.
Chris and John
I am blessed that my wife’s parents are awesome, so when they asked us to meet them in Italy I did not hesitate. John is originally from the Bronx and is quite the character.
The sights were great in Italy, but there was this cat-and-mouse game Chris and John were playing that was even better. Both of them were supposed to be on a diet (who picks a trip to Europe to do that?). The problem was that they were surrounded by awesome food. So every time one of them would leave, the other one would produce some hidden treat and eat it in secret. What made it so hilarious was that they were both doing it and I had to have two different “you are sworn to secrecy” conversations. Thinking about my in-laws hiding the best food they could find over the course of that trip, makes me laugh every single time.
It was also interesting that they both had different foods that they defined as “worth hiding”. I am a chocolate guy, so I am definitely team Chris. Preferences are a funny thing. One person’s treat, may mean nothing to someone else.
In the game of business acquisition, the last thing you want to buy is an asset you end up hating. The good news is, just like your wife and in-laws, you get to choose who is involved in helping you source deals. When you find the right fit, you take yourself off the market and lock it down.
Off-Market Deals Are The “Treats” Of Acquisition
A lot of people talk about sourcing deals from the various businesses marketplaces online. I certainly have strategies and tactics on how to do that. Those sites are also a great place to become familiar with what types of deals are out there. As well as how deals can be structured. They are a great place to begin to learn about the acquisition game.
However, when I am looking for a new boring business to buy, my first stop is with my personal network of brokers. Why? The online listing services are the ‘last stop’ for deals. Brokers will always shop opportunities around to people they know first. This is because the pre-existing relationship decreases the friction in the deal. The parties have worked together before and know each other’s standard operating procedures (SOPs). Everyone also knows the unique elements that may torpedo a deal.
This means that by the time a deal makes it to an online marketplace, all the established relationships have passed. It doesn’t mean it’s a bad deal. It just means it probably isn’t a great deal. Don’t get me wrong. You can still find amazing deals online, but it is the classic diamond in the rough scenario.
I prefer to stack the odds in my favor at every stage. Deal sourcing is no different.
A Personal Network of Off-Market Brokers Keeps You In Your “Acquisition Lane”
There are three criteria I begin with whenever I am starting my proprietary process for sourcing deals. They help keep me focused on the type of businesses I enjoy running. The whole point of my method is to craft the type of life that you want. This is different for everyone, but the three core questions that need answering in the beginning are the same:
- What geographic region? - If a business is close to you, it is easy to just run down there if something needs your attention. Proximity may ensure you have to be involved when you don’t want to be. A business that is far away is a forcing function for you to develop a great management team.
- Cash flow - How much cash a business generates is a KPI for how much risk and responsibility you are willing to take on. If you decide in advance roughly what you are looking for in this area, your network knows what kind of deals to send you (and more importantly, what not to).
- Industry - Just because something is a great deal does not mean it is a great deal for you. Pick the vertical(s) in advance you want to explore. Your efforts will start to give you institutional knowledge over time. Your abilities will begin to compound.
Once you answer these questions it will help you not only when you are talking to brokers, but also on which brokers to reach out to. You can build up a network of people that are on the lookout for businesses in your specific “acquisition lane”. This will keep you out of trouble and will help you find a great deal for the type of business you want. With the right network, you will be well on your way to being an Acquisition Ace.
The Right Person Can Make Or Break Your Deal
Still don’t think a broker is a big factor? Let’s try a thought experiment. Last week I asked you to pick the type of boring business you would be interested in buying. If you didn’t have a chance to read last week's issue just pick a business you think you would like to own. Think of all the different jobs that go into running that enterprise. Now take a look at this:
