Buyers and Builders
00:10:40 · Greg Geronemus
[00:10:40] S1: No, it hasn't changed. And I think there's a lot of people talk about how search is harder today or it's dramatically harder today. I wanna be clear first off that search has always been hard. It is entrepreneurship through acquisition. Entrepreneurship is hard of any variety. You know, could you argue it's not as hard as going zero to one? I think that's fair, and I think the stats prove that out. But is it is it incredibly hard? Yes. Make no mistake about it. There are many reasons why... Or or or one... I guess there's... There are reason... Several reasons, but one central reason that it's harder today. And I probably concede that it is on net net hard, moderately harder today than it was, and that that all has to do with competition. But it's not just competition. I think one mistake people make, they they think about just competition from other searchers or ETA entrepreneurs. That's just part of it. It's competition from independent sponsors going down market. It's competition from private equity firms going down market through not only buying smaller platforms and and doing buy and bills themselves, but also, you know, doing aggressive, you know, aggressive m and a at... For smaller for smaller tuck ins. So the the competition has just increased meaningfully. But there are... You know, in addition to capital being... You know, there are many reasons why it's easier today. In addition to access to capital, which we've talked about, there's there's so much content information out there that people can draw upon in terms of best practices. So, you know, lots of great podcasts, yours included, where people can learn the tips and tricks of the trade. That did not exist back then. There are there are books. There are, you know, there there are literal playbooks that people can borrow, copy, modify. And I don't think enough is discussed about or... About just the... Some of the really powerful sourcing tools, which are getting better and better by the day with the help of our friends in the AI world, what you can do to identify companies to reach out to them, nurture at leads at scale, and really build fantastic funnel, that is so much more powerful and makes a searcher's job that much easier today. All of that said, I think on balance, it is a little bit harder than it used to be.
00:13:31 · Mikk
[00:13:31] S0: Still showing how hard it is. Thanks to this podcast and Twitter account, I've had had chance to talk so many people who who wanted to go and acquire a business. And even if I take super experienced guys, take private equity background, investment background... Investment banking background, a great education, they have... They've quitted their job. It it still took them two years despite having a great list of advisers. It took them two years to buy a great business. So it just shows how much mental toughness is required as well on top of all the experience, on top of all the know how on how to get the deal done.
00:14:13 · Greg Geronemus
[00:14:13] S1: There's no question. Mental toughness, also just sheer hustle and willingness to grind. Think a lot of people talk about the two years that it often takes to buy a business, sometimes more. A lot of people also talk about the falling acquisition rates, especially in traditional search where I think the latest Stanford study had 57% of of traditional searchers acquiring businesses. My guess is when this 2026 study comes out, that may dip below 50%. I have no inside information, but that wouldn't surprise me at all. A lot of people harp on those numbers, and I think there is some nuance that's lost that's that's not simply a reflection of it being harder and more competitive. It's also a function, I think, on on average, the hustle factor, the grit, the the willingness to grind, that has also diminished over the last fifteen years. When when you were going into search in the two thousands, early two thousand tens, I mean, certainly in the in the eighties and nineties, you had to have... It was so hard to even... To learn about search, to raise the capital. It was such a niche. There was very little data out there, very little information. You had to want it so badly that anybody going down the path was... They really viewed search as a calling, not just simply a career path. And as it's become so much more popular at MBA programs, consulting firms, banks, private equity firms, there are a lot of people that view search as just another career option. Maybe I'll take a bet on myself. If it doesn't work out, I'll go to business school. If it doesn't work out, I'll go back to private equity or consulting or banking or an operating role. And their heart isn't in it in the same way. It's a career path, not a calling. Whereas I think across the board, ten, fifteen years ago, twenty, thirty years ago, when it was this sort of micro micro niche, it was always a true calling. And and so I I think you have think that you have people that where their heart's not in in the same way, and that's a big driver. It's sort of an underemphasized driver of the acquisition rates falling.
00:16:54 · Mikk, Greg Geronemus
[00:16:54] S0: Talking about how hard it was in early two thousands, I had a podcast guest, Mark Sinatra, and he acquired a business in early two thousands. He got seriously affected by the two thousand eight crisis, and he was just cracking jokes on the podcast that he lost his hair because of that. Because it was so hard. He was alone in this, but he survived. Yeah. But it was just so hard, and it's... I'm just taking this joke from from from himself. [00:17:23] S1: Why? We we operated from 2013 to 2017, so I was able to thankfully keep my keep my hair. [00:17:30] S0: Mhmm. The education part. Let's talk about the the overall impact of the Harvard ETA course. Some time ago, it was a very popular episode I did. It was just a solar research on Royce and Rick, and they've been probably influenced more acquisition entrepreneurs than almost anyone else. But then during the pre call, you said you are very involved in this as well. Can you maybe share a bit like how you become involved and how has it been? And then let's go more into the details of the real impact of this on the market.
00:18:12 · Greg Geronemus
[00:18:12] S1: Yeah. So back in 2010, Rick Ruback and Royce Yudkoff, I think a bit of an unlikely pair or duo, very different. Rick's very, very... You know, an academic, real sort of a Boston's... Bostonians Bostonians, Red Sox fan, you know, fond of making sort of some, you know, wisecracks here and there. Royce, a private equity giant, extremely polished, not from an academic background. They linked up. You know, I'm honestly not sure of of how they connected in the in the first place, but they developed a shared interest. And in the overall concept of, you know, getting talented MBA types into smaller enterprises. You know, much of the emphasis at a place like HBS where they use the case method and cover different business scenarios in every every class and and and use the Socratic method to facilitate, you know, dialogue amongst students. Much of the emphasis is around Fortune 500, Fortune 100, Fortune 50 companies. And they took an interest in sort of evaluating smaller firms and looking at how perhaps you know, MBA... Top MBA types can go into smaller smaller companies. So they launched a course, actual title called the financial management of small firms, which was not explicitly search fund focused. Although there was, you know, a a decent... Some some emphasis on the search fund or ETA model in their course. And and that was launched around the 2010 time frame. My my business partner was lucky enough to take that course, and that helped spark his interest and then, thus, my interest interest in the broader area of ETA. But we wanted to go a level deeper. And in the fall of two thousand eleven in our second year, we approached Rick and Royce about the idea of doing an... A small independent study, not a formal course, but a sort of a two on two where they would mentor us, and and we would get course credit to go deeper on the search fund model in anticipation of likely doing a search ourselves. That sort of initial planning for an independent study became... It it had... It sort of took on a life of its own where other other students said, I I wanna join that or I wanna join that. And what started as a two person independent project quickly morphed into a 40... You know, in in a matter of weeks or months, morphed into a 40 person course that they...
00:21:17 · Greg Geronemus
That Rick and Royce created, really sort of building the plane as they were flying it, and did a fantastic job in that first year of putting together cases and bringing in speakers and really created the best course that I took at HBS and very much to their credit. And then in the years that followed, it's become one of the staples second year curriculum where there are multiple sections, extremely high demand. You'll have students rank it as their their highest priority second year course in this lottery system that HBS has. And I feel lucky and privileged to have played a small part in that. I'm sure the class would have evolved and emerged eventually, but I think think David and I helped accelerate and put some momentum behind it. But I don't think you can underestimate the importance of that class and the efforts that Rick and Royce made. The class has inspired hundreds of HBS students to go down the path of ETA. A few years after launching the class, they also put out their book, The HBR Guide to Buying a Small Business. That has inspired probably thousands of people to go down or who... Countless people to go down the ETA path. And then I think it also created momentum for other schools to follow. I think I think Booth was next and then Kellogg and Wharton. And and now, as I mentioned earlier, there are roughly 20 different MBA programs around the The US and many others around the world that have really robust ETA curriculum. And certainly, I think it's important to acknowledge that Stanford was the first, but I I I think something, the sort of the switch flipped when Rick and Royce launched their course, and, I think that created some really robust momentum.