00:48:58 · Mark Sinatra, Mikk
You're selling yourself to business owners, to brokers, lenders. You're selling yourself once you buy the business. You're selling yourself to your employees, to clients, to customers, then you're selling the business. So, you know, it's these things that, you know, you'd probably don't learn in, the classroom of, like, you know, business school, but, you know, really the ability to effectively communicate, sell yourself, market yourself, you know, is extremely important in this market. [00:49:38] S0: When it comes to underwriting those people, the companies they would like to acquire, if I say the word references, what comes to mind? What comes to mind? How much do you call to their previous partners? Do you call to their previous employers, colleagues? What is your thought process when I say the word references when it comes to the people you back, the companies they're trying to acquire, when it comes to underlying this this person you're going to back? [00:50:10] S1: Yeah. I mean, it's certainly important to to check references, and and that's something that, you know, we we do on on, you know, searchers that that we invest in. You know, absolutely, folks, ideally, it's, you know, the the last, you know, two, managers that they reported to, or people that they've they've worked with, But, yeah, I mean, it's very important to do that as part of this overall diligence process.
00:50:10 · Mark Sinatra, Mikk
[00:50:10] S1: Yeah. I mean, it's certainly important to to check references, and and that's something that, you know, we we do on on, you know, searchers that that we invest in. You know, absolutely, folks, ideally, it's, you know, the the last, you know, two, managers that they reported to, or people that they've they've worked with, But, yeah, I mean, it's very important to do that as part of this overall diligence process. [00:50:45] S0: I'm asking because, yeah, I've heard stories when some people are outsourcing this, and then there are the ones which doing like, taking extremely seriously, as seriously as they just fly on the other side of the country if needed to meet a specific person to have this conversation about the person they're going to pack. That's why I wanted to ask. [00:51:04] S1: Yeah, that's, I mean, it's very important. I don't think it's something that should be outsourced. It should be done ideally by the principles of, you know, the investment decision. [00:51:20] S0: Now, when it comes to, like, you have quite a lot of data. 80 investments, acquired 35 companies. [00:51:28] S1: I would like to ask [00:51:29] S0: a question about the ones which have not gone so well. When we take like three buckets, there is a person you backed, there is a company they acquired, and then there is these companies in a certain market or an industry. When things have gone not so well, what was the mistake from your end? Was it the person? [00:51:48] S1: Was it [00:51:48] S0: the company? Was it the market or industry?
00:51:51 · Mark Sinatra
[00:51:51] S1: Yeah. It's... We... You know, thankfully, we... We've had, you know, very few of those. But if I look at the ones that that have not gone well, couple reoccurring themes. One is the business faced just significant headwinds post close, within the first year, and for the most part, those challenges were ultimately driven, and were, from from people, and and, that it that it somehow impacted revenue, whether it was, you know, losing a top salesperson, which, you know, we we we saw in one case. Top salesperson left shortly after close, and, you know, the business wasn't able to effectively, you know, replace that that salesperson and that business that was lost. Another example would be if, you know, there's, some attrition, this is more of a health care related business, but, you know, some attrition post close that caused, you know, some loss of of customers. And, again, you know, the the business had a hard time, you know, kind of recovering from that. So then the question is, like, well, these things that that happened post close, what could we have done differently in due diligence to really identify that? And sometimes you just can't, right? At the end of the day, you know, there's a certain level of of some of these cases where it's really unfortunate, bad luck, bad timing, and and it's... At the end of the day, it it's kinda out of your control. But but that's where, you know, really kind of encourage searchers to... And it's tough. Right? Because when you're in due diligence, you've got your searcher hat on, set it around the company, get to the other side. Some folks will say, you know, they love searching and and, it's great if you do, but, you know, operating is really... Obviously, that's where everybody wants to get to. But you've gotta have to have your investor hat on too, and that's really one of the hardest things, I think, about the search, is when those points in time when you've got to make decisions, and maybe your searcher hat and your operator hat have... Oh, I'm sorry, your searcher hat and your investor hat may be telling you different things. And that's where leaning on and having conversations with, you know, your board, investors that you've built a great rapport with can be very, very helpful.
00:54:59 · Mark Sinatra, Mikk
So if there are things in due diligence that you pick up on, you know, keep in mind, like, you know, this is a business that, you know, you're gonna be running and and you have to to really kinda like just think as objectively as possible, because, you know, the toughest situation can be, I mean, it's one thing, like, if you search for a couple years and you don't buy a business, I mean, that, you know, you're gonna have a great network, you're gonna learn a lot, and you're gonna, you know, set yourself up for success in whatever you do next. And then, you know, if you're a searcher that buys a business that really struggles, again, you're gonna learn a ton through that, but you know, it's gonna be a tough experience, right? So, so anyway, those are a couple couple like the lessons learned, would say, you know, from those experiences. [00:56:10] S0: And now across all the companies, all the searches you've seen, there must be some age coming through that repetition. So what tends to matter more than people initially think when it comes to making those good investment decisions in those searchers? [00:56:33] S1: In the searchers? [00:56:36] S0: Yes, because you've done like 80 of those investments. Yeah. Is there anything maybe which which which comes to mind? Could be can... Could be general, could be something more... Much more specific. I leave it to you. Yeah. Yeah.
00:56:52 · Mark Sinatra
[00:56:52] S1: I mean, I think, you know, I mentioned a few of those qualities before in terms of, like, the level of grit and perseverance. You know, we also look for how prepared are they to search. Do they know what it's really going to be like? Have they done internships with searchers? I mean, it's great if they do internships as well with, like, searcher CEOs. Those are great experiences, but they... Have they interned with folks that are, you know, six months into the search? Have they interned with folks that are, you know, twenty two months into the search and maybe on the tail end? You know, what... How diverse are the experiences that they've encountered, you know, during their preparation phase? Because we found that in general, folks who... And this is not rocket science here, but, you know, folks that are better prepared for search tend to be more successful, right? And so maybe they've already searched, you know, we've, we've come across a lot of folks that have in some form or fashion, you know, done a self funded search and then they convert to to traditional, at some point in time. But they've already gotten all those reps. They know what their tech stack is. They they know what their talk track is. They've got a database, you know, of companies and brokers. So, so anyway, those are things that that, you know, we we really look for, but I'll kind of end that question with this. Somebody asked me the other day, you know, is it the jockey or the horse in terms of the investment decision, when it comes time to evaluate, you know, the, the deal, right? And there's a lot of factors that we underwrite to help us gain conviction on investment opportunity. But there's one factor that wasn't mentioned, and that's the barn, the industry. And so when you think about it, you know, all three of those factors, you know, ideally, right, you... You've got a a searcher that's excited that is gonna be, you know, a great CEO, you know, that's willing to to, know, has that, like, kinda learner mindset, which I haven't talked about, but, you know, that mindset to be open to feedback, be vulnerable, and and open to to growth. And, you know, you've got a company that checks a lot of the boxes in terms of what would be an investable business, but the industry is is is, you know, critically important. Right?
00:59:52 · Mark Sinatra, Mikk
And understanding and ensuring that the industry has ideally, you know, tailwinds to it, and, you know, is is expected to to grow and and, you know, benefit from those tailwinds can can be incredibly beneficial. Right? Because on the flip side of what we spoke about before, you know, an indicator of what can contribute to the success of search deals is the revenue growth at the time of acquisition, the TTM revenue growth, and also, you know, what are those predictable sales metrics at the time of transaction. Right, looking at sales backlog, pipeline, activity, things like that. So a average to above average company in a growing attractive industry, and a company that, you know, can be professionalized from average to be above in that growing industry can be a really, really powerful formula for success. [01:00:55] S0: Now I want to ask about your day to day. How has it changed over the past six years when we take 2020 and now 2026? When it comes to finding those special people, finding those with a great deal, How has your day to day changed? What I mean is, again, six years ago, there weren't too many podcasts, interviews about the people giving out those lessons on what they've learned. There wasn't so much buzz about the industry overall and people quitting their jobs going to buy a traditional business. And I can see and just confirm when it comes to the numbers every day, half a thousand to a thousand people listening to this type of interviews. So how has your day to day changed when it comes to finding those special special people? Because there is a lot going on.