Example of How a Thesis Enables a Proprietary Deal

The following story is based on real events. The names and some details have been changed to protect privacy. Typical Sales Process The “sales process” is often structured to force buyers and sellers into meetings that are more like interrogations. Between meetings, the communications are frequently intermediated by a sell-side advisor. We have all heard of the Telephone Game Paradox. The Priorities of Many Business Owners Two months ago, I met an owner who founded his business more than 25 years ago. He is nearly 70 years old. A few months earlier, he turned down a mid 8 figure offer to buy his business. Why? He believes that the buyer would break up his business. A few days ago, I met a retiring business owner, Ralph, who is in the final stages of selling his business. He accepted a lower offer (by $180,000) and agreed to finance 70% of the value. Why? Because he is confident that the buyer will build on the foundation that he built and not only continue his legacy, but strengthen it. Ralph told me the story. The Stewardship Manifesto: Born from an Investment Thesis One fine Tuesday afternoon, Ralph received an email from Mary. Mary explained that she has a thesis about the revolution occurring in the market, what the market should look like in the next 5-8 years, and how his company will be threatened by these changes, but also could become a key player in that future market. Ralph asked himself: “How could I ignore Mary?” Mary led with a Stewardship Manifesto. Her authentic mission was to construct a shared vision for the future with Ralph. Mary and Ralph had several conversations. The vision was converging on shared. Ralph mentioned how his thinking about Mary evolved from “interesting conversation”, to “should I hire Mary as a consultant”, to “Mary may be the solution to my succession problem.” Ralph asked Mary about her future, her plans and goals, etc. Ralph remembered how her responses suggested that she may be the solution to his problem. He described how he “mustered the courage” to ask Mary if she would be interested in acquiring his business. Does this sequence of events occur every time that Mary reaches out to a business owner to discuss her thesis? No. The Details of the Deal As we mentioned above, the typical process creates an interrogation. A typical buyer spends the first 60 minutes asking about how the machines work, how long the lead machinist has been there, and what the lease terms look like. The founder stays in "Sales Mode," protecting the business and justifying the price. Status is neutral at best, and the Founder often leaves feeling worn out. The Managing Partner’s Approach According to Ralph, Mary didn't ask about the machines. She didn't ask if the business was efficient. Ralph recalled her analysis and tried to remember it verbatim: "Based on our Thesis, businesses of your scale in this geography typically hit a "Complexity Bottleneck”' at the $10M revenue mark because many processes are still trapped in the Founder’s head. My experience and analysis suggests that these manual systems consume roughly 12% of margin to inefficiencies, quoting errors, etc. Is that consistent with your experience?" Ralph was surprised and could not very the figure 12%, but, he knew that Mary understood his business and its current state. From Buyer to Architect Ralph described how his posture changed instantly. He explained how he stopped "selling" and started "confessing." For the first time, someone wasn't asking him for his P&L; someone was describing the bottleneck that kept him awake at night. Based on Mary’s experience in the industry and the analysis that led to her thesis, she knew the problems that she would likely see before even seeing the shop floor. Ralph explained how his confidence grew as Mary first led with her thesis and followed with operational details. He described how he knew that Mary had a clear view of where the business should go and how to get there. The Result: Proprietary Access & Financing Ralph told me that "This wasn't a "negotiation. It was a collaboration" Ralph realized that Mary is capable of building on his life’s work. And, when Mary struggled with banks, Ralph’s confidence led him to finance most of the purchase price. The Moral of the Story: The Thesis is the Authority When you lead with a Thesis, you don't have to compete on price, because you are likely the only one competing with a Stewardship Manifesto.. You aren't asking for a deal; you are providing the path toward a stronger legacy. A Follow-on Thought: This methodology does not function in all cases. In some instances, a sell-side advisor may block the approach or a Founder may not want to engage with this level of transparency. In those cases, we are comfortable accepting that the conditions of a win-win deal were likely not possible. We are comfortable moving to another conversation that will be more productive. The goal isn't to convince the unwilling; it is to find the right conditions for a great deal for everyone.. Final Thought: The Market Has Spoken At a recent conference, I spoke with several capital providers. The feedback from the investor community is clear: They prefer operators who have a unique thesis about an industry and a plan for how they will create growth and multiple expansion.