Thoughts from a current operator
September 28, 2023
by a searcher in New York, NY, USA
Did an SBA deal.
Closed, have been running the company for almost a year.
When you’re levered at a###-###-#### dscr (yup… that’s what the dscr is on a 4x deal) and have a personal guarantee on the loan, the stress is incredible. For whatever reason, search has been glamorized. Here are some issues I’ve encountered:
1. Employees will harass you and take advantage of you as you’re a new owner. They know you need them initially, so they will demand raises or threaten to quit to join a competitor.
2. When a seller sells; he/she sells. Most likely, they do not care about your seller note if they’ve had the business for many years. They are not as incentivized as you would think to help you. They want to enjoy their life now if they’re retiring. Some may be bitter due to a forced sale (no one to take over, divorce, health issue, etc.)
3. SBA loans are fixed, not floating. Rise in rates ate my cash flow.
4. You’re not going to operate the business as well as the seller. Thus, you’re going to incur costs and do mistakes the seller wouldn’t have had.. Lawsuits, unemployment claims, capex
5. Vendors will harass you/take advantage as a new owner. Poor quality products, threats to increase prices to interrupt your business, threats to not pay you on time, etc.
6. Fighting the IRS. All of those seller add backs are going to be your responsibility to explain to the irs now! Hopefully you didn’t do the same. Don’t forget meals are only 50 percent deductible this year
7. working capital. Oh boy…. Looks like you’re not saving anything this year because of all the new hires; capex, inventory investment you made to stay competitive in your industry.
8. Employee turnover - the worst. Don’t need to explain how hard it is to find good employees.
Would I have done it all over again? No. They’re easier ways to make money. I’m quite lucky to still be running this. I make a good amount and I’m ok; but I would have any day taken a lower paying post mba job with less stress in retrospect. redacted
from University of Tennessee in Nashville, TN, USA
Can you make more in certain roles as an employee than as a business owner? YES!
Can you make more as a business owner if you have a vision, a plan, and execute the plan around the limitless obstacles that present themselves that were never in your SWOT analysis? YES!
Is there a perception that elite business school MBAs know more about business than most business owners? YES!
Is perception reality? NO!
Does anyone know for certain what the future will bring? NO!
Should you be an entrepreneur if you find comfort in structure and routine? NO!
Should my opinion or anyone else's be viewed as the solution to a challenge? NO!
ETA is a lifestyle and business ownership is a life skill. There's countless examples of individuals from all walks of life and all parts of the globe that have no/limited formal education and others with multiple advanced degrees that have created highly successful companies. Had I known that this was a career path two decades ago, my life would be different. How? I have no idea.
Life is a series of choices. The concepts of 'good' and 'bad' are relative to perspective. Be happy and grateful for what you do have. You are one of the lucky few that is a business owner and have the opportunity to finish that chapter in your life. What does the future hold for you? How will the chapter end? Will the chapter's end come this year or not come for decades? Even our emotions are a choice. Will you choose to be happy and grateful or choose to be frustrated and bitter?
We all have victories and setbacks. Life neither forgives or is unforgiving. It just is. The only constant in life is change. The only person that controls who you are and how your story ends is you. It's taken me years to be in the position where I am today. The willful, meaningful changes in my life have sometimes taken much longer than anticipated and some never materialized or ever will. It matters not. There's more to my story to come.
Businesses exist to serve others. Business owners have a higher threshold of service to provide simply by being in their role than most any profession. That service includes employees, customers, vendors, lenders, investors, family, and, ultimately, themselves. Money is one reward for that service to others and, unfortunately, far too many people confuse the selective ends with the means.
Sell; don't sell. Quit; don't quit. Life is a series of choices and we are all free to choose what's right for us. Empower yourself to own your choices and choose a brighter future for yourself! The conclusion of your story is still to be written.
in Boston, MA, USA
In case it helps others struggling with similar issues, A.J. Wasserstein from Yale SOM wrote a good case on this topic – “When to Give Up on Your Search Fund Dream.” Seems to be more from the traditional funded model POV rather than self-funded with a personally guaranteed SBA loan, but there are some broadly applicable insights.
https://yale.app.box.com/s/wzrkvtv3c2m2vomnn2d4ubdnekoneizf
I’d particularly check out “Five questions to help a CEO assess whether to move on or not” and “Emotional and physical costs to the CEO and their loved ones” sections to see what, if anything, resonates.
This post sparked a great conversation. My own experience in learning and getting excited about search was that it was a bit of a monoculture based on survivorship bias - tons of cheerleaders and excitement all saying “you can do it!”, folks seemingly succeeding in all the ways you aspire to and telling you how great it is on “the other side” while paying lip service to the challenges, and few if any serious cautionary tales or deep regrets. Usually, the failure stories were those who failed to find, not those who struggled in the business and wished they’d taken another path. Makes sense that it's much easier to find people willing to tell their story when they're crushing it rather than getting crushed.
I'm still overwhelmingly pro-ETA and pro-Small Business ownership and leadership, and I think it's great to have some folks with differing experiences put them out there to let would-be and current searchers see the good, the bad, and the ugly, and go down this path with open eyes about what’s to come. OP’s points 1, 3, 4, and 7 hit uncomfortably close to home to my own experiences in the first year or so (#3 still stings every time the Fed announces another rate decision!) but maintaining a growth mindset and trusting that I’ll grow stronger and better as a leader kept me going through the roughest patches.
Having a rock-solid support structure at home is the single most powerful thing I can think of that hasn’t been mentioned much in the thread – a supportive spouse, very close friends, parents, etc. can help you not feel so alone and try to see the light at the end of the tunnel. OP, I’m wishing you all the best. Each day can get a little bit better, and those small wins pile up over time!