2022 Year in Review
Big Deal Small Business: 2022 Year in Review
December 23, 2022 | Issue #77
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It’s not hyperbole to say 2022 was likely the most upheaval & change in one year that I’ve experienced in my life. Mostly good, some bad, some challenging (but still good).
The changes included moving cross-country, quitting a promising career, acquiring a chaotic but great small business, and then putting my head down & grinding in that business.
So today’s issue is a short recap of 2022 before I sign off for the year.
But first, a reminder about SMBash (I’ll be there!):
SMBash is back! This year’s event is April 27th – 30th 2023, in Austin, TX. If you want to build deep connections with folks in the acquisition entrepreneurship community, join us for three days at 800 Congress in downtown Austin. Just like last year, the event includes panel conversations, live podcast recordings, phenomenal meals, entertainment and MUCH more. Snag your ticket at www.smbash.com.
Hope to see a lot of you there!
Newsletter Recap
I wasn't 100% sure what to do with this newsletter once the search phase ended & the operating phase began. For those of you who've been reading for longer than the past 10 months, you've probably noticed the posts have become a bit more random as they're now driven by when I have breaks in the business.
That said, I'm intending to keep it going strong! It continues to be a fun way to connect with folks in the EtA world, and I enjoy writing it.
This year:
21 posts with ~60ish % open rates
My last post for 2021 went out to 962 subscribers. This last post for 2022 will go out to 2,348 subscribers.
55% of subscribers have opened at least 2/3rds of the past 10 posts; another 19% of subscribers have opened at least 1/3rd of the past 10 posts. (Not sure why the other 26% haven't unsubscribed.)
I'm not entirely sure where you all came for, but thank you for reading! It's weird to realize roughly 50% of the readership joined the newsletter AFTER I bought the business.
2023 will be more of the same -- commentary on SMB operations, frameworks for SMB investing & M&A, and more. The business continues to my primary focus, but when I have learnings to share from that, I will send them your way.
If you have ideas for topics or changes for 2023, I'm all ears, just hit reply to this email.
Note that this will likely be the last email via the Revue platform as it is being shut down by Twitter; I will switch it over to Substack soon.
Business Recap
I'm now 10 months into business ownership.
I feel very fortunate in the business I've bought because:
The sellers upheld the transition plan in its entirety, helping deliver a soft landing
The employees gave me grace & time to understand the business
I didn't find any skeletons in the closet shortly after closing; yes, there were surprises & "re-learnings" of how the business actually works, but nothing existential
The 2022 economy held firm, affording me time to get my sea legs
I have a strong support group of peers & investors, including a mix from both camps that formed an advisory board for me
It's easy to have a "grass is greener" mentality when hearing about other people's businesses. Like, "Wow, I should have gotten into that line of work, look at the [margins][recurring contracts][average contract size][stickiness][etc.]".
In reality, each business has its unique challenges & strengths; none are easy to run. Mine sports strong margins, a fragmented, relatively price insensitive customer base, and low churn on the team.
But we also had high owner dependence and no contracted recurring revenue. Finding skilled labor has proven extremely difficult and there is near-constant safety/training risks present.
But overall, I came out of the 2022 learning period feeling happy about the quality of the business & industry I acquired, and highly optimistic about its future in 2023+.
One important note -- I wasn't even a fully-functioning adult in the last recession, so assuming we hit one in 2023, it will be my first. I'm nervous about the macro situation but intending to grow through it all the same.
To manage downside risk I have built up cash reserves and am now holding ~1.5x annual debt service between cash & undrawn line of credit.
Acquisition Recap
The question I get asked the most is, "How do you feel about the decision to leave PE and buy a small business?"
The short answer is that I feel good about the choice.
The longer answer:
At 10 months in, it's honestly still too soon to say if it'll be a successful decision financially. I think I can safely rule out the worst outcomes (blow up immediately, employees/customers quit, etc.) but we can't rule out the middling outcome (struggle to grow, all cash flow focused on repaying SBA loan, etc.).
But I can see a light at the end of the tunnel that reveals a larger business, a less fragile business, and one that sports more of a manager layer.
That all said, staying in PE continues to have been the higher risk-adjusted expected value outcome for me from a purely financial perspective.
But I had hit a learning plateau in PE. The next phase of my learning in PE was to move on from investment analysis/deal diligence and learn how to be a dealmaker & deal manager. I would have focused on that for 8-10 years until I was hopefully made a partner at the firm.
To be clear, my PE firm was a great place to learn, the partners were strong mentors. and the platform was growing rapidly with strong fund returns.
But as I looked at getting on the "dealmaker" learning track, I decided I want to focus on learning a different set of skills. For the next phase of my career, I wanted to develop skills oriented around operations & people management.
That doesn't preclude going back to PE someday; I just didn't see myself growing into a successful PE investor without building a more intuitive understanding of those elements of business.
From that standpoint, the decision to leave PE has been a massive success; the professional & personal development over the past 10 months has been 1) far better aligned with what I wanted to learn, and 2) a much faster pace of learning than PE.
It's exciting to feel the learning curve steepen again and start sprinting up that curve.
(But also yes, sometimes I miss the swanky NYC lifestyle and flying around the world in business class. Especially when I'm driving to work at 6:15am to scrape ice off windshields before crews start their day.)
Conclusion
If not clear from the above, 2022 was a big year for me personally & professionally. I owe an incredible amount to my friends, peers & mentors who have supported me on the transition from PE to SMB, from East Cost to West Coast, and more.
Thanks again for reading and writing in with your thoughts throughout the year. Best of luck to the searchers on closing deals next year. Best of luck to the operators on managing through a weakening economy. Best of luck to investors & advisors as well.
Hope you have an excellent holiday season & happy new year!!
Thanks,
Guesswork Investing