Business Owner Profiles - Who Are You?
Big Deal Small Business, Issue #106
Business Owner Profiles - Who Are You?
Big Deal Small Business, Issue #106
Warning — another longer weekend post incoming. Grab a drink and get comfy.
Last week, I talked about common Searcher Profiles that I’ve seen entering the world of ETA/SMB.
That’s just your starting context. The REAL question is what kind of business owner you want to be. Even if you didn’t think about it before closing, it’s never too late to sit down and figure out what kind of business owner you want to be now.
Background
Before acquiring my business, I told prospective investors that I would use the first 1-2 years of the hold period to focus on business stabilization. In practice, that’s how it played out. It took one year to phase the sellers out of the business, and then another year to feel like we had found our sea legs independently.
My plan was that once I crossed the ~2-year threshold, I would define a company/investment vision. I communicated three potential paths (not mutually exclusive):
We see significant growth potential in the business. We’re going to plow cash flow (as needed) into the business to focus on growing it over the long-term.
We love the business & industry, but have hit a wall on organic growth in this specific business. We’re going to take cash flow and buy similar businesses in adjacent service lines, expanding geographic service areas, etc.
We aren’t excited about the organic or inorganic growth story — instead, we need to focus on generating cash, paying down debt, and returning cash to shareholders. This would culminate in a sale after a few years, or the installation of a manager to run a steady, cash flowing business.
Looking back at my pre-acquisition framing, I don’t take issue with this gameplan of defining an “investment vision” or “company vision” once we were a couple years into the hold period. That part wasn’t wrong.
But I was skipping a crucial step.
The company visions above, while all valid paths, do not reflect what kind of business owner I wanted to be. I didn’t understand how different the role of business owner can look.
Now, ~2.5 years into owning my business, I’ve come to appreciate that running a successful business requires finding the overlapping region of a 3-circle Venn diagram:
My vision for my life: How (and with whom) I want to spend my time, how I want to use my brain, how I want to build relationships, and my identity in my community.
My vision for the company: What I want the company to look like, what I want it to represent, what I want it to deliver for all stakeholders.
My employees’ vision for their careers: What kind of company our team wants to work for, what goals & dreams our team have for their own lives.
All three circles are crucially important. You need motivated, bought-in employees to achieve any kind of ambitious company vision.
But as the business owner ultimately responsible for setting the company vision, I realized I needed to start with my life vision first. If I got that part wrong, I would never be able to execute on a company vision or support my team in achieving their respective visions — I wouldn’t be sufficiently bought in.
So who are you as a business owner?
I have created several Business Owner Profiles for you to consider. Just like last week’s posts about Searcher Profiles, these are caricatures — your reality will always be more nuanced & interesting than these profiles.
The Local Institution
Ideal Eventual Role: CEO or President, with a COO/Ops Manager in place
Description:
The Local Institution’s company is their form of putting down roots. They want to own (close to) 100% of a healthy, cash-distributing business. They donate to the Little League team and their employees’ charitable causes.
They have a healthy benefits plan and 401K match. They’re an active member of the local community; as a coach at their children’s school, as an trusted advisor in their religious community, or on the board of a local nonprofit.
Business Owner Goals:
Being a Local Institution doesn’t require compromising on ambitious growth goals. It just means you position net worth, business growth, or business profitability as relatively low metrics of career success.
You don’t strive for work-life balance — you want work & life to flow together, in a way that work doesn’t feel like it compromises your life, or vice versa. In fact, when you’re living your values at work, it should be supporting your life values as well.
You want to build your community, both at the workplace and outside of it. You want your family involved in the business, and you want your business involved in the wider community.
Downsides:
You can’t acquire your way into this role or rush it. Being a Local Institution requires decades of commitment to your set of values. Even if you do acquire your business and borrow some of its brand equity, you still have to build your own local brand equity over many years by showing up, year after year, doing what you say you’ll do.
Stringing together 5 years of 30% growth per year won’t secure this endpoint. Of all the Business Owner Profiles chronicled in this post, the Local Institution is the most “journey not the destination” profile of them all — you just have to live it, and someday you’ll be recognized as such.
It’s an unglamorous path along the way — your family & friends won’t understand what you do. This requires deep, consistent internally-generated motivation over many years.
Future Independent Sponsor
Ideal Eventual Role: Board President, with a CEO in place
Description:
The Future Independent Sponsor calls their acquisition “Deal One” — for a reason. They understand the mechanics of deal structuring and raising equity. They are sprinters, not marathon-runners; they love the energy they feel when deep in a deal process.
Even while grinding in the business, they can’t help but keep an eye on BizBuySell. The second deal is out there, just waiting for them to pounce on it.
Business Owner Goals:
You strive to lift out of the business as soon as possible. You build systems fast and hire aggressively to get out of the day-to-day. You’re willing to take more operational risk, break more glass, and rock the boat in pursuit of this near-term goal.
The first year may require 60-hour weeks and churning through several employees, but you want to be back on the deal hunt in year two or three.
You want your next deal to be bigger, ideally with management in place on day one. You have no interest in settling down quite yet — you’re happy to live on the plane, visiting businesses or investors.
You want to create equity value — for yourself, for your investors, for your management teams.
Downsides:
This is a highly competitive path, not for the faint of heart. It requires sharp elbows and self-confidence. It may require grinding in ways that impact your relationships outside of work.
Small businesses aren’t designed to have the original owner depart, and then to have the new owner lift out in quick succession. Successfully doing this will require extreme dedication, tenacity, and a healthy dose of hubris — and even then, it’s not a guaranteed outcome.
If you don’t succeed in lifting out of deal one, you may find yourself stuck running a small business that you never intended to run beyond the first 12-18 months. For a Future Independent Sponsor, the ensuing 2-3 years could be a deeply unhappy time. You may feel trapped by your business more than energized.
Operator At Heart
Ideal Eventual Role: CEO
Description:
The Operator At Heart is in the weeds of their business. They love building the infrastructure of their company — they feel deep satisfaction watching a new system take hold.
The Operator At Heart takes the time to understand the client base and the employee base. They understand the intricate relationships coursing through their org chart — the unwritten power dynamics, the hidden interdependencies, the buried land mines.
They record a Loom video each time they find themselves explaining something more than once. They have experimented with many different SOP database providers and project management tools.
Business Owner Goals:
You want to build an enduring small business, one that is capable of riding through macroeconomic cycles or localized demand shocks.
You feel intrinsic satisfaction in watching your business operate in a smooth, predictable fashion.
You want to drive growth & margins higher, but more as an intellectual challenge than because you want to make more money. You want to stack 1% improvements everyday for a long, long time.
Downsides:
You may eventually feel limited in your scope as CEO of a small business. You may find the desire to tackle larger, more complex organizations. Your business may not actually be the right place for you over time.
You may experience burnout — it’s hard to calibrate how hard to push when you’re this kind of business owner. As a business owner, the list of potential initiatives is never-ending — there’s always a hundred more little tweaks to be made. If you’re a perfectionist, watch out.
You may get in the way of business growth & maturation. You will need to delegate control and lift out of the weeds — if that proves hard to do, you may find yourself at odds with the goal of owning a well-operated business. A strong business should not be owner-dependent, even if that owner is an Operator At Heart.
The Tortoise & The Hare
Ideal Eventual Role: Retired; in the meantime, whatever it takes to get to the goal.
Description:
The Tortoise & The Hare are two sides of the same coin. Both are focused on building to a clear financial outcome — $20 million net worth, $2 million EBITDA, $10 million revenue — whatever it is, there’s a finish line they’re racing towards.
The Tortoise is the marathon grinder — they will J-curve EBITDA the hardest as they build a platform around them.
They will move through a variety of roles within the business as needed. In Year One, the company may need a Head of Sales, so they fill that role. By the end of Year One, they will find a good hire to take the spot — new overhead cost, but one that will eventually be overcome as the business scales. In Year Two, they may become Head of Account Management, before replacing themselves with a new hire there as well.
Rinse & repeat for 10 years, and next thing they know, they own a $2 million EBITDA business. They are methodical & intentional in building to that goal.
In contrast, the Hare will do whatever it takes to get there as fast as possible. They will throw money at marketing experiments to see what sticks. They will take risks the Tortoise might not.
They will push the team to their capacity maxes in pursuit of growth. They will only backfill with new support when it becomes impossible to grow without the new hires.
They view the deal as a 3-5-year race. During that race, there’s no role they won’t do, no effort they won’t expend, toward the end goal.
Business Owner Goals:
You are pursuing some form of financial or time independence, which you believe you will achieve at a certain number. This may be a net worth goal or a business size goal — it doesn’t actually matter if you’re rich on paper or actually liquid; the financial metrics are just the scorecard for success and peace of mind.
The Tortoise likely wants to build a “good” business — which takes longer. You’re more okay with being rich on paper rather than actually selling the business and getting liquidity.
The Hare wants to build a big business, as fast as possible, and then exit. You have limited interest in the headache of small business ownership once you’ve passed their financial goals. You want to see the money in the bank account, and then take stock of what to do next with your life.
Downsides:
For both The Tortoise & The Hare, your goals are relatively self-serving. They may not be as inspiring to the rest of your team unless you can align incentives properly.
The outcome-oriented focus may cause strife with your family, friends, clients, or employees. You may have to churn through more staff than other business owners as you find people aligned to your fairly singular company vision.
For The Tortoise, your path is a SLOW way to achieve your goals. This can be demotivating or daunting along the way. Success (as defined by The Tortoise) requires a dogged grittiness & belief that the process will eventually work. Otherwise you may give up too soon.
For The Hare, you may find yourself burning the candle on every end. Every setback feels higher stakes, and every victory is a fireworks show. You’re attempting to sustain a sprint for 3 to 5 years — that is flat-out difficult. You will be in the office at 11pm, wondering if this path is really worth the target outcome, even if you do manage to achieve it.
The Adrenaline Junkie
Ideal Eventual Goal: CEO with a growing executive team in place
Description:
This is the only Business Owner Profile that matches one of the Searcher Profiles. The Adrenaline Junkies just need to find out what’s on the other side of the mountain.
They find growth intrinsically exciting & fulfilling. When they hit $5 million in revenue, they want to find out what it’s like to run a $10 million revenue business.
They love to hire A-players with a similar growth mindset to them.
Business Owner Goals:
You love finding out what you’re capable of — you want to be in peer groups with similarly-driven folks. If you’re the most successful person in the room, you want to be in a different room.
You want to push your business to new heights. You’re willing to push your team accordingly. They can get on board or you’ll find a replacement. Your company vision is straightforward & clear — “More. Better. Faster.”
You’re perfectly fine having a group of personal friends that know nothing about your work life. You can go watch a game with them and the business isn’t discussed once. But when you’re back in the office, you want to lock back in.
Downsides:
You may hit a “Now What?” moment. Growth is fun, but it doesn’t force you to examine your own life outside of work. Your work life & personal life are far more distinct than most of the other Business Owner profiles, so finding alignment between the two may prove challenging.
It may also be tough to find a team that can match or keep up with your company vision — you are more likely to hit resistance. You will have to spend more time on recruiting than your peers.
Conclusion
I hope these Business Owner Profiles can serve as a jumping off point for you to define your own goals as a business owner. I view that as a prerequisite to defining your company vision and then hiring internal leaders with personal visions that match.
Again, these are just caricatures — the good stuff is in the nuance. For me, the process of writing out a personal vision, mission & values has been highly instructive in defining an internally-consistent company vision.
As always, please feel free to reply with any thoughts, feedback, or questions! If you enjoy my writing, please consider subscribing to Guesswork Unveiled, the paid, operator-focused section of my newsletter.
Also! There’s a bonus Searcher Profile from reader Dyanna below — thanks for sending it in!
Thanks,
Guesswork Investing
Burnt Out Startup Entrepreneur
Prior Job: Startup Entrepreneur
Question on Day One of Learning About ETA: Why didn't I learn about this sooner?
Age: 30-40
Description: The startup entrepreneur has always bucked traditional employment and been willing to take swings and bet on herself. She's started one or more businesses with mixed results - perhaps one winner, one drifter and a lot of losers.
The glitz and glamour of startup entrepreneurship has faded. Raising venture capital is a grind, and she'd rather gouge out her eyeballs than take one more call with another Finance Bro. She's burnt out from the 0 to 1 and the ever-elusive “product-market fit” search.
She considers getting a "regular" job, but a little part of her soul dies every time she takes an informational interview with a prospective employer. Plus, how employable is she after so many years as an entrepreneur?
She learns about ETA from her old business school friends and immediately realizes this may be the answer. She can't help but begin to dabble in a self-funded search. She's already seen several CIMs, met with brokers and spoken with sellers. She sees a landmine of SMBs but isn't scared off by a hairy situation. This probably gives her an edge over the heady recent MBA grads.
She has been fortunate enough to find a life partner who is more stable and can provide the family with life insurance. And while they've set up their lives to allow her to be an entrepreneur, they have a kid now. Between that sobering reality and the fact that she's quite comfortable raising capital, she starts reaching out to traditional search funds and accelerators.
Burning Question: Which path is right for me? Do I go it alone or take on capital partners?