Off-Balance Sheet Benefits of Search

June 19, 2023 | Issue #86

Big Deal Small Business: Off-Balance Sheet Benefits of Search

June 19, 2023 | Issue #86

If you are a new reader / new searcher, I recommend starting with the New Searcher Reader Guide.

Quick request for experiences: If you or someone you know has gone through an SBA 7(A) loan restructuring / workout process, I’d love to chat with them (no private info would be shared of course).

If I can hear about enough experiences, I can write a newsletter post helping explain the range of potential outcomes & options for searchers — the PG on the debt is clearly a huge deterrent (as it should be), but it’d be great to demystify how it works in practice.

Okay, let’s dive in — this post is a longer one and winds around a bit. Chalk it up to a morning flight + lack of a paid copy editor.

---

Despite the financially-oriented title of this post — this one is decidedly not about finance or balance sheets at all.

I’ve had several conversations over the last few months with prospective or early searchers about why I left private equity to acquire a small business.

As I’ve now been running a small business for over a year, I’ve noticed I have new answers to that question.

The original decision was both professionally & personally-driven. Nothing super groundbreaking here. On the professional side, I had a deep interest in being more hands-on/entrepreneurial and understanding how businesses actually work.

On the personal side, it seemed like the clearest path to achieving financial independence while also winning time freedom.

All those motivations continue to hold true, but I’ve noticed a range of other benefits over the past year that are worth highlighting, primarily because 1) they are real benefits, and 2) I didn’t know about them before I started running a business.

So to the extent you’re considering search or actively searching, these may be hooks to pull you down this somewhat ridiculous life path.

---

Tangible Work & Physical Environment

This may be specific to running a local service contractor that works on trees & landscapes, but I notice my physical environment more than ever.

Just driving around the city, I’m often distracted by a weird-looking tree. When I’m on walks with friends, I can’t help but stop and take pictures of plants I can’t identify.

I notice other companies’ crews, taking note of their trucks (what model, what configuration, how clean are they, how does the branding look), their uniforms, their PPE (safety gear), etc.

When I worked in finance, I was way more plugged into economic & political news. It was part of my job to have a finger on the pulse of different types of markets, particularly credit markets.

While I did enjoy that type of knowledge flow, it was so removed from tangible “life”. I experienced it through my laptop, access to a Bloomberg terminal, subscriptions to WSJ/NYT, and my email inbox. It didn’t matter if I lived in NYC or Seattle.

Staying in touch with the info flow in a local service contractor business requires (your) boots on the ground — it requires walking client properties, moving trucks around, and more. It matters what city you’re in.

Yes, it’s still a ton of time on your phone & computer. But in finance, close to 100% of my problems were solvable using a phone & computer (and money).

That percentage has dropped dramatically in running a service contractor, both because there is less money to throw around, and because the work is more tangible. (Clearly, this percentage will go up again as the business scales and I add management layers.)

Note, this may or may not track as a benefit for you personally — plenty of searchers are looking for more remote-friendly / GM-in-place type businesses.

But for those of you looking for smaller, contractor-style businesses, I want to highlight that I’m deeply enjoying the feeling of getting out of the office and into the car to solve problems. It’s intrinsically fun to learn the skills/knowledge of our trade (even if I’ll never be as adept as our crewmembers) by being observant, asking questions to our team, and getting involved in the trade community.

Simply put, it gratifying to work on the physical appearance of my city. I love driving around town and noticing clients’ homes & buildings we have worked on.

It’s a small thing that 99% of the community doesn’t notice in a vacuum, but we get to directly contribute to the overall look & feel of where we live.

Community Bonds

A function of working in a hyper-local company is that much of your business ecosystem (clients, vendors, employees, competitors, regulators, etc.) live in the same city or region as you.

Building your network & business community requires deepening your connection to the broader local community.

A few random examples:

• We had a client who had their general contractor examining a section of the home while our guys were working on the landscape. Turns out we have coincidentally done work at the GC’s personal home before — great guy, and now we have a good residential GC contact for any repairs in the future.

• We sub out certain types of jobs — the subcontractor we primarily use also bought his business from its founder (had never heard of search/ETA world). So we were able to connect on that front as well as on the basic work front.

• We have now worked for many clients who have connections to my high school (of course, I lightly marketed the business in our high school alumni newsletter), which is such a fun way to reconnect with that specific community.

Operating a local contractor makes you a part of the community in such an unusual way. We may work for the daughter’s newly-purchased home because we have worked for her parents’ at their home for years. We may work at a pastor’s home because we have worked at the church property before. We may work at a property manager’s home because we’ve worked at one of his managed buildings.

I’m really enjoying finding my place in that community spider web of people & places & connections. When I meet new people in our city, I have something to bring to the conversation that inherently helps deepen community bonds.

Employee Advancement

This is hopefully more self-evident, but there is a very unique sense of gratification / excitement I feel when I see employees materially improve at their trade or take on more responsibility.

Delegating work to someone, seeing them take to it and perform well, and then being able to give them a raise as a result — that’s good stuff.

It’s one of those rare moments where everything feels like it’s working in tandem. The team gets better & gets paid more. The clients receive better service. The business gets stronger & more efficient. The business owner reduces their importance in the business.

Comfort with Vulnerability

The operating phase of ETA (entrepreneurship through acquisition) is obviously not easy. That’s hopefully clear to you even if you’re still in the search phase.

But it may be less clear to you is how you manage the difficulty of the operating phase.

There’s plenty of support networks out there. Different strategies work for different people — peer groups, mentors, advisory boards, therapists, and more.

But a core underpinning is that you have to enter those support networks with deep vulnerability & emotional fluency. Without that, your support network can’t really support you.

Running a small business will make you require support. I can’t think of any friends who didn’t struggle in the first 18-24 months.

This can be uncomfortable for folks who are accustomed to being reasonably competent in their professional life (yes, I’m projecting here a bit).

You’re suddenly in a role that you’ve never been directly trained for, you have no direct experience in, and you have a personally guaranteed bank loan. You have to ask for help. Not asking for help is a form of failure in this setting.

Practicing how to be vulnerable and sharing those difficulties with your support network is a valuable life skill that extends well beyond your professional interests.

It fundamentally increases your resilience to difficulty & stress. While painful at times, these are inherently good lessons for you in the longer arc of your life.

---

Conclusion

Thanks for reading if you made it to the end.

To be clear — if you’re searching, you should have a clear answer for why you (you, specifically) want to own & operate a small business.

I’ve just found it interesting to notice all these other reasons for why operating a small business is fun & fulfilling, so I thought I’d share them.

By the way, this newsletter just crossed 5K readers — so cool, and thank you for following along / letting me spam your inbox with random thoughts!

For thoughts or feedback, just hit reply to this email or post/DM me on Twitter. 

Thanks, 

Guesswork Investing

P.S. I run a local building maintenance contractor in Seattle, WA that focuses on single family residential & commercial properties. To the extent you know folks in the RE industry in Seattle (both homeowners & property managers), I’d always appreciate intros.