Some background about me is I graduated from a higher tier west coast school in 2019. Since then I’ve worked for 2 years in a retail asset management role, which I realize isn’t an extensive time period. During that time I immediately knew I did not enjoy all the red tape/reporting and more enjoyed the aspect of managing my 10+ separate teams of property managers,leasing agents,lawyers and brokers that I kept in contact with when I was given the chance. While the opportunity was helpful in developing my ability to evaluating small business financials and honing my modeling skills I realize I have no interest in real estate so my time is being spent unproductively.
Fast forward to today, I’ve been going a little stir crazy. I have my own online business that I started in March of this year(nothing big, less than $5,000 profit, slow growth) and it’s the happiest I’ve been since I’ve graduated school. I’ve started to read about other possible entrepreneur opportunities in a book called “HBR Guide to Buying a Small Business” and I’m obsessed. The ability to buy a company for 3-5x EBITDA and then flip the company in 2-5 years for a return on an increase in sales in varied industries sounds like a perfect career path in comparison to underwriting properties I can’t seem to care about.
I am lucky to have substantial backing from my family of loosely $1mil if I need it and don’t worry this isn’t a really drawn out Donald Trump troll. My question is, am I too inexperienced? While I have read most entrepreneurs are relatively inexperienced, they are mostly talking about people with 5 years experience or an MBA. That being said my job currently probably won’t give me any other opportunities to grow in the direction I want. Would love to hear from experienced people on WSO why or why not you did not make the jump to entrepreneurship.
Sorry for bad formatting or spelling mistakes. Currently typing on mobile.
Why not go into PE to learn the ropes more until you can feel 100% confident you can identify a worthy candidate. That’s what I would do if I wanted to get into the business of buying businesses. Just my .02.
I considered that as a bridge but I do not have a traditional business degree and I have worked in real estate. Are firms willing to hire someone of my background? From what I read that isn’t an option but let me know cause I’m ignorant to possibilities.
Honesty I don’t know. I’m active duty studying at PSU lol. But! I do know that’s what PE specializes in, maybe hitting up some guys on here that’s In PE would be a good starting point?
you will never ever be 100% confident. just go and do it and you will learn more in 1 week than 1 year in PE.
the majority of people that do this start out as inexperienced. gaining experience plugging data in to excel and taking theoretical management classes won't help you much. I have whole bookmarked list of people I've read about over the years who started from nothing, hardly any had an MBA or PE exp. go for it - only one way to get experience - but be prepared to be doubted and tested.
This!
Thanks for adding perspective. My experience is an obstacle but I am getting more confident with the idea I can get past it.
If you feel a true calling (like you won’t be happy doing anything else) go for it, but know it’s going to be very tough and things will take longer than you expect. At the end of the day, the best (only?) teacher of entrepreneurship is experience and the earlier you get it the better. Had a somewhat similar background and made similar choices in my 20’s, PM if you want more details
PM'd
Is following the independent sponsor or search fund route not something you'd consider?
You can still pursue an acquisition while also hedging your risk without the complications of potentially losing money from your family.
Honestly, I haven't but I am currently researching that path as it would give me more validity if I could get a few investors.
I don’t have any insight to add but good luck with whatever you decide to do! Sounds exiting bro
Appreciate it
Go for it. Lots of online resources out there now. Use the SBA loan, and network with people that have successfully acquired businesses. Definitely more exciting than a regular job.
Start early and you can build meaningful wealth / independence by your 30s.
yes. hire some unpaid interns to help with sourcing, scrubbing databases like atozdatabases. these interns can also help with outreach. also yes use the sba loan. look up stanford resources surrounding search funds.
I won't tell you to do it or not to do it. But it'll always be risky to leave a comfy job and run a business. There also isn't a right time for these things. The founders of my old firm were late 20's/early 30's when they left to form their own brokerage, I guess a brokerage is different than what you're trying to do but just to give an example that it can be done and with success. Perhaps m_1 can give more color to what you want to do, I know he's involved in PE, and buying/running online businesses also started really young.
I have experience in the financial management of large projects. For me, analyzing the financial operations of a business isn’t really all that difficult. I can build financial models and analyze costs and profitability very well.
There are a couple areas that I know I am lacking:
- Developing a sales pipeline
- The actual selection to buy a new business
I think your selection of a business is one of the most important steps. You should probably research greatly and perform thorough due diligence before pulling the trigger. You also need to worry about quality control for your product and keeping your customer satisfaction high and employees happy. These things are much easier said than done. I think you should make deliberate steps to develop company culture and morale as this will be the foundation of a healthy company.
You also might consider having an advisor to check your math on the purchase of the business, possibly someone in PE who is a serial entrepreneur. It would be nice to get feedback before you dive in head first.
For talking sake, if someone approached you to analyse a business/project ad-hoc, how much would you charge them?
I’d outline an estimate of how many hours to do each task and charge an hourly rate. I’d invoice based on hours worked.
Get on Searchfunder...a lot of good content and discussion there. Feel free to message me. I have had similar thoughts (leaving my job to buy a business).
Thanks for the tip. Just joined SearchFunder
dudes. we should pull our resources together and strike out on our own.
especially with someone that knows the difference between pull and pool.
Hi LGS:
Im very proud of you. You are doing great just find a mentor and maybe get a 2 year degree or certification on being an entrepreneur. This business can be a side hustle until you can live of it. Cedric
did you quit then, motherfucker?
p.s. sorry for calling you a mf'er
Lol, yes I did. I am currently traveling by car up the California coast to clear my head and then I'm going to transition into pulling a business plan together and interviewing serial entrepreneurs to see their views on what industries are good for beginners. Since I posted all my questions here for the last 2 years I'll try and give status updates every once in a while.
Hello,
I'll give you some context as someone who has built a multimillion dollar company from scratch (no financial backing from anyone but myself & wife - we did it together). We bootstrapped the company from our savings in 20s with a self made low 7-figure net worth at the time and have grown annual revenue to 8-figures and healthy margins from scratch in under 5 years. I was a graduate from top 3 B-School (HSW) and to me I felt it was relatively easy to apply a lot of the teachings to run the company complemented by other experiences I had. I had experience running business units with 100 person teams in tech and my wife had experience running sales offices. I had been investing and managing finances/real estate developments/valuing companies so was very comfortable thinking in terms of what PE firms/strategic partners are eyeing (in case we want to exit the company). That being said - how comfortable are you in all of your skills? You need strong valuation and due diligence skills to even purchase at a fair price. You need skills to manage the teams in place, understand the culture (people often quit in acquisitions if you don't manage the situation - small companies that lose critical people also lose a TON of value immediately, value is often in the people). How smart are you at identifying strategies for improvements? How strong is your network to make exits? I have over 100+ people I could call (from my days at B-School) that work PE I could auction off the company too, or we have strategic partners that may be interested (and likely pay more than the PE shops).
I would recommend snagging Josh Lerner's book "Venture Capital, Private Equity, and the Financing of Entrepreneurship". They cover the entire investment cycle and what you'll need to understand on the fundamentals for 1) Deal Sourcing and Evaluation, 2) Valuation/Capital Structure, 3) Deal Structuring, 4) Operations (to an extent, need to figure out where you get your gains from) and 5) Exits. I'd heavily focus on the first 7 chapters. The follow-on chapters are more advanced topics for PE professionals and likely less applicable to you. Exits is a very important topic because you often need to have a market to sale too and it's cycle (although not so much recently). There is a lot of dry powder chasing every deal now so expect to pay a lot and then you need a specialized skillset to add value to be able to sell it for more later and hope the valuations will be on par or higher in terms of exit multiples (which is heavily driven by interest rates)...
Now, sometimes you can get cheaper acquisitions of small mom-pop shops but then you need to understand your strategy. How are you strategy skills? I have lots of training in Strategy (in school and running strategy in divisions and for my company) - think what McKinsey/Bain/BCG does. Then as mentioned earlier, you need the financial skills (typically the IB skillset) to ensure you sell and buy at reasonable valuations - not to mention negotiation skills. Then how are your operational skills (PE firms normally get operators post acquisition to make the improvements and they are specialists). Usually you evaluate firms, develop a strategy, line up an execution plan (with financial resources to support it) and are familiar with the J curve so you can stomach potential losses as you go through the "Valley of Despair" and restructure the company for success (but short term you're in the red). Maybe they're small enough that you only need to add a sales team to get growth and then it's a simpler deal but if you can't think through all of these items and have positive paths you may just be turning $1M into less than $1M and I'd advise waiting. And if you think of Caesars Entertainment failure, even with the skills you can lose...
I think some B-School's are less valuable than others as some said (I've taken classes at 4 of them across 3 degrees) and just did some for fun at the final school. So don't think B-School will automatically give you the skills to pull it off but some can definitely help if you're at the point in your life you're ready to take the torch and grow.
Another thing, if you're buying a company and trying to grow it that is a very time consuming thing - make sure you're up for it. My wife and I work around the clock on this company. There are no vacations (even on vacations). It can be very financial rewarding if you know what you're doing but I know many people who didn't and just lit theirs or their investor money on fire (for investors it will cause very strained relationships among them). So take an honest look at yourself and assess your capabilities. If it's something you want to do (it's very fun), then work to build the skills you're missing, build the hustle up and jump after it's stabilized enough to justify leaving your day job. When we started this, we both worked high paying corporate jobs then one of us quit and then the other a little after.
And a key is to truly watch your fixed costs - that's what probably burns the most people. If your company takes losses and you're stuck with tons of fixed costs it bleeds you down on your money. So understand the basics of Gross Margin/Operating Margin/Net Margin and just the DuPont Formula in general. If you can keep Operating cost very low it helps you grow when you have solid Gross Margins. Not all businesses are able to operate that way though and then they are stuck with higher OpEx and have the bleed out problem described above.
Don't underestimate all of this. I have to figure out what motivate people, design incentives to keep them happy, develop short and long term strategy, iron out operations (processes/institutionalize) to get efficiency, understand working capital requirements, etc. It takes a lot of skills to do this correctly and can be stressful to learn. So I wouldn't just quit your job if you don't think you're able to do all of this decent enough or have people to help where you are weak. One of the best things I was told at B-School by a great CEO that taught us was "You have to be smart enough to know your strengths and humble enough to know your weaknesses. Then build your team to complement you where you are weak." I don't have all the skills but my wife has many complements for skills I'm not great at and I have access to other resources time to time to assist where we are both weak. This is key, we wouldn't have been successful without our core team.
Also, be prepared to live super cheap for years if you want maximum growth. You can ultimately think of your salary as operational expenses that you can cut to 0 to help the company survive or grow. Most of my successful friends who built companies have had to live off near $0 to make payroll at one time or another so the employees keep coming in (they stop showing up if not paid). Or take minimal compensation to help drive the growth initiatives. Mentally prepare for this and have financial contingencies - i.e. if you blow through the $1M do you have reserves? There were times we were 2-3 weeks from being out of money what will you do? I had friends who would give me credit lines using properties I own as collateral (never had to use it) - but it was an option. Ironically, it was just because of the cash conversion cycle - if you're dealing with B2B transactions you may not get paid for months. So on paper we needed nothing but from a cash flow perspective we were down to weeks. Luckily, our clients paid us and then we were fine again but you need to figure out and plan how to manage the company through this.
So if you feel comfortable with all of this, maybe it's worth considering taking the plunge. If you honestly, don't feel prepared for all of this work on developing those skills and building financial reserves to take the plunge build up the skills and consider taking it later! It's been very rewarding for us but has it's cons (especially to your lifestyle for a number of years) despite your *paper* net worth potentially being quite high. Hopefully, my experience and insights help you make a honest assessment if it's right for you to go now versus wait.
Great summary
Thanks for this great write-up! I think you really touched on most of my concerns and why I've been reluctant to make this jump. While my valuation skills are high, they're for real estate which is obviously not 1 to 1 but probably transferable with some work. My operating skills could be increased by working in the industry I am looking to buy into. I am taking it slow as to not make mistakes so if I identified a place I would like to buy I would spend a couple of months working there first and hope that might close the experience gap. That being said I need to take some time to think this over but I never had that time while working so for now I'm going to continue to interview serial entrepreneurs and underwrite as many deals on paper as possible to get some practice.
Based on this information, I highly recommend waiting for the moment to do it full time. I would recommend building on the side so you can look in the mirror and have the skillsets built in the next 3-5 years AND have a small company that is growing and able to take off with capital injections. Last thing you want to do is burn yourself and ruin your chances later when you are ready (lack of investors/trust etc.). Although, success or failure you'll still learn a lot. You just don't want to spend $1M for an education you may have had better access to for cheaper.
Yes, they won't be directly 1:1 for real estate. Especially since real estate tends to be more physical asset heavy rather than human capital heavy. It makes a huge difference because once you own the building it can't quit on you (unless the balloon payment causes you problems later during the refinance)! You could also think about syndicating a business with operating partners and learn off/with them if they have the operating skills (but that's harder to vet if you don't know what to look for).
From my experience most serial entrepreneurs are hustlers and often most are missing many of the key items I highlighted in the previous comment. However, keep in mind you need different skills for different parts of the growth cycle. This is why you often see the VC firms eventually oust the founder/CEO in place of someone with the skillsets for the next sets of growth (partially true - they get diluted from growth investors who will replace founders if required to meet their IRR targets). So just be mindful that their experience may cover different aspects from their part of the cycle they were experienced with. PE firms on the other side are purchasing more established firms with more dependable cash flows and thus financial engineering matters a lot more than the startup technology/strategy. So figure out what you are trying to do to ensure you can filter feedback from whomever you interview (comes from the strategy skills mentioned earlier). Keep practicing on paper but try to find real areas to analyze as well so you can directly see the implications of your decisions. And to help you make feel better I started doing all of my paper analysis in real estate (then did RE on my own and learned about the initial levers there) --> then started building business side skills (you can learn the rest if you're willing to put in the work). Doing the prep work will just help manage your risk and hopefully enlarge your returns when you get there.
Hope this helps.
you cant leave us on tenterhooks about what your business does etc
Isn't the average age of a successful entrepreneur something around 40? (Edit: according to Wharton, it's actually 45). So, yeah, unless you're a savant, you're probably too inexperienced. That said, crush it! Maybe don't start with a $1 million purchase. Only invest the amount your investors (parents) are willing to lose without losing sleep. I've f*cked over a few investors and they will probably hate me forever.
how did you fuck over your partners? do you intend to pay them back once you are able to? why don't you come out of pocket to make them whole?
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