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Acquiring Minds
From Search Misery to Successful CEO
00:48:04
Steve Divitkos shares tips from his acquisition, from the solitude of search to the delicate balance of being a new CEO.
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- [00:11]
A
Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs, and on this podcast I talk to the people who do it. Steve devitkos raised a traditional search fund, acquired a software business, ran it for six and a half years and sold it. So his is a full Lifecycle search fund story. We discussed that in this interview, but we also go deep into an article Steve published on his blog about how to handle that first month on the job as the new leader of a company you just acquired. This is a theme that comes up over and over in my interviews and there is a lot of wisdom and actionable advice Steve has to share here. That transition period is so delicate and so overwhelming for you as the acquirer of a business that you just can't learn enough about how to do it. So enjoy the opportunity to learn in this episode from Steve DeVitkos. Steve DeVitkos, thanks for joining me today on Acquiring Minds.
- [01:14]
B
Thanks for having me, Will. It's great to be here.
- [01:16]
A
You, as part of a traditional search fund, acquired a company called Microdea in in 2014, a software company in document management and process automation. You're going to tell us more about what Microdea does and did. And you sold the company in October 2020, so about a year ago. So you really have seen the full lifecycle of a traditional search fund, from raising money from investors to the search itself to the acquisition, to running, growing and then selling that business full life cycle. Very cool. And congratulations on what I assume was a good exit for and your investors. We're going to hear that story today and we are also going to dive into a blog post that you recently published about the first month as CEO of a newly acquired company. It was a great article. I will link to it in the show notes. And it's actually you posted it on Search Funder, I think, which is how you got on my radar and I just was really impressed with it and I think it'll be really valuable and not only to people who are doing traditional search funds, but really anybody out there who might acquire a business, small or large. So before we do your story, before we jump into your blog post, why don't you give us two minutes on you and your quick bio and really what led to the decision to pursue doing a search fund?
- [02:41]
B
Yeah, look, I think like some folks in the ecosystem, my background before going to business school and certainly well before raising a search fund was as a private equity investor working for a much larger private equity firm. I did that for about two years. And while I very much enjoyed the job, it's funny, I still actually remember the very. Not just the very day, but the very moment when I realized that working full time in private equity was not going to be my calling. It was a late night at the office and I was sitting with a fellow analyst. And I could see just by looking to the left of me that he was so deeply engaged in what he was doing. He was the kind of guy where he would go home and read annual reports at night, he would devour the financial news, et cetera. And for better or for worse, I just knew in my heart of hearts that was not me. And so when I looked at him, I said, look, we might be at the same point in our respective careers right now, but 10 years from now, you're going to be running circles around me because you have genuinely found your calling. You have found what you were put on this earth to do. And congratulations to him. But I knew that that wasn't for me. I kind of fell into it coming out of undergrad, I'm embarrassed to admit. What do you optimize around? Prestige, title, salary, all that kind of stuff. And as you get older, you realize that that stuff matters less and less. And so I went to business school after working in private equity for two years, as much to get two years to think as anything else. And of course, going into business school, I had no clue what a search fund was. I'd never heard of it until doing a case study on it during my first year there. And the more I came to learn about it, and after of study on the topic, I came to view search funds as a really interesting kind of bridge, if you will. It was a bridge between where I had been as an investor and where I wanted to be as an operator and as an entrepreneur. So said another way, instead of becoming a founder and creating a business from scratch, I could buy my way into entrepreneurship utilizing the skills I already developed as an investor. And. And I also kind of came to realize that the risk return profile of buying and operating an existing profitable company was very different from the risk return profile of creating a business from scratch. And knowing my personality in the way that I do, I knew that the former risk return profile would be a better fit than the latter. And so this was a really kind of an elegant way for me to create the entrepreneurial career that I wanted in a way that was pretty aligned with my values and just my general way of thinking about the world.
- [05:26]
A
And so you had Would you say that you were somebody with entrepreneurial inclinations even before you knew what a search fund was, or did that give you that sort of ignite this entrepreneurial energy in yourself?
- [05:40]
B
I mean, I would say yes and no. I think one of the best pieces of advice that I got from a mentor of mine is that it revolves around this concept of are entrepreneurs born risk takers? Because in my heart of hearts, I knew I wanted to kind of work for myself and do something on my own. But there was a bit of cognitive dissonance that I had always had. And it rested on this fallacy that entrepreneurs are like total cowboys and they are natural born risk takers. And I knew I wasn't that. And so in my head I was kind of thinking, well, am I an entrepreneur or am I not? Because that's just no one who knows me would describe me as a risk taker. And so I kind of brought this kind of challenge or question to one of my mentors and he said the following. He said, the biggest myth about entrepreneurs is that they're born risk takers. That's wrong. Entrepreneurs are risk mitigators. And boy, for some reason, that just really struck a chord with me. And so, look, if you want to get outsized returns, you have to take outsized risk. But in my view, a search fund was a highly mitigated form of risk. On one hand, the first stage of searching is up to two years to search for a business to acquire in rates. Raising a traditional search fund, I was able to cover all of my search costs, earn a reasonable salary, and my lifestyle really didn't change at all. I wasn't sacrificing that much. And if I didn't find a company to buy, then I knew I had only spent two years. In the grand scheme of my career, two years is a rounding error. So that felt like mitigated risk to me. In the second part, the acquisition operation part, I would then be earning a market CEO salary. I would be earning equity in accordance with the traditional search fund model, and I would be running a business that had a demonstrated history of profitability and success without me. And so for me, while going out on your own and buying a business to the outside observer looks incredibly risky, I would agree that there are aspects of risk to it. But I would say each component of the risk has really material mitigants. And as an entrepreneur and thus a risk mitigator, it all really clicked for me.
- [07:55]
A
That's very well put and very interesting. Steve, just to circle back on your point about this myth of the entrepreneur being the risk taking cowboy. I was just listening to a podcast yesterday and there was a mention of, there was a discussion of Richard Branson, a Virgin, who is kind of the, at least his brand is, as the quintessential swaggering, risk taking, moonshot entrepreneur. But this podcast guest's observation, and he knows Richard Branson personally, was that actually Richard Branson's superpower as an entrepreneur is his risk mitigation, his skill at risk mitigation. So there was some anecdote about when he started Virgin Atlantic and how the first 747 he bought to launch this airline was like he had a deal with the airline that he acquired with the airplane manufacturer that he acquired the plane from. If this doesn't work out, I don't have to pay for the plane. I'm probably getting that wrong. But there was some major, like, if it doesn't work out, no skin off his nose sort of thing. It's just so counter to how we all see Richard Branson and many of them. So it's a very insightful point about.
- [09:12]
B
Entrepreneurship, I would say. For those who are interested in learning more, I spent a lot of time reading about and studying those CEOs who have come before me, certainly in a much higher profile. So two books that come to mind is Good to Great by Jim Collins. He talks about the concept of the level 5 leader and what constitutes good leaders based on empirical data. The Outsiders by Will Thorndike, who talks about eight ultra successful CEOs. When you tie those insights together from those two books, among many, many others, actually most CEOs, founders and entrepreneurs that achieve enduring success are not even close to the risk taking, swashbuckling cowboys that are portrayed in the media. In fact, they're quite the opposite. They're quiet, they're thoughtful, they're humble. And so it's very interesting to find this large dichotomy between how the general person would think about a highly successful CEO and what the empirical data actually suggests kind of constitutes these people.
- [10:18]
A
Yeah, yeah. Well, you know, the image is much sexier. You know, what sells, what sells, gets clicks and sells magazines is the swashbuckler, not the. I mean, I read that Thorndike book recently and you know, these, these people that he profiled, these CEOs were, many of them were just total squares. Like really not sexy personalities, but absolute captains of industry. Yeah, okay, that's really great. So moving on, let's hear about your search. So how long did it take to identify and acquire microdea and anything you want to want to share about that process.
- [10:54]
B
Yeah. Look, I think at the risk of oversimplifying, there's two ways to think about the search process. There are those like me, who think about it as simply a means to an end. I didn't raise a search fund to search for a business, which might sound obvious. I simply use it as a vehicle to get me to where I wanted to be as an entrepreneur and as an operator. And then the other category of people, which I would suggest you have to be pretty thoughtful about whether or not you want to be a search fund entrepreneur if you're doing it for this reason. People who love the search and are doing it because they like doing deals. I would say even in the former category, there are those that enjoy the search and those that don't enjoy the search. One thing that I don't think is talked about enough in our ecosystem is the fact that the search is pretty miserable. I hated it. I hated every minute of searching for a business. I searched for about a year and eight months from the start of the search to the conclusion of the deal. But there's a lot of things that I think people need to be aware of. And this is not to suggest that everyone will dislike the search. I have many colleagues and friends who really like the search for very genuine reasons. But in my case, there are a couple things that I came to learn with experience. Number one, the search is incredibly lonely. Whether you do it as a single searcher or as a partner, it's very, very lonely. Number two, you will face more rejection than you have ever faced in your entire life. Even if you're intellectually or academically prepared for that, the process of actually going through it is quite difficult. The third thing that tends to be difficult for type A overachievers like myself is there's essentially no feedback mechanisms. So in my professional background in academia, I would be used to like many raises, promotions, performance reviews, grades, whatever the case may be, these are just ways of getting feedback. In a search, there's essentially no feedback mechanisms. The only feedback that you get is generally from the first few businesses that you look at, because you don't really know what you're doing, yet your investors tell you, that's terrible business. Don't waste any more time on it. But other than that, I often, I remember describing it to my wife as a feeling of just kind of floating. I didn't feel like I was going up. I didn't feel like I was going down. I just kind of felt Like I was floating around with no real feedback mechanism. And that was hard. That was hard for a type A person like myself. And it was hard to know whether or not you were making progress because deals fall apart all the time for any reason and for no reason. And even if you're not working on a deal, you're putting in the reps and you're doing the blocking and tackling, but you could go a week, a month, sometimes even a quarter, and you would say, well, how much further ahead am I than I was a week, a month, a quarter ago? And again, as someone who unfortunately probably bases too much of their personal satisfaction around the concept of achievement, it's a really tough thing to get used to. So not everyone will have that experience and not everyone has had that experience. But I'm quite unapologetic about the fact that I hated every moment of the search process. And I think it's important for people to understand why it's difficult before they dive into it.
- [14:14]
A
Well, you know, I would add to that, I imagine there's, you're not getting any positive reinforcement as you put which you're, which you're used to, but. And you're getting a lot of negative, you're getting a lot of denials. But you do have this in the back of your mind, this timer that's ticking down because everyone in the traditional search fund world has heard that two years is the average, which is, which is a long time. But if you're coming up on two years and you haven't, you're probably just always feeling like, am I on track to hit this two year number?
- [14:49]
B
That's right. And I would say two other things, especially again, people who pursue this entrepreneurial endeavor tend to be reasonably well educated folks who are ambitious and have interesting experiences. I would say a couple, two other things. Number one, the fear of failure is pretty high. And the fear of failure increases with every month that elapses in the search. Because with every month that elapses, you get closer and closer to that two year time frame. And every month that you don't have a deal is one month closer to failure. And for someone like me, fear of failure was very real. And so that was a feeling that I wasn't really used to. The second thing I would say is that I wrote a blog about this concept of imposter syndrome. Basically the feelings of inadequacy that we all have about ourselves despite external evidence of success. And I'd say a lot of searchers in their heart of hearts feel imposter syndrome. They're young, they're inexperienced, and yet here they are wanting to be a CEO of a company. I would say, look, we all feel that from time to time, but as a searcher, you kind of get it beat into you when you talk to 40 business owners a month and 29 of them, you know, laugh you out of the room saying, who do you think you are? Coming straight out of an MBA program thinking that you can run my business better than I have? You know, I founded this in my basement and I've worked on it for 30 years. Though academically I could, you know, have a retort to that. I think when you hear that 30 times a month and you already have some imposter syndrome yourself, it can, it can weigh on you. And so, you know, these are, these are the kind of things that I purposely go out of my way to talk about at more of a human and emotional level. Because ultimately this endeavor is very emotional and it's very personal. And I think it's important for people to understand the realities of it before they dive in. And I don't say it to scare people and I don't say it to suggest that everyone's going to have that experience. But look, if you're going into something, you might as well go and eyes wide open.
- [16:53]
A
And I just want to add to this, that this two year thing that we're talking about and some of the characteristics of your search are specific to traditional search. But even if you're not a traditional searcher, the rejection that you're likely to get, the being laughed at by the actual founder who's been building this business for 30 years, many of the attributes that you described, that is likely to be part of your experience even if you're not doing a traditional search. So don't think that this only applies to people who've done a traditional search function.
- [17:24]
B
That's right. And if you're a self funded searcher, even though you don't have an externally imposed timeline, presumably you still have some timeline under which you're operating as a self funded searcher. Presumably you're not going to spend the next 10 years without a salary looking. I mean, whether the timeline is self imposed or whether it's imposed by the model itself, chances are you're still operating under a timeline.
- [17:48]
A
Yeah, yeah, that's a good point. Steve, what did your search look like? The mechanics? I spoke to another traditional searcher, Jessica Markowitz, earlier this week. She and her partner searched for 25 months and they over those 25 months worked with 40 interns at varying points. Did you have any staff or interns that helped you on your search?
- [18:12]
B
I did. This is a great example of for anyone who is asking questions of searchers and gathering data points, there is no such thing as a singular correct answer. So funds like the one that you just described that have many, many interns. I think I had five in total over a period of a year and eight months, and I never had more than two working at a time. I found just with respect to my own personal style, two was about as much as I could handle. However, I have many other friends and colleagues who had like 10 interns working for them at the same time. So I think interns are a great idea. However, there is no correct number or structure. It's ultimately whatever fits best with your own personal working style.
- [18:59]
A
Okay, great. Now let's talk about your finding Microdea. What's the quick kind of how did you finally uncover the company that would be the acquisition?
- [19:13]
B
Yeah. So as your listeners may know, broadly speaking, there's two ways to uncover companies, and I'm oversimplifying here, but broadly speaking, intermediated deal flow is the use of intermediaries, middlemen, brokers, investment banks, accounting firms, et cetera, those who have real transactions and present them to a group of buyers. I should say the second kind of tranche or bucket of deal flow generation is proprietary. And all that means is just reaching out directly to business owners. And I did both. There are some funds that are quite stringent on the reasons why they do either one or the other. I never really saw a reason to not do both. I did both, and I think it worked reasonably well. Microdeo was proprietary. The short answer is I did a combination of a phone call and, or an email and or physical snail mail once a month, every month for eight months, until the owner of Microdea finally decided to pick up the phone and call me back and basically say, what the heck do you want? And that's how it started.
- [20:19]
A
And did you do that across many companies or did you have your heart set on Micro DIA and that's why you relentlessly mailed them once a month?
- [20:28]
B
It was a bit of both. So generally speaking, this is a great case study for the use of interns. As a searcher, you have to figure out what are you uniquely good at and what are you uniquely, uniquely qualified at doing. Chances are it's not updating Salesforce, it's not licking envelopes on Friday nights, which is literally something that we did. The things that you are not uniquely good at. But ultimately the things that still need to get done within the context of a search. That's a great use case for interns. But in any case, I had my interns work on my mailing campaigns on my behalf, physical mail and email. And when they got to a point where they were kind of sufficiently interesting, that's when I would jump. So Microdea was one of many that got that level of contact. However, the industry, the business model was of particular interest to me. So I wanted to make sure that this one in particular didn't fall through the cracks.
- [21:27]
A
Okay, and what did you like about Microdea? Tell us a little bit about the company and tell us about why you saw it as such a good opportunity for you. What was the business buyer fit there?
- [21:38]
B
Yeah, so if I could put it into a sound bite, I would say that the business had enough right with it and enough wrong with it. The reason why that was important to me is because I was a first time operator and a first time CEO, as many of your listeners I'm sure will find themselves in a similar position. You have to be introspective enough to know that you're going to make a bunch of mistakes. So you need a business that is has enough right about it such that the mistakes that you're going to make are not going to sink the business. And so with respect to the company that I bought, it had a very large and very diversified customer base, none of whom represented more than 2% of sales, 25 years of operating history, consistently profitable, consistently growing, very, very high customer retention rates. It operated in a software model. So that business model lends itself very well to kind of typical ETA type business, a mature product offering, et cetera. On the enough wrong. So that was enough right with it. It got me comfortable that hey, even in my first year when I make a whole bunch of mistakes, this business is not going to disappear because of my rookie CEO mistakes. On the enough wrong with had no management team. It had no real sense of focus. It said yes to everything. It had never increased its prices. It was serving too many customers across too many disparate industries. It had under invested in systems and tools and people. And these are not negative things. If you randomly select any business, any thoughtful person can probably give you 10 or 15 things quote wrong with it. So maybe wrong is the wrong word. I think these were just opportunities for improvement and I think my predecessors did an excellent job running the business, which is why I bought it off them. So I think for me it was a business that I knew was strong enough that it could survive my rookie mistakes. But there were still enough opportunities for improvement such that I knew I could actually generate some value.
- [23:46]
A
What is document management? Was the name, was the niche and process automation. Tell us what Microdea does.
- [23:54]
B
Yeah, so we made software for trucking companies and we basically manage their back office. So the company did, as you correctly point out, both document management and process automation. So on document management side, think of an extremely sophisticated digital filing cabinet. On the process automation side, we would use software to replace the efforts of people to speed up error prone, slow manual processes that took place in the back office of trucking companies. Things like accounts payable, accounts receivable, paying drivers, getting trip documents back from drivers, things like that.
- [24:36]
A
Great. And it was just in the trucking niche.
- [24:39]
B
No, actually. So this was part of one of the major strategic changes that we made when I bought the business. We actually sold software to five different end markets. Transportation, education, financial services, insurance, and healthcare. One of the biggest changes that we made is in 2015, we fired 20% of our customer base. In fact, I think it was over 20% of our customer base. And we focused the entire company on transportation and logistics only. That's a whole story in and of itself. But the basic thesis underlying that was that the returns to focus would exceed the returns of an attempt to diversify beyond a single vertical. And ultimately, thankfully, you know, the decision, I think, turned out to be the right one and we saw a bunch of the benefits that we thought we might see. So that was a big change that we made in our second year of operation. And fortunately, I think it worked out well.
- [25:39]
A
Despite your sense of imposter syndrome and your intimidation by the prospect of taking on ownership of this company to make such a giant strategic decision. Still relatively early in your tenure there, after only one year, you must have gained some confidence in that first year in yourself to make such a move. But let's hear about that. Let's hear about that first year. Is that how you characterize it in your blog post, lessons from my first month as the CEO of a newly acquired company? Yeah, as I said, I'll link to it in the show notes. People should go read it. But you've basically broken down your lessons from your first month as CEO. But we can kind of bucket it into, I'd say, three buckets. So managing the relationship with the seller, who you're going to be working closely with during the transition, where do you start? You, as the new owner, what do you do? On day one or day 31, and then just the sort of philosophy and attitude that you should bring to the office every day. So let's go through the buckets that way. So talk to me about managing the relationship with the seller.
- [27:00]
B
Yeah, I think for entrepreneurs who are looking to acquire a small or medium sized business, one of the things that is most frequently overlooked unfortunately happens to be one of the most important things. And it has nothing to do with capital structure or strategy or financials. It's very personal, very emotional and it's about managing the relationship with the sellers. And I just don't think enough eta entrepreneurs spend enough time and dedicate enough thoughtfulness to managing that relationship incredibly carefully. The reason why it's important is because in my experience, both first and secondhand, a non functional relationship with a seller, particularly if that seller occupied an active operational role prior to you buying the business from them, a non functional or a toxic relationship has the potential to damage a company much more than employees quitting, suppliers leaving or competitors fear mongering ever could. The damage that you can do to a business because of a fracture in that relationship is tremendous. Not just potential legal or financial ramifications, of which there are some, but also things like dividing the employee base, creating fiefdoms of knowledge, making it unclear to the employees who to go to with important problems or opportunities, creating a fractured culture, things like that. So I think it's incredibly important to manage that relationship very carefully. The other thing I would say is that as a buyer of a business, you're in a pretty weird spot immediately post acquisition, because chances are you've spent up to 12 months, maybe even more, engaging in a very prolonged, very emotional negotiation with the person from whom you've purchased the business. And at the risk of oversimplifying, you're sitting on opposite sides of the table. However, on day one, not only are you on post close, not only are you suddenly now on the same side of the table, but you desperately need their help and they don't need your help at all. And so I always counsel searchers and those who are looking to buy a business. Please remember that as you're negotiating. Because these negotiations can be frustrating and long and complex and highly emotional. But you would be well served to be thoughtful and humble and deferential and respectful, no matter how frustrated you get. Because don't forget, on day one, you're going to need their help way more than they're going to need your help. So that's one thing. The second is I would be thoughtful about how you structure their employment agreement. So in my case, I bought a business that I perceived to have high key man risk with one of the selling shareholders. There were two selling shareholders from whom I bought the business and as a result I structured a two year employment contract with them because I said, hey, there's key man risk. I need at least two years to transfer all of this knowledge, relationships, et cetera. What ended up happening, to my surprise at the time, is that managing that transition was really hard for them and it was really hard for me. For them, it was really, really hard to see someone make changes to their baby, the thing that they have nurtured for 20 years. And I can't blame them. No seller should be blamed for having a really hard time with that. I had a hard time trying to be decisive and trying to make the changes that I wanted to make while still trying to not offend the sellers and keep them constantly. That tension was very much there. And fast forward nine months after the transaction closed, we mutually respectfully and mutually decided to part ways. While the spirit behind a longer term employment contract might have been structured and put in place for genuine reasons, I would just say whether it happens or not is irrelevant. As the searcher and acquirer, I would just, just prepare yourself for that relationship to fray. Though there are exceptions, chances are that relationship is probably not going to go as well as you think it will. And like I said, of course there are exceptions. There are very few absolutes in business. But that's something I think to be really thoughtful about.
- [31:30]
A
And Steve, but as part of a potential way to prevent the fraying is to have a shorter transition period. So rather than two years that you had, which strikes me as quite long, six months. And so maybe you can head off that fraying before it happens.
- [31:48]
B
Yeah, look, in retrospect, if I were to do this all over again, I would probably create a one year employment agreement with a company renewal option. Now, because this is a negotiated transaction, as a buyer, you can't just unilaterally decide what you want. It has to be agreed to by the seller. To the extent that they would have agreed to that. I don't know if they would or would. Would have or wouldn't have. That's probably what I would push for. But I would be thoughtful about going anything longer than a year because look, if the relationship is great, then both you and the seller probably will be mutually interested in extending it. But I would be careful about anything longer than a year.
- [32:28]
A
Yeah. Okay, go ahead.
- [32:33]
B
Next up, I would say Vis a vis the seller. You have to be thoughtful about, on one hand, always being right, and on the other hand, always deferring to the seller. I don't think you can do either. And so in my blog I talk about this concept of the price of peace, which is, just because you've got the acquisition negotiation behind you, it doesn't mean that you're done negotiating with your sellers. There will almost certainly be disagreements over day to day decisions of running the business. There will be disagreements about strategic decisions. And you have to find a way to allow the seller to feel heard and genuinely listened to and to get the feeling that their advice and their counsel is genuinely valuable. But at the same time, if you disagree with them, you have to have the conviction to make a decision that disagrees with them. And it's a very fine line because there are times where I, I vehemently disagreed with my sellers, but I had to make decisions that went against their counsel but do so in such a way that was kind of respectful. And that's a fine line to cross. And so if you think you're objectively correct about something, sometimes it's better to just have peace than it is for you to just tell yourself that you were right about something. Now, that isn't to say that you always defer to them. That's definitely not the right, right disposition. But I think the concept of just being really thoughtful about it is probably what I'm trying to get across here.
- [34:07]
A
Pick your battles.
- [34:08]
B
Pick your battles. Pick your battles and be thoughtful as it relates to the sellers. I think that's probably some of the major lessons that I got from my own experience.
- [34:25]
A
Great. So now let's talk about what you do when, you know, it's day one or month one or even year one. What do you have to say about that?
- [34:37]
B
Yeah, so this was a big one, right? This touches on a couple things. It touches on like, you know, what do you actually do in your first couple weeks and what do you do with respect to the plan that you formulated before actually making the acquisition? So I'll talk about them both in terms of turn. So look, this is business, this is not mathematics. So there's no right answer necessarily. I will speak to my own personal experience and a strategy that worked for me. And that strategy was in my first two weeks, I did absolutely nothing but meet one on one with every single employee in the company. And that lasted for two full weeks, given the size of our employee base. And I spent about an hour with each employee.
- [35:18]
A
How many employees was that that was.
- [35:20]
B
33 at the time. And that was a pretty exhausting process. I think after two weeks I was pretty tired. But I will tell you a couple things. Number one, I learned more about the company in those two weeks than I did in the six months of due diligence that I did prior to acquiring the company. Even if you run the best due diligence process that has ever been run, I strongly suspect you will learn much more about your company in the first month inside of it than in the eight months outside of it that preceded it. Number two, look, when acquisitions happen, people are scared. There's no if, ands or buts about it. And meeting people in a non threatening, more personal environment allowed them to ask me questions that maybe they were uncomfortable asking in front of a group of their peers. It also allowed me an opportunity to introduce myself in such a way that I think was more intimate than me addressing 33 employees on day one.
- [36:19]
A
Did you not do that? Did you not have an all hands where you said, hey, I'm Steve?
- [36:22]
B
No, I absolutely did that. But here's what I learned is when you have an all hands meeting, you'll get a handful of questions. In all likelihood, and at the risk of kind of over generalizing or stereotyping, the meeting ends when we say, are there any more questions? And no one raises their hand. Everyone goes back to their desk. Guess what? But when everyone goes back to their desk, they're frantically googling you. They're frantically talking to each other over email saying, what do you think this means? Even though there aren't that many questions asked the town hall, trust me, everybody has lots of questions. And meeting one on one was a really great way to get those questions.
- [36:59]
A
Out in the open.
- [37:00]
B
And then lastly, what I learned from those first two weeks of one on ones was almost kind of formed a to do list of sorts for me that really governed how I spent my time in the first three to six months. It also allowed me to put some quick wins on the board. So look, everyone who buys a business is probably going to say something to the effect of I'm here to be helpful, I'm here to listen. I'm here to help this company grow. That's all great, but those are just words anyone can say. Words you have to show people with your actions that you're actually here to do those things. And when you learn about problems and opportunities from it, the employees, there are some things that don't require much time, don't require much effort, don't require much money, that you can fix quickly. And what that did for me is created a lot of goodwill without really a commensurate amount of time, energy, or money from me. And those quick wins, I think built a bit of a foundation on which I built going forward.
- [38:00]
A
Can you give me an example or two?
- [38:03]
B
Yeah.
- [38:04]
A
How small are we talking? Is this like buying the stapler for somebody?
- [38:09]
B
Absolutely, absolutely. Look, life is mostly composed of an accumulation of small things. And so anyone who's listening to this, don't discount something that simple. So, for example, on kind of the bigger side, we had one group in particular that every single person in that group was absolutely lamenting to me how much they hated the software tool that they used to run their department. Within that week, I validated that was true. I got a manager to propose a recommendation to me and have it installed within 90 days. Immediately, that entire group said, yes, this guy is actually here to listen. And we've been begging for a new system for three years. We just got it in our first week. That would be on the bigger side. On the smaller side, I'll give you two examples. One team member, she worked at the reception area and she sat by herself. She said, hey, you know what? It's a little bit lonely. Wouldn't it be great if I had a radio to just kind of keep me company throughout the day? The next day I bought her a radio. In the employee kitchen, a light bulb burnt out. I got a ladder from the downstairs of the building and I walked up and I changed that light bulb myself. Now that's not a world changing event, but when I tell people and when I use words and I say, I'm here to be humble, I'm here to serve you. I'm here to put in the effort. I'm here to work hard. Any trained monkey can say that. But to actually do it, to roll up your sleeves and say, hey, this is the CEO who's going to take out the pizza boxes and throw them in the garbage after our employee lunch. That speaks a lot louder than any words ever can. So I would encourage anybody, do not discount the small things, because the small things are everything.
- [39:58]
A
That's great, Steve. Cool. What about your attitude? I mean, I think you're already, you're already kind of touching on it and be action oriented and not just empty words, but humility and that stuff. So what was your kind of posture in those first days?
- [40:18]
B
Yeah, thankfully I got a lot of good advice in this regard, so I can't take credit for any of it. The general advice that I got is the title page I would put on it is diagnose before you prescribe. That is spend a lot of time listening, less time talking. So, big ear, small mouth, be humble. Because guess what? Everybody knows you're inexperienced. Everybody knows you've never worked in this industry before. Everybody knows you may be on the younger end of your career. These are things that I think young CEOs try to hide or try to work around in some way. But guess what? Everybody knows it. So you might as well be honest about what you do know and what you don't know. And I found that so, for example, I bought a software company. I didn't know anything about software when I bought it. Heck, I couldn't even spell software when I bought this software business. And for better or for worse, you know, I was pretty honest about that. And look, this isn't anything profound. You know, people appreciate honesty. Think about the people that you like dealing with. Do you like dealing with honest people or dishonest people? It's pretty simple. People like working with honest, humble people. So I was pretty honest about what I didn't know. And guess what? If I lied about it, people would have seen right through it. So I was quite honest about where I still needed to learn.
- [41:43]
A
Steve, let me jump in with a quick question there. That sounds good. But what about the idea that you also want to instill confidence that you have the competence to run this team that you are now the leader of? Is there not some cost in being completely transparent about your own ignorance of the industry?
- [42:06]
B
Yeah, look, I think you have to be thoughtful about it, right? So on the first day, I probably wouldn't have used the phrase, hey guys, I don't even know how to spell software. But there's a fine line. I think it is helpful to say, look, here are all of the ways in which I think I can help this business. Here's all the things I like about the business. Here are some areas that I think we can probably mutually agree represent opportunities for improvement in the areas in which I am uniquely experienced. I think I can really do a lot in the areas in which I'm not. I commit to you that I'm going to learn from each of you as best as I possibly can and as quick as I possibly can. And if I'm not the right person to fix that problem, then I'll bring in the person who is right. So I would probably string together some words that sounded more like that and less like, hey guys, I don't know how to spell software. But that's a good point. Now, at the risk of immediately contradicting myself, there's one important caveat it that I learned the hard way, which is it is absolutely the right thing to take a humble listen first approach. When you first take over a business, however, it's important for people to understand that problems don't wait until you are ready to present themselves. Right. So I think I mentioned in my blog, in my first week I had an employee who indirectly threatened to quit because he didn't like where he was sitting in the office. Right. In my second week it became very clear that someone who was running one of our key teams, his team, really did not like him and wanted him gone asap. So I had a personnel decision to make before I really knew anything about this guy. And on and on and on, right. People need to understand when you buy a business, this is a real ongoing business with real customers, real suppliers, real employees, real problems. And just because you're not ready to handle those problems doesn't mean that they're going to wait until you are ready. And so it's a bit of a balance between being humble and thoughtful versus candidly acting on things that need to be acted on. And that's where I think a group of advisors, whether it's board members, investors, whatever the case may be, that's when it really helps. Because you don't know what you're doing in all likelihood. And people who have been there before and who have done similar things in the past, they can advise you on any kind of curve balls that will almost inevitably get thrown your way.
- [44:40]
A
Did you let the guy move his desk and the manager, did you part ways with that manager that people wanted gone?
- [44:47]
B
I did not let the guy move his desk. And yes, we did part ways with that manager. And it was way, way sooner than I was originally planning. So my original plan was basically do as little as possible for the first three months, make as few decisions as I possibly could. But ultimately the stars align in such a way that it became kind of overwhelmingly clear that this was a change that had to be made. And I called many of my investors, many of my board members and asked them, hey, here's the situation, what do you think? And I got a lot of great advice from them. So I don't know if I would have had the intestinal fortitude to make that decision if I didn't have good advisors beside me.
- [45:34]
A
One of the benefits of doing a traditional search fund is that your bench of investors can often be pretty experienced and sophisticated. People.
- [45:43]
B
That's right.
- [45:44]
A
Steve, your blog is inthetrenches.net is that the best place for people to reach you or is there somewhere else?
- [45:53]
B
Yeah, inthetrenches.net is the best place to reach me. In selling Micro Da a year ago. Honestly, it's a pretty strange time in human history to have a lot of time on your hands. And so one of the ways that I decided to spend my time off is to try to be genuinely helpful to entrepreneurs and CEOs running small and medium sized businesses. The blog and the podcast that I created@inthetrenches.net, that's, that's the one reason that it exists. And my intent is to try to do anything that I can to help both your professional life, but also your personal life. As someone who reads a lot of books, business books in particular, I find that there's a lot of literature on managing the business, but there's not a lot of literature on managing yourself. And in my experience, managing yourself is at least as important as, if not more important than, your ability to manage your business. Because being a CEO and being an entrepreneur is incredibly difficult. And I've often said that nobody knows what it's like to be an entrepreneur unless you have been one. And I firmly believe that's true. And so I'm writing as an entrepreneur. For entrepreneurs, everything's free. It's always going to be free. I don't expect anything of it. There's no financial interest in me doing it. If I can be genuinely helpful to somebody, that strikes me as good a way to spend time as any other that I can think of.
- [47:13]
A
Excellent. Inthetrenches.net everyone. And right, there's a podcast as well called in the Trenches that you can find on all your podcasting apps. Steve, thank you very much for taking the time. This was a great conversation.
- [47:25]
B
Yeah, thanks, Will. Thank you for what you do. Thank you for promoting the ETA ecosystem and introducing it to those who might not be familiar with it. I think it's an awesome opportunity for people to create the careers and the lives that they want to create for themselves. And I think people like you, who get the word out are a really important part of the ecosystem. So thank you for your efforts.
- [47:45]
A
Appreciate that. Until next time. Thanks, Steve.