Acquiring Minds: "Lessons from 14 Years in Search"

Host: Will Smith
Guest: Mark Sinatra
Date: December 9, 2021

Episode Overview

In this episode of Acquiring Minds, host Will Smith interviews Mark Sinatra, a veteran of the search fund world. Mark bought, operated, and sold an HR outsourcing company (Staff One), tripling its size over nearly a decade, and today invests in other searchers. The conversation offers rare, candid insights from someone who's experienced the full arc of acquisition entrepreneurship—searching, managing, exiting, and now backing the next generation.

Key Discussion Points & Insights

1. Mark's Introduction to Search Funds and Early Motivations

Timestamps: 02:00–05:29

• Mark discovered the search fund model during his MBA as a path that combined entrepreneurship with mitigated risk.
• Why Search over Startups?
  • Did not have a "big idea" he was passionate about.
  • Lower financial risk tolerance at the time.
  • Appreciated that a traditional search fund paid a salary (albeit below market).

Quote:
"The search fund model really checked all the boxes in terms of my goals and my risk tolerance."
— Mark Sinatra (04:07)

2. The Search Process: partners, interns, and tactics

Timestamps: 05:29–09:27

• Mark searched with an MBA classmate as a long-distance partner (NY and Minneapolis), giving them broad geographic coverage.
• Used interns, though internship programs were still nascent and unstructured.
• No dedicated "search fund" course existed at Wharton then—had to rely on piecemeal resources and a collegial, albeit small, community.
• Emphasized being creative in deal sourcing, as there was no exhaustive playbook.

Quote:
"There wasn't a lot of content that was specifically tailored to the traditional search fund model...it was really a lot of learning as we went."
— Mark Sinatra (08:19)

3. The Long Haul: Timeline and Mental Challenges of Search

Timestamps: 09:27–10:24

• Mark's search took 18 months, with 13 months to find the deal, then five months to close.
• Psychological challenge: uncertain progress in a binary world (either you buy a business or not).
• Industry-focused search, aided by a well-connected consultant.

4. Deep Dive: HR Outsourcing as a Searcher’s Industry

Timestamps: 11:45–16:48

• HR outsourcing (PEO) industry has attractive traits: recurring revenue, fragmentation, scalability, and favorable regulatory tailwinds.
• Industry has seen increased consolidation (larger players/acquirers entering), but fragmentation persists, and barriers to scale remain high.
• Smaller firms often plateau at modest revenue/EBITDA due to resource constraints.

Quote:
"The barriers to scale...to thrive, I think, are actually very high...results in these firms essentially plateauing."
— Mark Sinatra (15:36)

5. Staff One Acquisition and Scaling Journey

Timestamps: 17:06–22:23

• Acquired Staff One with revenue around $18 million; exited at just under $50 million—growth came mostly from organic efforts, some via tuck-in acquisitions.
• Early years were "not linear" and full of setbacks:
  • Attempted too many changes too quickly.
  • Small companies have inherent fragility and limited bandwidth for transformation.
  • Lesson: Be thoughtful about change management; don't overload the organization.

Quote:
"One of the big takeaways I learned was just to be more thoughtful about the extent, the frequency of different initiatives and changes that I wanted to make."
— Mark Sinatra (20:49)

6. Navigating Recession and Operational Pitfalls

Timestamps: 22:23–25:51

• Acquisition happened as the 2008 financial crisis hit; clients were renegotiating rates, causing margin erosion.
• Key lesson: In a downturn, sometimes "taking it on the margin" and keeping clients—even at lower rates—beats losing them outright.
• Technology migration took longer and was more disruptive than expected, and even beneficial changes can have negative reactions from some customers.

Quote:
"Sometimes even if there's a change that we think is going to add value and be positive, not every single client is going to have that same view."
— Mark Sinatra (25:51)

7. From Operator to Investor: Modern Search and Advice

Timestamps: 26:26–31:24

• Sees the playbook for searchers today as more robust and structured.
• Biggest piece of advice: “You're buying a business from another human being...it's so, so critical to establish that strong relationship and rapport and trust up front with that seller.”
• Despite new technologies and deal-sourcing tools, the transaction’s “human element” remains the most crucial component.
• Warns of the “rookie” mistake: Spending too much time on deals that will never close—get early feedback from investors before going too deep.

Quote:
"At the end of the day, the most critical thing in the early days of a transaction...is really to establish that trust and that relationship with that seller."
— Mark Sinatra (28:35)

8. Talking to Investors and What They Look For

Timestamps: 33:21–35:54

• Investors assess revenue consistency, customer concentration, risk factors, and team quality.
• They look for alignment between the operator and the business.
• "Searchers have done a better job of just running deals by their investors a little earlier..."
• Fit, conviction, and clarity of the value drivers are scrutinized.

Quote:
"Trying to ascertain and assess the fit between the company and the searcher and the level of conviction that the searcher has about the transaction..."
— Mark Sinatra (34:15)

Notable Quotes & Moments

• On Startup vs Search Fund:
  “Starting a company for me and what I knew about my skillset and my skill gaps and my risk tolerance, I didn't feel like starting a company was really the right option for me at that time.”
  (03:51)

• On Interns:
  “Back then... internship programs were much more ad hoc. Nowadays... much more structured and robust.”
  (06:44–07:03)

• On Industry Selection:
  “…if I buy a plumbing company, if I buy an HVAC company or whatever it is—it would be a no-brainer to use one of these HR outsourcing firms… That’s really one of the most important boxes to check because as a searcher...you’re not just buying the business—you’re going to run it.”
  (13:48–14:00)

Timestamps for Major Segments

• Intro & Mark's Background: 01:11–04:30
• The Search Process: 05:29–09:27
• HR Outsourcing Industry: 11:45–16:48
• Staff One Growth Story: 17:06–22:23
• Challenges & Lessons as an Operator: 18:47–25:51
• Advice for Searchers & Human Side of Acquisitions: 26:26–31:24
• Investor Criteria & Searcher Fit: 33:21–35:54

In Summary

This episode stands out as a deep dive into the full lifecycle of search entrepreneurship—from first exposure, through acquisition, operating, scaling, exiting, and finally investing in others. Mark Sinatra’s candor about mistakes, fragile moments, and the essential importance of the human relationship in dealmaking provides stark guidance for would-be searchers. The practical, grounded wisdom (“don’t try to fix too much at once,” “take care with margin in a recession,” “establish trust with sellers”) is invaluable for anyone contemplating buying and building a business through acquisition.

To connect with Mark or learn more about investing or operating via search:

• Email: mark@etaequity.com
• Website: etaequity.com