Acquiring Minds – "Stay Open to the Many Flavors of Search"

Podcast Host: Will Smith
Guest: Chris Williams, Owner of System 6 Strategic Bookkeeping and Analysis
Date: November 1, 2021

Episode Overview

This episode of Acquiring Minds features Chris Williams, a recent acquirer of System 6, an outsourced bookkeeping and finance company. Host Will Smith guides the conversation, focusing on Chris’s unconventional journey through the acquisition search process—contrasting the traditional search fund model with more flexible, self-funded approaches—and what led him to buy a smaller business using an SBA loan. The episode provides in-depth insights for aspiring acquisition entrepreneurs, including detailed discussion of key search parameters, investor relationships, industry selection, attractive business models like bookkeeping, the future of accounting, operational improvements post-acquisition, and candid advice for searchers.

Key Discussion Points and Insights

Chris’s Background and Entry into Search (02:05–06:34)

• From Finance to Entrepreneurship: Chris describes his transition from investment banking in New York, to private equity at TPG in San Francisco, then business school at Stanford (GSB), which exposed him to the search fund ecosystem.
• "I had actually had some family growing up in California ... so I was pretty eager at the opportunity to move out." – Chris Williams (02:32)
• The pivotal moment for Chris happened during a business school project at a portfolio company: “I really enjoyed ... working with a bunch of different people, building rapport ... standing up processes.” (07:03)

The Traditional Search Fund Model and Its Variations (10:07–18:19)

• Stanford and Search Funds: Stanford is a hub for search fund activity and academic research, but the model is still niche and not widely understood, even in finance.
• Evolution of Search Approach: Initially, Chris considered the traditional search fund path, but realized the model wasn’t as rigid or binary as portrayed: “There are a lot of different flavors and there's pros and cons to all of them.” (12:15)
• Chris chose to work with a few supportive investors, postponing formal capital raising and keeping flexibility over the size and type of business. He ultimately moved toward a self-funded or small-investor-backed search.
• Quote: "The plan was, let's sort of raise money in the right format at the end of the year. And then I got to the end of the year ... and realized the big grand multi acquisition strategy for me was cart before the horse." (14:48)

Traditional vs. Self-Funded Search (16:28–24:00)

• Pros of the Traditional Model:
  • Investor-funded search (salary, resources, structure, accountability) (16:48)
  • Clear performance tranches, equity vesting, and continuous reporting structures for accountability.
  • “There's more accountability when you're in a traditional search fund ... There's more focus.” (17:45)
• Self-Funded Benefits:
  • Flexibility (especially for smaller deals or limited geographic focus)
  • Increased financial upside (larger share of a smaller pie)
  • No board—more autonomy, but less obligation to formal reporting.
  • “For me, it was basically the flexibility to look at a smaller business.” (21:55)
• Personal Factors: Chris’s decision to remain on the West Coast, support his partner’s career, and focus search in Northern California meant he needed to look at smaller businesses, which fit better with a self-funded strategy.

The Search Process and Finding System 6 (24:13–29:35)

• Approach: Chris employed a dual strategy—connecting with brokers (Northern & Southern California focus) and targeted, proprietary outreach in selected industries, particularly bookkeeping.
• Cold Outreach Realities: Business owners receive many solicitations; personalizing outreach is essential to stand out. “It is really hard to find someone who’s never gotten an email from somebody else.” (26:12)
• How He Found System 6:
  • Contacted Jeremy Allen (previous owner) early in his search; initially passed due to size.
  • Jeremy returned after receiving strategic offers, and Chris—having by then shifted to being open to smaller, SBA-eligible businesses—made an offer.
• Quote: "Every searcher ... will say ultimately they got a little lucky." – Chris Williams (27:08)

The Bookkeeping Industry: Why It’s Attractive (30:36–36:02)

• Recurring, High-Margin Revenue: System 6 serves 150+ clients, $3M revenue, 35-40% EBITDA margin, fully remote.
• Mission-Critical Services: Businesses need bookkeeping, payroll, and back office management; the work is vital and often a pain point for small business owners.
• Large Market, Strong Cash Flow: Millions of potential clients; weekly/monthly billing provides strong working capital dynamics.
• Quote: “A lot of businesses in the industry charge their clients monthly on ... monthly retainer. We actually run on a weekly model ... That's pulling money in ahead of payroll. So just from a cash flow dynamic, that’s really powerful.” (31:12)
• Churn Considerations: Annual client churn sits at roughly 10–20%. Good client selection and limiting customer concentration are essential.

Comparing Bookkeeping, Software, and Home Services Models (34:28–37:47)

• Software (SaaS) vs. Bookkeeping:
  • SaaS often has lower churn, higher recurring revenue and scalability, but commands higher acquisition multiples and poses challenges for non-technical buyers.
• Home Services: Attracts searchers due to potential for quick modernization (with software like ServiceTitan or SEO), abundant M&A opportunity, and a mix of recurring/reoccurring demand.
• Operational Modernization in Bookkeeping: While less low-hanging fruit exists, there’s room for efficiency improvements (e.g., lack of CRM, manual proposals).

Operational Improvement and Value-Add Post-Acquisition (41:44–49:56)

• Immediate Priorities:
  • Installing CRM, systematizing sales proposals, updating legal agreements, and enhancing training.
  • Building proactive sales process focused on select verticals.
  • Quote: “As part of the buy a small business, you are sometimes more of an execution role than a little bit larger business where you’re maybe more of a full, full time CEO.” (44:11)
• Leveraging Network: Chris is capitalizing on relationships in the search/PE world to secure client referrals, especially from other acquirers.
• Transition and Key Man Risk: System 6 had been structured to allow the previous owner to step back, reducing dependency risk—a positive sign.
  • “He had proactively pulled himself out of the business over the last several years ... Not that he was making the conscious decision, I want to spend my time elsewhere right now.” (47:26)

The Future of Bookkeeping and the Role of AI (39:24–42:51)

• AI Is Not (Yet) a Threat: Despite hype, most “AI for bookkeeping” firms rely more on automation and offshore labor than true AI. Full automation remains complex.
  • “There’s a business called Scale Factor … a good story that went down in flames because they were telling everybody they were AI and then ... this isn’t AI, it’s offshore resources plus some tech and they shut down.” (40:34)
• Human Touch Still Matters: Trusted, high-service client relationships are foundational; AI/automation may enhance efficiency but won’t replace the need for advice, judgment, and personal connection. (42:51)
• Possible Opportunities: Over time, Chris envisions leveraging outsourced/AI tools to boost leverage for his team, but always grounding the business in human relationships.

Talent Acquisition and Training (50:25–53:00)

• Two Hiring Tracks:
  • Client Leads/Account Managers: 5–10 years accounting experience, multi-client service experience, harder to find.
  • Bookkeepers: Detail-oriented, can be trained from scratch, less of a hiring bottleneck.
• Remote Hiring: Remote structure is an asset, but standards for client-facing hires remain high.

Advice for Aspiring Searchers (53:12–55:26)

• There is no single “best” way to conduct a search or structure an acquisition fund.
• Key Factors: Understand your criteria (financial goals, geography, industry, certainty, etc.), explore all available paths, and remain open to evolving your strategy as you build experience and gain comfort.
  • “The only reason that I got comfortable with ultimately doing an SBA deal and taking on the risk that comes with that is because I was searching for a few months, hadn’t locked myself into a structure, saw a few small deals …” (54:09)
  • “Try to dip your toes in the water to sort of reinforce what’s the right path ... because I really don’t think one is absolutely better than the other.” (55:22)

Notable Quotes & Memorable Moments

• On the search process:
  "Search is not as cut and dry as I think sometimes it gets made out to be." – Chris Williams [12:15]

• On investor relationships:
  "I think a lot of people want a bunch of investors so they can maintain a lot of independence, and I wanted two or three really close knit supporters." – Chris Williams [13:32]

• On attracting deals:
  "Every searcher ... will say ultimately they got a little lucky." – Chris Williams [27:08]

• On AI in bookkeeping:
  "At the end of the day … [clients] are always going to want a resource that's a human that they can talk to and trust and so over time, maybe we end up using those companies ... to add more leverage to our frontline service delivery team, but … there still has to be a person for the judgment call stuff." – Chris Williams [41:10]

• On discovering the right path:
  "The only reason that I got comfortable with ultimately doing an SBA deal and taking on the risk … is because I was searching for a few months, hadn’t locked myself into a structure, saw a few small deals… and then when I really sat down and thought about it … I just got more comfortable with it." – Chris Williams [54:09]

Timestamps for Important Segments

• 02:05 – Chris’s bio and early career path
• 06:53 – Discovery of search funds at Stanford
• 10:07 – Narrowing in on search models; hands-on internship experience
• 12:15 – Chris’s non-traditional, self-funded approach
• 16:28 – Key differences between self-funded and traditional search funds
• 24:13 – Chris’s search process and tactics
• 27:07 – Landing System 6: serendipity and persistence
• 30:36 – Economics and profile of System 6
• 34:28 – Bookkeeping vs. other acquisition verticals (software, home services)
• 39:24 – AI and the future of bookkeeping
• 41:44 – Improvements post-acquisition; sales and operational upgrades
• 47:18 – Transition, owner involvement, and risk
• 49:56 – Reflections and opportunities for growth
• 50:25 – Hiring and team development
• 53:12 – Search advice for new acquirers

Conclusion

Chris Williams’s story exemplifies how flexibility, introspection, and openness to various paths are crucial in acquisition entrepreneurship. By forgoing the rigidity of a traditional search fund and crafting a journey tailored to his skills, network, and circumstances, Chris acquired a high-quality, high-margin business positioned for growth. The episode offers rich, candid advice for aspiring searchers, demystifies industry and capital-raising choices, and highlights the enduring advantages of businesses built on strong personal relationships—even in an era of automation.

Contact Chris:
Email: chris@system6.com (words, no numbers)

For more episode summaries or to listen, visit: Acquiring Minds on YouTube or https://acquiringminds.co