← Confessions of an Implementer
Confessions of an Implementer
S2E38 | How Do You Keep Your Passion for Leadership Alive Without Losing Yourself?
01:06:05
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- [00:00]
Ned
They have to want it. And this gets a little crass, maybe a little too direct, but I kind of think of that movie 300, right. Like you kind of have to bleed for it. It's gonna take a toll. Like leadership. No matter what it is, it takes a toll on you. You always have to pay a cost. Like there is something and you have to be willing to pay that cost. And you might not know what it is.
- [00:34]
Ryan Hogan
Welcome to Confessions of an Implementer. I'm your host, Ryan Hogan. We share unique stories of EOS implementers and the companies they've transformed to give you a rare glimpse into the successes and challenges of the system in action. Let's jump in. First and foremost, you're now in rare air. I think you're in. It's just you and JBS now that have had two recording sessions. So this is, this is good.
- [01:00]
Ned
Oh man, that's a lot of pressure.
- [01:03]
Ryan Hogan
Like, don't, don't let them down. Okay, so there's a, there's a lot of like really interesting topics to, to cover today. And one of those, one of those is this idea of ETA is like the, the acronym for IT or Entrepreneurship through Acquisition. And what's been really interesting is the amount of inbound and conversations that I've been having with folks either going through graduate programs or want to explore entrepreneurship and looking for different pathways. This whole notion of search funds. And by the way, are you search fund mafia?
- [01:42]
Ned
No, I'm post search fund mafia. Okay.
- [01:45]
Ryan Hogan
Just a couple years. Just a couple years after them. Well, your EOS search fund mafia, I guess that would be.
- [01:53]
Ned
I guess I am. Yeah. I've been told that I'm the first traditional searcher to ever become an EOS implementer.
- [02:03]
Ryan Hogan
No way. That's awesome. Because you had implemented EOS at your business and so have you saw that as kind of like a, like a. I mean obviously EOS is a huge unlock for businesses. It changed my life. I'm sure it changed your life. Did you see this as almost like a bolt on, kind of add on for the search fund community?
- [02:31]
Ned
Oh, that's a great question. Like putting myself back in my thought process when I was thinking about EOs. Is that what you're asking? Yes.
- [02:42]
Ryan Hogan
Yeah. Like as you implemented EOS and probably now, now in reflection, is it like, hey, search fun guru, like after you go find this company like you do xyz and one of those things is now eos.
- [02:58]
Ned
Yeah. So I think in the trajectory of entrepreneurship, right, like search funds are a defined path. Right. So basically you're going to wealthy individuals asking for a little bit of money to go look for a company to buy.
- [03:12]
Ryan Hogan
Yeah.
- [03:13]
Ned
When you buy it, those people have a first right of refusal. They can invest or not, but essentially you're showing them the opportunity. They're voting with their dollars whether they want to invest or not. And then you go run the, run the business. It is not like a founder or a vc. Right. Like, it's a different kind of thing because you're, you're kind of doing it all on your own. You're getting the equity, you're getting the debt, you're putting the whole deal together. And it's just a different kind of energy. So it's also in the traditional world, mostly folks who've had an mba, so they went to business school, they invest in themselves and they're ready to go be a CEO with that profile typically wants to go run more businesses or become an investor, or if they had a really nice exit, go do whatever their heart's desire is. Right. Like whatever their calling is. For me, I had an exit. I kept operating. And then when I was done operating, I took a year off.
- [04:21]
Ryan Hogan
Wow.
- [04:21]
Ned
My wife and I had Learned from other CEOs and other leaders that this was an option, and I didn't realize it was. And during that time, I thought really hard about what I wanted to do. Yeah, we came up with like 3 to 5 go, no go decisions on whatever I do next. It had to have these things. Yeah. And it's funny, what your mind tells you is something that is a great opportunity versus what it actually is. Like, for example, there'd be days I'd be like, oh my God, I got this opportunity to run this billion dollar company. Can you believe it?
- [04:59]
Ryan Hogan
This is crazy.
- [05:00]
Ned
And your ego just starts chirping like, yes, you're going to do this, Ned. And then you really start looking at it. And objectively, it had zero of my criteria. Yeah, zero. Not even one. But in my mind, I was already a CEO of that company. So the process of, like taking a year off, everyone does it differently. But like, for me, it allowed me to like, really deal with some of the stuff that I think driven people deal with. Where does your drive come from? Anything that like, really got you to there, I think that's, that's healthy. Especially as you start getting in your 30s and 40s. There's, there's something about that that warrants reflection. So I think for, for some people that speaks to them. The other thing is like, do I really want to operate or not like that's. That's a really clear distinction. And third is like, what. What are you really being called to go do?
- [05:58]
Ryan Hogan
Yeah.
- [05:59]
Ned
Like, weirdly, like, financial security is now gone. So if you go through, like, Maslow's hierarchy, there's some needs that are now met that maybe have never been met in that way before. Yeah. So I think it's a really personal thing, but people from the search fund world tend to go operate or go invest. For me, during that year, I realized that helping people was one of the biggest things that gave me energy. Yeah. So I talked to everybody. I tried everyone in my network. I tried different things. And my old EOS implementer was just like, net, I think you need to do this. It was like the right amount of nudge. Yeah. To, to get me going. And once I went into the community, it was wild. Like, it. It was like, oh, my God, these are my people. Yeah. They not only are really smart, they care, but there's just this special mix of, of culture that I couldn't find anywhere else. And yeah, for me, it just became home. I kept going, and the more I did it, the more. The more it kept giving me energy to the point where I was like the cliche of, like, you know, work doesn't become work anymore. And I just never think of it as work. It's just what I do. So for me, I really like working with CEOs as they're going through a challenge and they need some way to get through that. I think that's a special thing. So I hope I'm answering your question, but I think it's really personal. I think searchers would be awesome at this, but you really have to be called to it. And I don't think coaching's for everybody. Just like, I don't think searching's for everybody. So if you can self identify and that becomes who you might want to be when you grow up, then that's a cool opportunity.
- [07:54]
Ryan Hogan
That's awesome. And when you. When you think back to the transition. So thinking back to when you had the opportunity to take a year off and, and do some deep reflection, what's interesting is, you know, when you open up the paper or something else and you. You read and learn about acquisitions and, and it's all about, you know, what are the numbers and how exciting and everything else and, and more and more often when I'm talking to entrepreneurs that have recently gone through an exit, they're actually depressed. Like, they're, they're not actually, you know, as excited as you Would you would imagine with someone that now has transformational, you know, wealth and. And freedom, I guess. Like, what was your experience like in. In that respect? Like, were you able to kind of get a hold of some of the. Or get ahead of some of those things or. Or did you experience some of that as well?
- [08:49]
Ned
Wow. Wow, you're really bringing me back there. Yeah, it's. I think it's a. It's very personal. It. I, I'll put it in context. I think whenever your mind is able to rest, there's just things that come up for you. And as an operator, you're going to think about your losses, you're gonna think about your wins, you're gonna play the should game a little bit. You're gonna get some false bravado of like, oh, cool. Like, yeah, you can go do that. Yeah, right. You know, like armchair quarterbacking a little bit. So I think all of that happens in different ways for people. So there, there's kind of a curve of post operator. If you're not going right back into operating again and you really do take that time. I think whatever you haven't fully dealt with in the past or whatever thoughts that are, are ruminating like, this is the time we're actually going to think about it. So there's a lot of ways to, to think through that. Getting coaches to help you through that, getting therapy, I think is helpful in, in any way. I, you know, plant medicine works for some people, but I, I really think just being alone, journaling, you know, having. Having a group of people that can be around you, like their CEO networks, like Vestige ypo. I'm in ypo. And you know, it's not about comparing yourself to other people. It's about just going through the human experience together and, you know, saying out loud your thoughts and, and hearing that that's normal. Yeah. And that there's a lot of value there. So I think that's helpful for me. Having a great spouse, my wife was just like, so encouraging in all this. I had little kids, so I got to just spend time with them, which was really important. That's why I did everything. And it was weird because there were times where I wanted to go do the thing again, and I'm like, I'm so torn. So these tensions exist, right? The tension of, I, I can't just be still. I have to go do something versus, wow, I did this so I could spend time with my kids. Like, that was a real thing to reconcile. So I think every individual goes through that. For me it took some time, it took longer than I thought. It probably took most of the year to really come to terms with some of the things that I hadn't let myself come to terms with, to develop some skill sets and being more open and thoughtful about reflection, how to reflect, and then really getting in touch with, like, what do I want? Like, that's a whole new world of like, oh, what do I really want? And you could, you can wrestle with that for the rest of your life, or you can kind of wrestle it and figure out, all right, maybe I don't need to figure it out forever, but here's what's feeling right for me. And for me it was like, what gives me energy and truly, like, fills me up. I wanted more of that. And things that didn't fill me up, that weren't serving me, I needed to start letting those go. And that was kind of my guide.
- [12:13]
Ryan Hogan
That's a couple of things you, you brought up there. Number one, journaling, like, journaling has had such a, a monumental impact on my life. Like, my first company bankrupted. It was called Run for your lives. It grew very, very fast and then just fell off the face. And, and like, one of the things that got me through that was journaling and just picking up a pen and like writing all the mistakes that we made. And then I started publishing it, then I started like mentoring. And you and I talked about this on the last recording session, this book called the Artist's Way. And it's this idea of like just letting your. The pen hit the paper for three pages every morning. Um, and there's such a release in that. So one, love the point on point on journaling. And two, I read this. Have you ever heard of the book, the last Lecture?
- [13:09]
Ned
I have.
- [13:10]
Ryan Hogan
Okay. I think it's that book where he talks about. He took a 12 month break between. It was either a 12 month break between high school and college or college and actually going into the field. And he talks about this, like, reflection work that he did to like first define. And it's interesting because, like, not that I laughed at that, but I looked at that and I was like, I could never do, I could never slow down for 12 months. And it, it sounds like you had that opportunity and, and it was, it was transformational as far as what your next step was going to be.
- [13:44]
Ned
Yeah, yeah, I, I think it, it's a lot of what we do is just getting our own confidence to a level to where we can make a decision. And I, I think when you have open choices, it Weirdly brings your confidence down. Like, whoa, there's so many choices now. There's pressure to make the right choice and it feels like the spotlight's on you. Right. But once you, like, boil it all away, like, there's no spotlight, there's no pressure. It's the exact opposite. And you know, getting, getting through that and being really clear about what you want is so important. And once I started actually getting back into the EOS stuff and thinking more deeply about eos, but at its core, it is a human energy, you know, system that gets the owner and the team what they want. And I think that's where it became natural. Like as I was thinking about what do I want? And I knew that helping others in this weird little entrepreneurial tribe that we're in.
- [14:52]
Ryan Hogan
Yeah.
- [14:54]
Ned
Helped me and filled me up. I was like, well, this is pretty natural. So I think going, you know, interestingly for me, it wasn't this like transformative stuff. It was like, oh my God, I need to go on this, like, massive spiritual journey or I need, I didn't need that. I needed some time. And I actually went deeper into things I already loved. I really loved eos. That was a new concept for me that I could do it. So once that kind of unlocked, I was like, oh yeah, I could be a coach. This is kind of interesting. And then I invest in search funds and serve on boards and having done it and spent spending almost decades of my life there and thinking about it, like as that area and ETA continues to grow, like I can really be of service there, that fills my cup too. So it wasn't that I needed something new. It's just different ways of thinking about what I'd already been doing.
- [15:47]
Ryan Hogan
Interesting. And was one of your criterias not to become an operator again?
- [15:53]
Ned
That's a great question. No, I was open to operating. Yeah. But it had to meet these things. Like, you know, one of them was, was true impact. I think I could always convince myself that I was making an impact, but. And I could talk about measuring it and I could talk about all these things, but I, I had to come up with my own metric, you know, for what is like true impact. Really look like. Yeah. And, and that that helped. There's certainly family components for me. And one thing that was interesting was I actually love being compensated. Like, go figure, I'm pretty coin operated. Like, I liked helping people. But then when there wasn't a transaction, it, it just felt like advice. And it didn't land as much when people were interested, invested and they. There was some sort of like, commitment. It transformed whether that was equity or dollars or compensation, and it didn't matter how much. But interestingly, like, I really enjoy that. Like, I think it ups the game. It makes, it makes the work more meaningful in some ways. And I didn't know that about myself. That was a cool learner.
- [17:08]
Ryan Hogan
That's awesome. And when you, when you think about your EOs, like are, are majority, most of your clients, the search fund path is that, is that kind of, it's like you invest in search fund, you help search fund companies. Is that, is that kind of the,
- [17:24]
Ned
you know, it's interesting. I think I could have easily hit the go button on my EOS practice and just done search runs right away. I didn't want to push it that hard. I think it was just something about me. I wanted to get really good at it. This was already my sandbox. I knew these people, I knew the system. I could see myself just being a coach. Like, like, but not the kind of coat, like not a coach that makes you better, but the coach that tells you what to do.
- [17:56]
Ryan Hogan
Yeah.
- [17:57]
Ned
And I didn't want to be that coach. That's not an effective coach in my mind. I don't want to be a consultant. So I was afraid that if I didn't fully get to a place of true mastery of EOs, that my like, consulting side would come out. And so I, I wanted to kind of learn, like I, I wanted to like get good at eos outside of search. And then naturally people are like, ned, I really want you as a paper coach. And, and when you have that kind of draw, that means something. And, and I started taking on clients. So I'd say, you know, maybe like a third of my clients are search related, but not all of them. No.
- [18:44]
Ryan Hogan
Interesting.
- [18:44]
Ned
I kind of like the diversity, honestly. Yeah, I think they all inform each other and, and I kind of get to show up how I want to show up in each setting.
- [18:56]
Ryan Hogan
Interesting. And one of the things that you, you, you spoke about was you do the eos stuff. So coaching businesses, helping leaders, helping, helping focus human energy towards a common goal. And then since your exit, you participate in, in investing in search funds. What, what have you found as like the criteria for success is hard, but like, what are some things that you see early on with a, with a searcher where you're like, this human gets it and they're going to succeed versus like maybe you pass on some investments,
- [19:40]
Ned
you know, at a really high level. It's kind of funny. I think I drank all the EOs, Kool Aid. They have to get it wanted and have capacity to do it, love it, right. Like they really do. So I have kind of my own pattern recognition. I talk to, you know, probably about a hundred searchers that I would have a high likelihood of investing in per year. Wow. And I invest in 10 to 20. So there's other conversations, but that would be kind of up the funnel. So my pattern recognition over, you know, call it 15 plus years, almost 20 is pretty high. So it gravitates to, do they get it? Do they really understand the model? Do they really see themselves as operators? Can they go run a company?
- [20:32]
Ryan Hogan
Not.
- [20:33]
Ned
I'm doing this to be an investor. There's a lot of business school folks that there's nothing wrong with it. It's just everyone's journey is different. But I think there's a lot of folks that are like, I have to go be a consultant or a banker in order to do these things. And it's just a different mindset where some people are like, no, I just need to get to the end and I'm already ready and I'll figure it out as I go. Neither right or wrong, but I think at its core they have to get, they have to really understand search funds and they really have to want to be an operator and to run this type of model. Second, they have to want it. And this gets a little crass, maybe a little too direct. But like I kind of think of that movie 300, right. Like you kind of have to bleed for it. It's gonna take a toll, like leadership. No matter what it is, search funds, your local paper route, tree trimming business, like plumbing business or, or a billion dollar company, right. Like it takes a toll on you. You always have to pay a cost. Like there is something and you have to be willing to pay that cost. And you might not know what it is. More often than not, entrepreneurs don't really know. But there's some drive that I can see or something in your history that tells me that you will run through a brick wall to be an operator. Like you have to be the heartbeat of the business. You have to be the one that's getting up and cares a little bit more than everybody else. And that goes for the whole leadership team and hopefully the whole company. But you set the tone. So if you don't have that, this probably isn't freedom. And then the last one is you have to have the capacity to do it. I think the right balance of EQ and iq, like you have to at least know the skills. You have to be able to like, really understand a financial statement. You have to be dangerous with, you know, talent and people and kind of management in general. And ideally you have some domain expertise somewhere that you learned quote, unquote business to a point where, you know, someone would not only trust you to buy their company, which is a high bar, I have to like meet with you and have the confidence that, okay, I'm going to sell you my biggest asset, but secondly, that you can lead people. Right. AI hasn't taken over everything yet and I don't know that it will. But for the least, in my view of the future, there will be people and they want someone who cares about them and who has their best interest in mind and can drive the company to a place where they can continue to make their mortgage payment. Right. Like, I think like, you have to have this capacity to lead and be smart enough to think through whatever the world's going to throw at you. So get it wanted capacity to do it.
- [23:38]
Ryan Hogan
I love it. You're like you're running them all through a people analyzer as they're, as you're going through their interviews.
- [23:43]
Ned
You know, I think it became really formal for me. Like the more I, you know, know I'm now invested in, in, you know, a number of these. Right. Like not quite to 100 yet, but like a lot. And you have to, as an investor, you have to just get smarter every time. And these are some of the things, some of the patterns that I've learned. I love being proven wrong. Sometimes I'll take a flyer on someone and challenge an assumption. And I love being proven wrong.
- [24:12]
Ryan Hogan
I'm, I'm assuming the hit rates on these are, it's better than venture capital. And some of the other stuff, like is this, is this the, the best hidden secret that folks don't know about and you got to get in.
- [24:23]
Ned
I don't think it's that hidden anymore. There's a lot of books out there, I think for people that are looking for it or understand, like it gets you. Some people, it just grabs you and you're like, oh, wow, that's something I have to do. It did that for me. Some people, they kind of come to it over time as an investor. Yeah, I mean the, the, the returns are public. Go to the Stanford search fund website. It's wonderful. A lot of schools now have more. But yeah, I mean you're seeing, you're seeing a good path to double or three times your money with a good degree of consistency. But you can't just invest in one, you have to invest in a whole portfolio. So this isn't for your average, you know, mom and pop investor. You have to be an accredited investor. But yeah, I mean it's a, it's a really interesting place to invest and I think it's more hands on. Right. You're dealing with operators. It's different than just putting money in the stock market.
- [25:21]
Ryan Hogan
Are you, when you invest, are you taking board seat?
- [25:25]
Ned
No, I, I couldn't do that. So like, you know, ideally there's 10 or 15 different investors in a deal. Yeah. Two or three of us will take a board seat and really actively play a governance role and the rest of us to some degree are supporting however we can. It's really up to the searcher to extract the value from the investor group. So I'd say in about a third of my investments, I hate to say it, but I'm not that active getting in. I get an update, you know, we talk a couple times a year with the CEO and it's just not, not as much as I'd like. About another third. I'm pretty active, like quarterly ad hoc calls, the meaty, meaty issues that come up. And you know, I'm a real thought partner sounding board for them, helping them generate resources. And if I'm on the board or like really close to that CEO or team, I'm either coaching them on the board or like I'm, I'm like a confidant without an official title. But I'm, I'm really trying to play that thought partner, challenger role within, you know, kind of mentor, advisor.
- [26:37]
Ryan Hogan
What. Have you had any deals that gone sideways?
- [26:39]
Ned
Oh, it's funny you mentioned that. You know, deals, deals always take different paths so sometimes they go a little sideways. But search deals tend to get back on track in my experience. Fortunately, I've been lucky. But I just had my first zero. So out of, out of, you know, over 50 investments, like first zero. And it was hard. Yeah. So I think law of averages is going to get to you. Yeah, but, but yeah, I think it's more rare. What, what happens sometimes when things don't go well is the investors still make their money back or close to that, but the searcher doesn't make anything. So it's really hard for the searchers to overcome that. And it's easy for me seeing all the pattern recognition to be like, hey, you actually just got wisdom and you got something that is really invaluable and it's going to drive you and Inform the next chapter of your life. Like your future self is so much smarter now. Yeah. And I'm actually kind of excited for them because those people tend to do really amazing things, but they can't hear that. So, you know, when you're in it, it's hard. And when you play this life game long enough, you're going to lose. And overcoming the loss is part of it.
- [28:02]
Ryan Hogan
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- [29:50]
Ned
Yeah, you're seeing. So when this thing first started, traditional search, there's this started, you know, in Harvard and Stanford and kind of, you know, these schools of note, right. That everyone knows. And I think it got nurtured and developed for a good number of times. Like, I mean you're talking like 20 plus years where you went from just a handful of people that were doing it to consistently 20 to 30 a year. Searchers going out looking for companies to buy. Now it's a much higher number. You know, you're seeing, you know, hundreds of people get funded in the traditional model with the same traditional investors. Meaning that we all kind of invest with certain kind of guide rails and we're kind of in the same sandbox. We're independent thinkers and we bring different things, but. But we're kind of playing by similar rules. Right. Once you get out of that, there's broader eta, which can take a million different forms. Getting an SBA loan with a board, without a board, a bunch of different flavors. Yeah. And it can mimic the traditional, but it's kind of its own thing. And I'd say I know traditional really well. Anytime I've invested in the other stuff, for me, it just hasn't gone well. Yeah. Most of the time the investors don't know each other. So there's not that, like, ability to react in a consistent way. There's not the same ethos that's there and it doesn't incubate these, like, really great companies as well, consistently. So you can have great deals. But I'd say the consistency of the traditional model is just something I love. And obviously, again, I drank the cool Kool Aid, so take that.
- [31:48]
Ryan Hogan
Yeah. And for the, for the traditional model, does that. Actually, let's walk through the, the whole thing because I, I get so many questions on this constantly. I'm like, I don't, I don't know. So when I have subject matter experts like you want, really helps kind of shed light on, on some of these unique ways to get into entrepreneurship. Because one of the things is like, people come and they're like, I, I don't have the idea. And I'm like, you don't need the idea, you just need the start. And like, that start will, will lead you on a path to figure it out. But ETA is a, it's a great, specifically search fund, is a great path for that. So how does it, how does it start? So someone says, today I want to get into search. What do they do?
- [32:33]
Ned
Typically talk to a bunch of people that have done it before, see if it's right. But pretty quickly, if you talk to 20 or so people who, who bought a business before, tried and failed at buying a business, bought a business and had a good outcome or a bad outcome, you're going to learn a lot. Right. And for some people, I'm just going to go to the language I've been using. Right. Like, it gives you energy for Other people, it's like, holy Nikes. I do not want to do that. Right. That just. It doesn't feel good. So I think that's a really good place to start for me and a lot of people that I know it like, borrowed a place in my brain that I just couldn't stop thinking about. And then as I talk to people, that message got stronger and stronger and stronger. So it became this kind of calling for me, like, oh, man, I've got to do this. And so I think that's where it starts. Then there's a whole formal process of writing kind of a business plan. We call it a ppm, Private Placement Memorandum. Some people love that, some don't. You either get a partner or not. And then you start talking to investors and investors, it's like this long job interview where you're telling investors why you're doing this, how you're going to do it. You're demonstrating the GWC that we just talked about. And investors are going to vote with their checkbook. We either invest or not. And sometimes you get to like, halfway there and you sputter out. Something came up. There's something about this that isn't right for you or not or not right for you right now. And it's a hard thing, but some people don't get, don't get funding, but they go on to go do other things that are right for them now. So I think that's, that's part. And then you invest. You get the investment from your initial investors. You go look for a company to buy.
- [34:31]
Ryan Hogan
How much are you raising generally on
- [34:33]
Ned
that, that first one now, I think it's anywhere between, you know, 500 to, you know, over a million.
- [34:40]
Ryan Hogan
And that's covering the, the salary, that's covering diligence. Lawyers kind of all the, the things.
- [34:47]
Ned
Small salary, just enough to live off of. You know, no one's, no one's getting rich on this. But most of it goes to diligence fees.
- [34:57]
Ryan Hogan
Got it.
- [34:58]
Ned
System, software, travel, trade shows, whatever. Whatever you need to do to, to find your company. Okay. And yeah, diligence is a, is a big part. Diligence isn't cheap. Yeah.
- [35:10]
Ryan Hogan
Okay, awesome. All right, keep going.
- [35:12]
Ned
So you, you're now looking for a company live. You're speaking to a bunch of owners and you. And, and an owner or a leadership team hit it off where there's a nice fit. You sign a letter of intent. So you're basically, this is the price, and these are some key details of how I want to buy the company. Then you go into diligence, you, you, that gets more and more formal as you go. Bring in lawyers, accountants, quality of earnings, etc, make sure that everything is what we think it is. Now you're also bringing in debt to finance the deal. These aren't highly leveraged transactions. So you know the right amount of debt for the deal. You're bringing in your investors and typically some of, some of us just aren't going to invest. Like I might be over invested in health care. Yeah. So whether I love you or not, I just might be have way too much exposure and I can't, I can't invest so someone else will take my spot. So you have to go raise the equity, the debt, run the diligence, keep the seller on the line and keep them excited about the deal. Every good deal is going to die two or three times. So you've got to go through this whole thing and you're a solo superhuman doing it all. And then once you do, you close the deal, you get introduced to the business and you start your operating journey. Huh.
- [36:31]
Ryan Hogan
And when, when someone's going through and they're, they're raising the initial, the initial round, are they, are they giving you a hypothesis at that time saying like I'm going to look for something in the healthcare space that has recurring revenue.
- [36:44]
Ned
Yeah. And a lot of that is just demonstrating that they understand the model. Yeah. Rarely does someone actually buy the thing. Rarely. I think I, I did have logistics in mind and I ended up buying a logistics related business. But like it's rare, it's rare.
- [37:03]
Ryan Hogan
How, how, how hard is it to, to find a company? Like for some reason I was like, oh, you know, people buy and sell companies all the time and this is an easy thing. And I remember I, I think I was talking to David, our mutual friend David about this and he's like, searching is hard, man. Like, what do you generally see as far as like a timeline for someone to find it? Do you start to see like a, a burnout or failure rate on just the search alone?
- [37:29]
Ned
Yeah. Typically it's about two years, about a year in, you stopped sleeping at night because it was like, it was like fun. Yeah. You're like in MBAs, we're all critics, right. We can dissect any company and figure out how terrible it is. About a year in for most folks, you start becoming a true entrepreneur. Like you're not looking at a reason not to invest. You're actually mindful, very mindful of why you shouldn't invest. But now you're getting conviction around why is this a truly great business? You're not buying turnaround, so you're buying a business that's already growing and we want to continue that growth path. So yeah, so you're, you're figuring out exactly how you should lead the business. And once you get that level of conviction, you know, then it's just dealsmanship, you know, can that deal close at the right price on these terms and more often than not, you know, they fall apart. But that's why it's hard because you got to pick yourself back up again, go look for the next deal and go close on one.
- [38:44]
Ryan Hogan
One of the things that I've seen a lot like there's the, the Cody Sanchez is of the world. There's a lot of people out there, not necessarily specifically talking about search, but definitely talking about entrepreneurship through acquisition. And like one of the things that, that they talk about is like filling your pipeline and like getting Lois out as fast as possible. Is that, is that something that like also happens in search or is there. Okay, so you're just like going yes.
- [39:08]
Ned
And I think everyone's going to do it different. Yeah, I don't know. I, I know all these people. I can seen, you know, how the ecosystem of search has built out. Some of it is really helpful, some of it is profiteering and, and there's taking stuff that we've been saying for years and they have a bigger microphone. I don't mean to be derogatory about it, but I think when someone is considering this, they really need to value who's around them, who are the investors, who's kind of like with them on the journey and submitting. Lois, trying to find a business like that is its own art and science and it's evolving really quickly right now with a. But I think if you get the right people around you, it's really about buying a great business and they're forcing you and challenging you and making you think about is this truly a great business? And the journey of going through search isn't about sitting behind your desk and sending a zillion emails. It's about really becoming the person that can find a great company and lead it. And I think all the data points are helpful and you're going to learn something from all of them. But I, I don't know, I'm, I've learned so much from the interactions, the one on one interactions with investors and people that really know the space and get it and doing it for a while like that. That's wisdom. I think there is wisdom. In people who've done it before you. And that's important. And sometimes having people who've done it just before you is really helpful. So you're just going to put together your tribe of people around you and, and try to do it right. So, yeah, I think you're, you're, you do have to be active. So what I try to tell searchers that I'm mentoring and happy to share with everybody is just, you gotta have at least one if you're a solo searcher, to partner in person. Meetings with a qualified seller. And my version of qualified is we already talk about price. I have their financials, I understand why they're selling and I can see myself running that company. There's a lot of people, including myself, that buy businesses that don't really fit them. Like, you see people that buy a payment processing business, but they're like, they would be awesome in a healthcare service business. And they're just, there's just a mismatch. And that's the beauty of entrepreneurship. You just don't know. Yeah, and you're going to find that out about yourself and the world's going to tell you and there's a lot of votes that happen. So I think the, the LOI process and sourcing a deal is really just giving you feedback on what's the right business for you. Without getting too philosophical here, it's kind of where the world and your passions are kind of figuring themselves out. And ultimately you're going to buy a business that is right or wrong for you, but you're going to buy something and you're going to learn a ton from it.
- [42:13]
Ryan Hogan
Is this, what, what size are these businesses? Because you talked about you've got to go raise the actual money to acquire the business and sometimes or it sounds like there's debt that also plays. Are these, you know, $5 million businesses, $50 million businesses, somewhere between 1 to
- [42:30]
Ned
5 million of EBITDA. They're B2B growing, high reoccurring revenue businesses. You know, they're businesses that have kind of a mode around them so that hopefully as a rookie CEO, you have some room to make some mistakes. Like, I mean, you, you run business of different sizes, right? You want more cash flow behind you than left, right?
- [42:52]
Ryan Hogan
Very much so.
- [42:53]
Ned
So like, I want to be able to make my next few hires on cash flow. I want to be able to like grow and lead the business because typically the business is stuck somewhere. It might be growing, but there's something about it that like it hasn't totally met its full potential. So as a searcher comes in in their first year, they're kind of learning the business. Ideally they're learning and not operating in a true, like full version of themselves. Yeah, they're learning, they're meeting the people, understanding the customers, and figuring out how to really serve that business. In about year two, they're starting to really take a leadership role. I like to tell people, when people ask me, when's the best time to bring in an operating system, kind of anywhere after your first hundred days feels right to me, but it's really situationally dependent. Anywhere in the first 100 days. Once you kind of galvanized yourself with the business a bit and then you, the board, your investors, whether you're using an operating system, your employees, your customers, that whole like brew starts to take shape. And as a, as a leader, you and your team start to galvanize around two or three ideas or paths that could actually, you know, create a bigger impact and create value in the business. So around year two to three, we're galvanizing around some bets that we want to make. We make those bets and hopefully usually they pay off in a good way. If they don't, we pivot. But you're making a bet and hopefully by the time you exit, you know, you've created a ton of value in the business and the business is much better off after you've, you've kind of gone through this than when you found it interesting.
- [44:42]
Ryan Hogan
And the, the board and, and the interactions with the board. Is this, is this like an advisory board that like coaches, mentors, directs, guides, or is this like a board that can turn around and like fire you?
- [44:55]
Ned
Yeah, yeah. Board can hire and fire you. That's the number one, one of their number one levers. Yeah, right. But no one ever wants to do that. Right. Like to get fired from a search fund CEO spot, you, you have to do something pretty gnarly or you didn't listen. Right, right. Like if the board, Most boards at this stage in the traditional space are pretty high functioning boards. So they have great governance in place there. It's like the right amount of governance for a rookie CEO. And as that CEO matures, team grows, it can scale with that, with the team. But ideally they're a thought partner. A lot of the time it's just pattern recognition. So that when you're coming to a board meeting, I like to think about it like a consultant. I'm coming in, I pay a board fee to all the board members. I want a return on my consulting fee. So I'm paying them x, I want 10x out of that. So it's not that they're going to give me advice per se. Sometimes they do depending on the board member, but usually they're just helping me think through an issue in a way that I can't see because I'm in the business.
- [46:08]
Ryan Hogan
Is this a way like when you think about the different, the different paths of entrepreneurship, you know, the, the whole compensation side of it. So obviously like as CEO, the person stepping into that role, they're, they're getting a certain amount of compensation. Is this like, is this a way to like get rich or is this a way to like ease into the pool of both entrepreneurship and business leadership post mba and then I don't know, like start investing in other search funds or do it again. Like what do you typically see?
- [46:43]
Ned
That's a great question. Different strokes for different folks. Right. Like everyone's got a different story. Most people haven't had generational life changing wealth that do this. Some do, some have already have wealthy families and have done well on their own and it's just calling to them they're going to do it. I'd say most people haven't had that. So you have someone who's really hungry that wants that. So that's typically more the profile I see. And yeah, upon exit they have now, you know, generated some, some really good wealth because they, if everything goes well and they hit all the hurdles, you're earning into 25% of the equity of the business.
- [47:33]
Ryan Hogan
Interesting.
- [47:34]
Ned
That's sweat equity. Yeah. Right. And there's, you know, without getting the details, there's going to be the mechanism of how that works. But you have to be able to Generate like a plus 30% return for your investors. So if you do that, your compensation is this 25 carry. And in most of these businesses that's a lot of money. Yeah.
- [47:57]
Ryan Hogan
When you think about like different forms of growth strategies, like one of them obviously a roll up strategy is if a searcher is growing a company and, and the, the biggest opportunity there is to like roll up other similar companies, is that an actual option and to go raise more money or is this like. No, you are the roll up company, you dummy. So like just wait, wait for the, the exit.
- [48:24]
Ned
I wouldn't say anything is a no. Yeah, it really is situation dependent. I'd say most search investors shy away from roll ups early until the searcher has proven themselves or figured out. We as a search on community have a bad record in roll ups right off the bat.
- [48:46]
Ryan Hogan
Interesting.
- [48:46]
Ned
Right off the bat.
- [48:47]
Ryan Hogan
Yeah.
- [48:47]
Ned
Because remember, you're taking a rookie CEO.
- [48:50]
Ryan Hogan
Yeah.
- [48:50]
Ned
And then you're putting them in this leadership position. Now you're saying, hey, cool, that was hard. Now do this 20 more. Right. And keep your team together and get everyone motivated and all this. That's a hard thing for even a seasoned, amazing CEO to go do. Yeah. And I'm not saying they can't. Like there are plenty of examples I've invested in where the person gets in the roll up strategy presented itself and it makes sense and there's a way to do it. But I'd say you're adding a lot of complexity to, to a deal that
- [49:23]
Ryan Hogan
makes, that makes total sense. There's so many like complexities and dynamics to that of new CEO, just acquired that company trying to figure out what it is they do there anyhow. And then.
- [49:34]
Ned
Yeah.
- [49:34]
Ryan Hogan
Bolting on, bolting on a roll of straight. Yes. Quite a bit.
- [49:38]
Ned
New, new team. Right. Like, I don't know about you, but like if I. This is a weird thing. Like you're buying a business that you're being brought in as a leader. Yeah. And the team that you're leading has way more experience than you. Way more. And now you have to leave them. Okay. You get them. They recognize you're not a total monster and you're, you're actually a really good, thoughtful person. That takes time. So that first 100 days is really critical. But I'd say in that first year, like you're, you're really feeling it out. And yeah. It's not, it's not easy. You're not the founder. Yeah. So you're, you're stepping in and you have to earn that trust so that you can grow. And I think that's where an operating system like EOS is or any of them, honestly, any of them. I'm speaking from EOS because it's like, that's what I know, it worked well for me. But any of them are great. But an operating system is so important because it allows the new CEO or any leader really to be in the room with their team, with their leadership team. And then you, let's say you're the CEO, you get to be with that team and I'm the facilitator. There is dissonance there. Yeah. So now you get to be part of that team while I'm facilitating this journey that you're going on with your team. That's very different than you saying, hey team, we're going to do this, let's do this, you know, the Ryan way. Here we go. And you're running an Orion os, right? Like, people can do that. That's traditional leadership. I just think you get there faster. You get there with richer, more thoughtful experiences and you're aligned as a team. Having a coach who has some wisdom and helps you see around some of the corners and, you know, ask great questions and really creates this place where the trust can grow. And you can see it happen month over month, quarter over quarter. I see it a lot faster, almost all my investments with a system than without. But there's also just some really great leaders out there that can do this without a system and, you know, and do really great things. So it doesn't work for everybody. But I think it's, it's kind of like one of those, it's like insurance. Like, why wouldn't you do this? To make sure that the best thing that you're putting all your time and energy in is getting the best experience. Experience. So, you know, I, I. For some people, it can be truly life transformational. For some people, it's just a nice nugget and a tool that helps them get alignment.
- [52:19]
Ryan Hogan
You talked about the, the founder departs and then you've got this, this transplanted CEO. We talked a lot about, I was telling you, I was, I was listening to our, our last podcast and, and we, we spoke a lot about values. And, and one of the things that's interesting is when people talk about values, generally what they say is an organization takes on its founder's values when the founder leaves and a CEO is placed. And obviously EOS has a process for this, and we close our eyes and we think about who the best employee is and we list down their attributes. Do you see that there's a radical change that typically happens with the new CEO and going through that process or, or do you see just more of a continuation of what was.
- [53:11]
Ned
That's a great question. That's a truly great question. I think what EOS does better than most is it just that you cannot be a bystander with the values. Like, it comes up everywhere. So when you're assessing your team and where you're going, you can get there with the wrong people on the bus. And this is telling you who's really living the values. And I'd say, is it like this, like, you know, thunderbolt from Mount High that, like, gets people, like, sometimes, yeah, but usually it takes a little bit of like, are these really our values? Are we, are we really in there? And then, you know, after After a bit of time it's really settled in and you've really made your first hire or fire and it's starting, you've had really good debate around it. Then it really starts to unlock. Yeah. And as soon as the, the in the search context, but leadership in general, as soon as the leader embodies, truly embodies those and those are them, but they can live that and be in the company without any errors. Yeah. Like I'm not this, I'm not who I used to be. Right. Like I came from private equity and banking and all that and I had all these, when I was a first time CEO, I had all this like imposter syndrome that I had to be this. Once you like let all that go, you can truly be yourself in your business and then everyone else can be themselves. That's a really great place to be. You go faster. The connective tissue is built like it's an organism that's functioning. When you're someone else or people in your team can't be themselves and they've got to come to work and pretend, yeah, sure, that can work. But is that truly great? And like, is that where I want to spend my time? Last I checked, we don't live in communism. People can work at least wherever they want to work. So that's being really clear about your core values can be that thunderbolt. Do I see it like right away? Sometimes, but more often than not, like over time it develops, people gain confidence in them, they use them and it becomes really powerful. And once, once that is a place where everyone's like living them. You don't know how to be without them. Yeah, yeah.
- [55:28]
Ryan Hogan
And is that like, you know, one of the things you spoke about earlier was, was generally you're not looking for turnarounds and this probably goes back to the CEO. Like it's a new CEO and the last thing you want to do is put them in, you know, a company that's burning a whole bunch of cash. But they're in some, in some capacity. They're not meeting their, their full potential is like. And obviously EOS is the kind of the change machine for that or the framework in order to do this is the mandate on the CEO is like there has to be a culture shift inside of this enterprise or organization to unlock the potential. And as a part of that, when you think about core values, growth mindset might come in or some of these other core values might start to seep in because you're trying to change like maybe a company that's Playing defense to offense or is it just situation dependent? And it's like every company needs something a little bit different.
- [56:24]
Ned
I want to make sure I understand the question. So are you saying like in search or in general as I work with teams?
- [56:30]
Ryan Hogan
Oh, search. I'm sorry, Search. So like, as the CEO is like, is the mandate from investors and. No. Okay.
- [56:38]
Ned
There's no mandate at all. Yeah, some investors are true investors. Like they don't think like operators. Some of them. Got it. Are operators. So we have different lenses. That's really great to have a board that has these different viewpoints because the board then can have spirited debate and you get a live, active board and that's a lot of fun. Like when you have high trust and you and your board can actually like hack through these issues in a meaningful way. That's awesome. When people are just there to check the box and like, all right, cool, they're doing the right thing, whatever. Or you got a couple quarters of, of non performance, like get it right. We need new CEO. Like that's not a fun board. That's not an actual board. So it's on you to put that together. But the culture is really up to the CEO and the leadership team. Like the, the, the board can sense we've seen enough. Like when things aren't working, there might be a culture shift. When like we're making. We have a lot of turnover. Right. Like there's indicators and we can highlight that for the CEO. Typically, what, what really upper quartile CEOs and teams start doing is bringing the team into the board meeting. Because the, the CEO doesn't quite know how people react in a board setting. So it's kind of nice to have a board give them feedback on their team. Not like you should hire, fire this person or whatever, but like, hey, are you sure Jimmy's really into it? Or Jimmy seems to not have a total grasp of this. Is there a training opportunity? Those are really great conversations to have. And it's just opening up the aperture and creating awareness. So I would say no mandate, but the board plays a role in helping the CEO develop their culture and, and, and often plays like a mirror. Like, hey, you say this is your culture, but it's not. I don't really see it here. Are you really breathing into it? Are you living it? Honestly, if I'm really being honest with myself, culture, like overtly, like the way that we're talking about it doesn't come up as often in board meetings as you think. Yeah, like when it comes up, it's really powerful, but it's not something that we're like checking all the time or having like a deep conversation on. A lot of times I'll have one on one conversations with CEOs about that. Yeah. Typically doesn't always happen in the board meeting.
- [59:20]
Ryan Hogan
I know. Are you just asking questions? Like if you're like just trying to gauge how it's going or.
- [59:27]
Ned
Yeah. When things are stuck. Yeah. You know, that's one of the places I gravitate towards because I've seen it.
- [59:33]
Ryan Hogan
Yeah.
- [59:34]
Ned
But I'd say like an investor, board member or someone that's not even going to be in there in the realm. But like, yeah, for me, like, I, I know, like, hey, like it. Say a CEO is having a hard time, we're not hitting our numbers, things aren't working. Sometimes there are some folks that the darker side of them comes out. Right. They're shorter, they're more directive. They're not coaching and helping and kind of building. They're kind of more micro managers. So that's a pretty easy thing to spot and show someone, hey, is this how you're showing up? Is that how you want to show up? Typically like that can create a mindset shift and an activity shift. So when things aren't going well, you don't need, you know, everyone's going to manage differently. But man, when things are going well, like being whipped and like being, you know, whipped into shape and you know, being told you suck, that's often not the, not the most productive way through. But like getting in, getting in the seat with them and saying, hey, cool, this is, this isn't working. But like, what's one thing that could work? How do we start building this? Right? Like you're in the military, right? Like a really good leader tells the team where they're going, like, here's the goal. But a great manager is like, you know, the, I don't know, in, in your, from your world, the person that is helping you get there. Who's that in your.
- [60:58]
Ryan Hogan
Back, in your day, back in military
- [61:00]
Ned
day, in your, you know, your branch. I don't want to, I don't, like, I'm, I'm even taking my. I'm going so far off because I made this mistake a few times. I just, I don't even enter the fight.
- [61:10]
Ryan Hogan
I, I would say it's the, the chief's mass is, is usually what they, they're the ones that like get done
- [61:16]
Ned
through people and they're the ones that have to like create trust and build camaraderie. And like, but they're in there helping you figure out how to tie your shoe. And like, here's how all this works. Is the bed made? Right. Like, blah, blah, blah. Because that's done matters. Right. And I, I would say most CEOs and leaders, especially in search, like, they're figuring that out. Like, when am I the leader, when am I the manager? How do I manage? How? Like, what's the right aperture? So I think that's, that's a common thing.
- [61:49]
Ryan Hogan
Wow. I've learned so much.
- [61:51]
Ned
Come on. For real.
- [61:54]
Ryan Hogan
For real. Um, it'll. It'll certainly help. As I continue to get the questions on, on, on these different paths. I, I guess the, the, the last questions. One, you've been very generous with your time. And, and I just looked at like, where we're at. Plus, plus, I think we got some food waiting. Last question is somebody, Somebody like, understands what the search fund is and they're like, they're like, committed at this point to going down that path. What. What's your kind of biggest piece of feedback for them as they're getting started?
- [62:31]
Ned
I don't know about the biggest, but one thing that's been coming up lately is like, what's your why? Why are you really doing this? And often, more often than not lately, people are running away from things. Like, I've kind of done my couple years in consulting or banking. Like, I don't want that. So I'm going to this.
- [62:57]
Ryan Hogan
No.
- [62:58]
Ned
Okay. Why do you want to really lead people? Right. Like, what does that look like for you? What about you makes you want it and get up every day and like, want to do this and really care about people?
- [63:11]
Ryan Hogan
That.
- [63:12]
Ned
That's one where if someone's hasn't figured that out for themselves, and I can't feel like that makes sense, but there's no way I'm investing. So I think, like. So, like, getting in touch with your why and being able to talk about it, like really being able to talk about. There's some people that maybe have a great why, but there's. It's not. It's still. They're precious.
- [63:39]
Ryan Hogan
Yeah.
- [63:40]
Ned
And it hasn't come out. And that's just telling you now isn't the right time for you. Could still be your why, but maybe, maybe you need to go do some more things before you get there.
- [63:50]
Ryan Hogan
If someone's why was like, I want to work hard and get rich, are you generally, like, you know, there's. There's other ways to work hard and get rich.
- [63:59]
Ned
Get rich is Just not the game.
- [64:01]
Ryan Hogan
Yep.
- [64:01]
Ned
This is a different game. This is, you know, Rich is a byproduct. You really have to believe that you can lead. Like, you have to be able to lead people. You have to be able to be mentored because you're a first time CEO. Like, you have to be able to take feedback and you really have to want to be all of the things of a CEO. Some of it you could take a leave, right? Like performance reviews. Cool. I don't really care. I didn't in the beginning. But then you start to learn, like, okay, like this is part of the game. All right. This is a really critical part of the game. And like finding out how to up your level of mastery on all these parts of, of leading is. That's someone who's curious, coachable, driven. Like, those are, those are really great leaders.
- [64:56]
Ryan Hogan
Love it. All right, on that note, okay, I apologize. I said last question. This last question. So Ned, someone just listened to this, this whole thing because I don't think I asked this on the last one. But we'll make sure to put in the show notes. Someone just listen to this whole thing and they're like, I need to talk to Ned. Like, I've got to get a hold of. Of Ned either Eos side or search font side or something like that. What's the best way or easiest way someone can get a hold of you?
- [65:21]
Ned
Oh, man. LinkedIn is the easiest y by far. So just send me a note, start talking.
- [65:28]
Ryan Hogan
There it is. We'll, we'll drop it in the links. Thank you so much for coming on. I appreciate you coming on twice now. Oh, man. I'm gonna text jbs. I'm gonna, I'm gonna take a, a copy of that, that picture and, and send it to him.
- [65:39]
Ned
Better get like eight minutes on or something to have him come three times because I don't, I don't think I can carry the water.
- [65:46]
Ryan Hogan
We're still, we're still working on Gina. We'll see what, what happens on the, that one. But thank you so much. I appreciate you coming on, taking time.
- [65:53]
Ned
I hope that, I hope, hope that that was informative.
- [65:58]
Ryan Hogan
100% sweet.