If You are Buying or Selling a Business, You Need to Know How to Fish
A friend called the other day, very frustrated. He has been looking for a good business to buy for the better part of a year. He concluded there were no good businesses for sale. He just wanted me to validate that, me being in the business of buying and selling businesses and all. I sighed the way a professional fisherman does to a recreational fisherman when asked where the fish are. “Yep,” I said, “there are no good businesses for sale these days.” No fish in the ocean, no one is catching anything.
Buying and selling a business is a lot like fishing. If you are not catching anything, it’s because you are either:
1) fishing in the wrong place;
2) using the wrong method for the place you are fishing; or
3) not using the right bait and tackle.
And of course, it requires a little technique and finesse which only comes with experience.
The reason my friend wasn’t catching anything was because he is a recreational fisherman – a do-it-yourselfer, and didn’t know what he didn’t know about buying a business. The same is true for people who are trying to sell their own businesses. They flounder around (pun intended) for a year or so, get frustrated, and conclude there are no qualified buyers for their business.
Growing up in Florida, my dad took me fishing every weekend. He wasn’t a professional fisherman – didn’t do it every day like the pros did, so he would shadow them until they led us to the fish. He knew they knew where the fish were and he took note of what bait and tackle they were using. They would usually give us the finger as we trolled around them, but my dad would just smile and yell at me, “Fish On!” as we pulled in the fish around the pros. So, tag along now if you like, I’ll give you a few pointers. Just don’t tangle my lines.
Fishing in the Right Places
Professionals know where the fish are, depending on what they are fishing for. There is river fishing, stream fishing, pond fishing, lake fishing, ocean fishing, shallow water fishing, deep water fishing, warm water fishing, cold water fishing, etc., etc. You get the idea. If you are fishing for Bass, you don’t head for the gulf stream.
When buying or selling a business you need to know where the right buyers and sellers are, depending on the size and type of business you are buying or selling. I chuckle when some buyers and sellers tell me they spend all their time fishing on BizBuySell. It’s a decent lake for certain types and sizes of fish, but there are other bodies of water stocked with more businesses, better businesses, and the types of businesses they are in the market for.
Lesson one: pick up anchor and try other spots. The pros know where to go because they have an information network not available to amateurs. They also have the proper fishing licenses. Professionals have access to business valuation databases and Multiple Listing Services (MLS) for businesses worldwide that are not available to people who are not licensed. In my office, we pay more than $10,000 per year for these licenses. The amateur buyer-seller can’t afford to make this investment, no more than my dad could afford a large charter boat with a flybridge and 30 rods.
Using the Right Method of Fishing
There are all sorts of ways to catch fish. The most common, used by beginners and recreational fishermen alike, is single rod drop line. A line is dropped in the water from shore or a boat in hopes that a fish will wander by and take the bait. It’s not terribly efficient, but many of these types of fishermen are not really there to catch anything. They are just enjoying the scenery and drinking a few beers. There are a lot of these kinds of business buyers and sellers. A lot of them fish this way in BizBuySell or in similar holes. If you are super serious about buying or selling, you will need to up your game. Waiting for a big fish to come take your bait is not the right way to fish if you truly want to catch something.
Multiple Rod Trolling is a method used by more sophisticated recreational fishermen and small fishing charters (business brokers). They put out several lines. They have the advantage of moving around a lot, trying different spots in search of a school. This is how most small business brokers operate. It’s a method known as in-bound marketing. Throw out some lines on more than one MLS and hope something hits one of them. It works, but you are still waiting for the buyers or sellers to come to you.
Multiple Rod Casting is a highly-targeted method of fishing. The pros will troll, but they will also stop and cast multiple lines in multiple directions, fishing in specific spots and at very specific depths. This is how most M&A pros operate. It’s a method known as out-bound marketing. It requires more sophisticated equipment and more precision than the other methods of fishing. It’s more costly and time-consuming than trolling, which is why most amateurs don’t do it. The pros take the bait to the fish and dangle it in front of their mouths. They know where the fish are and at what depth. If the fish don’t bite, it’s not because they aren’t there, it’s because they aren’t hungry. So, they go cast in another place where they are hungry.
Net Fishing is for fishing for entire schools. Whether casting a large net with two hands or cruising the oceans in a trawler, these specialty fishermen are looking to catch a lot of fish of a similar kind. They are companies making multiple acquisitions or private equity groups buying and selling in volume. It’s good to understand this method if you are a small fish looking to be acquired. If you are fishing full-time this way, you probably live on Wall Street.
Lesson two: Don’t just troll, or retain a broker who is only going to troll. Learn how to cast, or hire a pro who knows how to cast. If you are a decent size business making money and looking to sell one day, get to know some net fishing boat captains. A good M&A pro knows lots of them and can introduce you.
Using the Right Bait and Tackle
This is the biggest mistake most recreational fishermen make. They don’t have the right rod, the right line test, or the right bait, for the type of fish they want, or for the spot they are fishing. Every experienced Fly Fisherman knows this: choose the wrong fly and you won’t even get a nibble, although the stream is stocked and the fish are jumping everywhere. Every sport fisherman knows this: don’t use 6lb test to catch a 30lb fish and, for heaven’s sake, use the right knot.
In business brokerage parlance, this means having the right business proposition. I could write three articles on this subject alone. Having the right “pitch” is everything. There is an art and a science to it. Most do-it-yourself business buyers and sellers have no clue how to qualify a target and pitch the right proposition to them.
Lesson three: The right bait and tackle is everything, assuming you are fishing in the right place and using the right method. What works in one pond won’t work in another pond. A business seller, in particular, needs to understand the needs and expectations of every prospective buyer. Buyer A may be more interested in EBITDA than revenue. Buyer B may be more interested in the customer base and team. Buyer C may be more interested in the intellectual property, or the seller’s willingness to offer financing or take an earn-out.
Most importantly, when you only know how to fish in a lake, it’s best to charter a boat (retain a firm) and hire a professional captain (M&A intermediary) if you want to fish in the ocean.
Using the Right Technique and Finesse
Catching, as opposed to fishing, involves a certain level of experience. Anyone can fish, not everyone can catch almost every time they go fishing. Fish need to be teased. Whether you are buying or selling a business, you need to write a teaser. Once you get a nibble, you need to know how to finesse the line and lure to hook the fish (get an LOI). Once you hook them, you still need to boat the fish (close the transaction). When I first started fishing with my dad, he would hook the fish after I got a nibble. I would then reel it in under his watchful eye.
Lesson four: Fishing is not catching. To buy or sell a business successfully, you need to know how to get bites. You need to know how to hook the best fish — a big one if you are selling. And you need to know how to finesse the buyer or seller to a successful transaction.
You want to buy or sell a business without wasting a bunch of time and money? Learn how to fish. Better yet, team up with someone who knows how to fish and where they are biting. Happy catching!