After lurking on SMBTwit, I’d like to introduce myself: “Turncoat Search Fund Guy”

I did a traditional search fund in 2017, bought in 2018, sold in 2022

2 mo ago, I turned my back on the SF model, signed a PG, and bought an SMB

7 BIG diffs btw “Search CEO” and “SMB Owner” 🧵👇
Some background: I did a local (AZ) search w/ traditional search investors in 2017 post-GSB.

Local focus was a hard sell to investors, but I’m passionate about my home state & knew there was plenty of opportunity

Found a prof. services biz via cold call. Closed early 2018.
It was a rough ride (future thread) but finally sold after 4 years.

President was running it by that time, so I left the company after close.

Now what? I loved operating but knew the pain of being “stuck” in an underperforming, investor-owned biz with my equity upside fading.
[BTW shout out to my Board – incredible operators who were true mentors/coaches thru the ups and (many) downs.

Say what you will about the sf model, but when you get investors who buy into being mentors, it’s transformational. I grew 10x faster as a leader because of them.]
Anyways – post-exit I got back in touch with a business I toured in 2017. It had grown since, and the owners were ready to sell.

As I opened up the books, I realized that the FCF and historical stability were a perfect fit for an SBA-funded acquisition.
Key question was – did I have the guts to sign the feared PG? Would my wife ever be on board? Was it reckless?

[Flashback: I had floated the PG/SBA approach to a prof/investor back at business school, and his look of abject terror at the idea had been seared into my mind.]
I decided to go for it. Owning 70%+ of $1m+ SDE was too good. There is a huge difference btw playing for upside/carry, and owning cash flow.

That’s why trad. vs self-funded is NOT a difference in cap structure or % ownership.

They are two completely different games.
And I’ve been shocked by how different it has felt in just these first 2 months.

It’s not just that I’m a much more experienced operator/leader. It feels like I am serving a totally different role: a Small Business Owner.
Being an “owner” is not the same thing as CEO. 7 key differences:

1)The sense that I’m trying to impress my investors or keep them happy with me is gone – and I didn’t realize how much mental/emotional space that dynamic took up before.
2)I am rewarded for running a marathon and not sprinting. If I choose to NOT pursue 25%+ YOY growth, I get cash flow.

3)But if I do decide to grow aggressively, I have much bigger equity upside potential! It’s a nice balance of incentives.
4)I also like the incentives vis a vis my investors: If I want a “bonus,” then I need to make a distribution to everyone.

5)If I want to invest in growth, it costs me – no vanity projects or unnecessary marginal risk. The alt. is that $ in my pocket (& my investors’ pockets).
6)At the same time, I feel freedom to over-invest in my people.

I daydream about growing enough to give my employees a Silicon Valley-level of employee benefits.

I don’t care if I see direct ROI from a fancy health plan or retirement matching…
... I feel personally responsible for blessing the people who work at my company, and I feel empowered to spend money based on those values regardless of their impact to IRR.
7)The employees definitely see me differently as the owner vs the CEO.

Just today, an employee commented on how he wants to be careful about buying too much inventory because it’s “your money.” ...
... I think they also connect with me more because there isn’t a big group of unknown investors behind me who theoretically are calling the shots.

It’s just me, growing this family-owned business, taking care of my employees, and doing right by customers.
I still have my issues with self-funded searching as a model (future thread), but I’m a big fan of the independence, wealth creation, and impact that it can facilitate.

It’s not for everyone, but it’s definitely for more people than you might assume.
If you liked this thread, there’s more coming!

Follow me as I share about traditional search model vs self-funded, and my journey with this new biz.

I’m eager to meet other members of this new SMB Twitter “tribe” and hope to meet many of you at @SMB_ash in Austin next month!
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