Pete is a former acquisition entrepreneur himself who now backs aspiring private business owners by co-investing in their businesses and coaching them to make real progress by: distilling the mission; articulating the strategy; building great teams; and then, designing pragmatic plans to put rubber on the road.
In this episode we discuss the Australian market for search funds and dive deep into how successful searchers navigate acquiring and operating businesses.
Subscribe to Search Funded: the ETA Podcast on Spotify or Apple.
Pete is a former acquisition entrepreneur himself who now backs aspiring private business owners by co-investing in their businesses and coaching them to make real progress by: distilling the mission; articulating the strategy; building great teams; and then, designing pragmatic plans to put rubber on the road.
In this episode we discuss the Australian market for search funds and dive deep into how successful searchers navigate acquiring and operating businesses.
Subscribe to Search Funded: the ETA Podcast on Spotify or Apple.
00:00:00 NICK LALL
Fund at the Entrepreneurship through Acquisition Podcast. I'm joined today by Pete Selegman. He's a Search Fund investor in Australia.
00:00:10 NICK LALL
I'm really excited to talk to him because Australia is a relatively new market for Search Funds, but it's one that fits a lot of the characteristics of what I think makes a great Search Fund market. I'm really excited to have Pete on the podcast. I think a great place to start maybe would just be for you to tell a little bit more about yourself and your own entrepreneurial journey and how that informed your views on Search and how that guy you understood and starting to invest in Search Funds in Australia.
00:00:41 NICK LALL
00:00:41 PETE SELIGMAN
Yeah, fantastic. Well, thanks very much for having me, Nick. It's great to be on and I really appreciate your efforts to try and help educate more people around Search, both in the States and also in the world because it's a growing asset class, I guess, and it's a growing career path.
00:00:58 PETE SELIGMAN
It's been around for a long time, but it's actually really starting to get off the ground in a range of new markets as well, including Australia. So I guess I'll try and distill what is now coming up to 25 years worth of experience into a very short summary. So I'm an engineer by background.
00:01:16 PETE SELIGMAN
I also did a finance degree. I spent some years as an engineer, a civil engineer that is like Dick Holes, I don't write code. So, and then after that, you know, about five years in and doing some project management and some construction and some construction
00:01:34 PETE SELIGMAN
Bank, which is an Australian investment bank, was spending a lot of time and effort and money in infrastructure and that was my opportunity to jump across into the investment banking world and leverage my finance degree. So I did that for a few years, both in Sydney and in London and various other places around the world, which was a great experience in
00:01:52 PETE SELIGMAN
finance sector investment banking decision
00:01:56 PETE SELIGMAN
investments, due diligence, risk, all those kinds of things were really useful learning for me, particularly what I'm doing now. And then I came back home to Sydney and joined our Stockland Property Group, which is a large listed property company here and that's where I really gained my general management experience. So leading larger teams, navigating the, I guess the bureaucracy and the politics and the dynamic of a large organization.
00:02:24 PETE SELIGMAN
But in 2012, I can't have got to the point where I could clearly see what the rest of my career path could look like and strangely that was less incentivising than not being able to see it. If that makes sense, I was keen on doing something that had a bit more volatility, a bit more
00:02:46 PETE SELIGMAN
myself, needed a bit more accountability and autonomy and what I was doing. And at the time, I guess without knowing anything around ETA or entrepreneurship through acquisition or search funds or anything, me and a good friend of mine decided that we should head out and buy a business of our own. So that's what we did. We searched for about six
00:03:12 PETE SELIGMAN
I used to say we looked at 200 companies and I thought that was a big number, but now looking at how searches typically run their operations, that's a small number and bought a business in June 2013, a very small business. So I'll jump over the next effectively in years, which has been me as a what you now probably describe as self-funded searcher. We ended up buying five businesses.
00:03:37 PETE SELIGMAN
I dropped into three of them as CEO, made myself redundant each time either recruiting or promoting internally. And then come to 2020, got to a point where I either was going to drop in a CEO again or find another path and that was when I was first introduced to search. And the importance and the role of the search fund investor, which is effectively a hands-on private investor, which is exactly what I was looking for.
00:04:03 PETE SELIGMAN
So it fitted and so I spent the last couple of years investing in search here in Australia and doing what I can to try and
00:04:09 NICK LALL
Amazing. And so given that you are pretty hands-on investor, what sort of support do you add to this? What sort of support do you give to the searchers there in Australia? Or do you just invest in Australia or are you investing in other locations as well?
00:04:22 PETE SELIGMAN
Yeah, so the moment, so second question first, at the moment I'm focusing my investment on Australia and New Zealand. There's, I feel like there's a lot of opportunity here. It's in a market where I can add value directly both focused on experience in this market and also I'm closer to the searches so I can make myself available.
00:04:42 PETE SELIGMAN
In terms of the kind of support, it really varies. You know, I do think that fundamental to the model of search is the fact that the investors are active. Now, it doesn't mean that all investors need to be active and it doesn't mean they need to all be active in the same way, but it does mean there's... opportunity for the investor to engage and an opportunity that the searcher should take up to get that guidance from the investors. So, you know, during the search phase to bring it to life, I probably catch up with each of the searches I'm invested with, I'll catch up with them once a month
00:05:17 PETE SELIGMAN
an hour or half an hour depending, just for a really an update. You know, how you're going, what have you found? Have you got any questions?
00:05:25 PETE SELIGMAN
be anything from, I'm feeling really down because I haven't found anything yet and I don't know if I'm right for this jet. Like, could be kind of almost kind of psychological, could be kind of a coaching kind of session in that regard, you know, it'll be okay. You're only three months in, there's still a long journey to go or it could be quite technical, you know, I've got a letter of what intent I'm going to put in.
00:05:47 PETE SELIGMAN
I don't know whether to structure it in this way or that way, you know, what's the impact of having a nerd out with these kind of metrics. So, there's a range of things really and the thing that I enjoy about it
00:05:59 PETE SELIGMAN
each of those searches go through that journey, which is quite a, it's quite a journey. You know, you go through various stages at various points in time, there's lots of things you need to learn and lots of experiences that you have and so I really enjoy seeing them do that. I like being able to
00:06:19 PETE SELIGMAN
and it's also a nice challenge for me because, you know, over the last 10 years, I've done it myself, you know, been in the hot seat search for the businesses negotiated with the vendors, been through the transactions, dropped into operate. Like, I've done those things in the hot seat. The challenge for me now as an investor is what can I do to help someone else achieve the same thing, which is one step remove, which is something new for me to
00:06:46 NICK LALL
I mean, it must be pretty rewarding to be able to help other people to do what you've done in the past and help them see them succeed as well. What would you say are the unique opportunities or challenges of the Australian market versus other places such as the US or UK where search may be a bit more
00:07:03 PETE SELIGMAN
well, if you if you take purely the maturity metric and say, you know, how does the maturity of the market have an impact on the challenge of search? I think, you know, Jake Nicholson, who's based in Singapore, SME Ventures, who I've done some work with, he did a great presentation at our Australian Forum last year in September where he was trying to articulate, I guess, the nature of the Australian market, but also the maturity of the Australian market and he broke it down into three parts, which is essentially you need entrepreneurs to head out and
00:07:38 PETE SELIGMAN
try and search for businesses. You need businesses for them to buy, so you need a good market of small to medium-sized businesses that are ready for sale and you need investors that are there to provide the capital. And so it's a bit like spinning plates, you know, at any point in time, any one of those three things might be increasing or decreasing or stable.
00:08:01 PETE SELIGMAN
I think in more mature markets, probably the biggest thing that stands out on all three of those, both the like the entrepreneur, the businesses for sale and the investors in mature markets, the knowledge of search is just greater. So for example, they're probably more entrepreneurs because they know about that opportunity as a career path. You know, when businesses, business owners are approached by those entrepreneurs, it's more likely they'll know what a search fund is and what a searcher is and so they're confidence in engaging with those people is probably higher.
00:08:33 PETE SELIGMAN
thirdly, investors, there are just more people that understand the search model and therefore are willing to provide capital to it. So, you know, two years ago or three years ago in the Australian market, the knowledge base was very, very small. And so, you know, raising capital was harder.
00:08:49 PETE SELIGMAN
was mostly raised off shore. You know, the discussions with vendors was harder because they were like, well, you're just some individual like how are you going to have capacity to buy and how can I trust that you're going to complete and all these things, right? So I think as we've matured, those things have now, you know, as I sit here today, we've got, you know, 10 or 20 searches in the market, we've got, you know, a good fundamental base of search fund investors who understands the model are actively investing and supporting those searches.
00:09:23 PETE SELIGMAN
more and more, least the advisors that advising business owners are starting to hear more about search. So when a business owner goes to their advisors and say, look, this guy just called me, he says he's a searcher or something and wants to buy my business, what does all that mean? It's more likely the advisor, oh, yeah, I've heard about a little bit about that.
00:09:44 PETE SELIGMAN
is actually something that's for real. It is worth having a conversation. So, so yeah, I mean, fundamentally, my view on the Australian market and the New Zealand market is that whilst the populations are relatively a lot smaller than other markets, like
00:08:40 NICK LALL
you
00:09:42 NICK LALL
00:09:59 PETE SELIGMAN
America, Europe, the, the, the A number of businesses is still plenty. The best estimates we've got of businesses with earnings between 1 and 4 million is that somewhere between 18 and 120,000 businesses, probably between 16 and 80% of those are owned by people over a time and age and more than half of those won't have succession plans. So you're running the numbers and there's tens of thousands of businesses that have the right
00:10:25 PETE SELIGMAN
So I think we've got a long way to go before we start to saturate
00:10:29 NICK LALL
Totally. I think it definitely seems to have the characteristics of being relatively aging population, but wealthy country and definitely strong culture of entrepreneurship. So it seems like it should be a place with a lot of opportunity at least for now.
00:10:47 NICK LALL
How does succession typically work in Australian businesses and how have you, when you were searching for a business or how have you advised your searchers to present themselves to these sellers or to get past that unfamiliarity that may be there in terms of selling to a search fund entrepreneur, which is something that they may not be
00:11:09 PETE SELIGMAN
Yeah, absolutely. Well, I think the question around how does succession work? I think the answer to that is it doesn't work.
00:11:16 PETE SELIGMAN
I think there's, and this is not just an Australian problem. I think it's a global problem, I think that a lot of small and medium business owners don't think about succession early enough. And when they do, they're not thinking about it in the right way.
00:11:32 PETE SELIGMAN
I think, unfortunately, more often than not, people suddenly think about selling their business on a dime. And then we'll think, OK, I'm ready to sell. Let's get this done in six months.
00:11:44 PETE SELIGMAN
And we'll then take to market whatever business they happen to have. And I think that that's a real issue for a whole bunch of reasons. So it's like if you own a house and you suddenly work up one morning, you said, OK, I want to sell it.
00:11:58 PETE SELIGMAN
But you hadn't cleaned the gardens and you hadn't fixed that hole in the wall and you hadn't redone the roof where there was a tree fell through or whatever. You know, like if you're going to sell your house, you spend some time and effort preparing it for sale so you can get a good price. And then that into a business lens and the task is even larger.
00:12:19 PETE SELIGMAN
You know, the time it takes to properly prepare a business to sale is quite a long time. And I think people underestimate that. And so they take their business to market. Their own internal view of value is quite high because they've loved that child per save for a long time. But an independent person coming in and having a local find all sorts of holes in that value. And so in terms of first
00:11:10 NICK LALL
Well, I
00:12:30 NICK LALL
00:12:43 PETE SELIGMAN
seller, the first kind of thing to understand is not a problem to solve. It's more an issue to understand is how prepared are they? You know, have they spent the last two years with a good advisor helping them prepare a sale so they properly understand value that properly have kind of got their business in the right kind of shape.
00:13:01 PETE SELIGMAN
And therefore when you start discussing with them, your view of value, it's going to be much more well grounded and rational conversation. Or are they relatively new to market, haven't really been well advised. And they're in a situation where they just want to sell, but they want to get an excellent price.
00:13:19 PETE SELIGMAN
Because then the start of the conversation is going to take a month much longer. Because and it doesn't mean that the conversation isn't worth having, but you just need to be ready for that to take longer because they're going to have to, you're going to have to take them through that whole curve from what they think their business is worth to what it actually probably is worth. And then then deciding whether or not they
00:12:52 NICK LALL
have
00:13:09 NICK LALL
Or
00:13:34 NICK LALL
00:13:42 PETE SELIGMAN
So that takes time. So in terms of
00:13:44 NICK LALL
00:13:46 PETE SELIGMAN
through that process, the primary kind of bit of feedback is patience. Like you just really do need to be patient that they these things take time. I mean most of there are deals that will happen in Australia in the next month or so.
00:14:04 PETE SELIGMAN
And those, you know, the first phone call on those deals would have been 12 months ago. Easily if not more. So that's just how long it takes because there's so many iterations to go through.
00:14:16 PETE SELIGMAN
And there's a journey that you need to take that vendor on. You know, they're not a financial investor that is buying and selling their investments in businesses, you know, every week of the year. And so for them to offload one of their investments is a relatively easy process.
00:14:30 PETE SELIGMAN
You know, you're trying to extract a business from someone that's probably been owned and operated at the 10, 15, 20 years. That takes time. So patience is probably the most important thing that searches need to have when engaging in those conversations.
00:14:08 NICK LALL
00:14:46 NICK LALL
That
00:14:48 NICK LALL
Do they have the culture of brokers in Australia and how much does that factor into the surge? I mean, I would guess that that may help with some of that process in terms of helping the good idea of what the market rate for their business might be. Yeah,
00:15:04 PETE SELIGMAN
get in that together. Yeah, absolutely. There are a number of brokers in the Australian market and the range goes from a one-man band like an individual who's running business broker service all the way up to the big four accounting firms, like the big global accounting firms, that will also potentially represent the sale of businesses that are usually bigger, but surprisingly, they will even represent relatively small businesses for the size of their organisation.
00:15:32 PETE SELIGMAN
So, you know, there's a spectrum and obviously there's also a spectrum in capability and experience of those people that are advising and
00:15:33 NICK LALL
00:15:41 PETE SELIGMAN
So it really depends who you get, frankly. If you go through a broker, the broker themselves can be more troubled than value that they create because they feed the vendor kind of inaccurate expectations around what this transaction might
00:16:01 PETE SELIGMAN
But equally on the other end of the spectrum, you can have fantastic brokers that have done a lot of legwork and a lot of groundwork to really prepare the vendor and their expectations for what this process is going to look like and
00:16:15 PETE SELIGMAN
Like a lot of the time, you know, obviously value is one thing and it's important to make sure that you get to an agreement on a reasonable value, but then there's also like the risk equation. So what is the risk that the vendor is going to have to take on through this process? And that might be the risk of settlement at completion.
00:16:33 PETE SELIGMAN
It might be the risk of deferred settlement for a payment that's going to be due in 12 months after completion. It might be the risk that gets baked into some kind of earn out calculation. It could be all sorts of things and the risk that's then documented in the sale agreement is something that a lot of vendors really aren't used to because it's probably the only time they'll ever do a business sale in their entire life.
00:16:56 PETE SELIGMAN
So and it can be quite a complex document if you're not used to it. So having a great advisor through that process is very, very useful and there are some that do a great job at it. There are others that don't do a great job at all, but I guess that's like in the industry right, you have a spectrum of capability.
00:17:13 PETE SELIGMAN
And understanding where that representation is that early on can also help the searcher and the searchers kind of support and work in understanding of how to run that process in the most effective way.
00:17:26 NICK LALL
Yeah. I guess speaking of third party advisors, are there many lawyers in Australia that are familiar with this process or that are that can be helpful in that way for the seller or the
00:17:38 PETE SELIGMAN
Yeah, absolutely. I think that in terms of
00:17:41 PETE SELIGMAN
we're really well served in this market. Obviously, we have all of the same brand names globally that exist in any major market. And so there are always those options. But even effectively the second and third tier on the legal and the accounting side are all very capable in
00:17:52 NICK LALL
00:18:01 PETE SELIGMAN
So I think in terms of and also appropriately priced. So it's not as if to get the necessary capability into the transaction you need to be paying an amount that's excessive for the scale of the transaction you can actually do it reasonably because that's another concern you could have. So yeah, I definitely think there are people out there that are very well versed and it very well experienced in transactions of this size and type.
00:18:27 PETE SELIGMAN
I think that sometimes what happens again, it's on the vendor side is that if you own a small business in a regional area that's out of the city and you've been running that small business for 20 years and when you first started, it was the local real estate lawyer or the local tax accountant that was helping you set things up and you've stuck with them for the last 20 years and now you're looking to sell your business and you go to those two people to help you through the process. Those people have been fantastic supporters
00:18:59 PETE SELIGMAN
of you and your business over a long period of time and you trust them inherently, right? That doesn't necessarily mean that they've got the skills to navigate a business sale transaction and so something also that it's useful for the searches to do is to kind of have those conversations, you know, in an appropriately polite way, but have the conversation around, you know, have your advisors been for a process like this before? Are they familiar with these kinds of transactions and these documents and the processes that surround
00:18:19 NICK LALL
So yeah, I
00:19:28 PETE SELIGMAN
often, and if I'm just thinking about the transactions that I've been involved with, more often than not, the seller as part of this process will have to engage a new lawyer and probably a new accountant specifically to help them through that process because they're a current lawyer and accountant just don't have that in their
00:19:49 NICK LALL
that's really interesting, I think, that's probably true a lot of places, but yeah, it just shows how much trust plays a role in these transactions and absolutely
00:19:57 PETE SELIGMAN
00:19:58 PETE SELIGMAN
high school, as seems to be the head of the is really important and I think and I think that the searcher investing time up front to do whatever they can to instill that trust in the seller I think is really useful. That said there's a limit to how much the seller is going to be able to trust you because you are sitting on the other side of a table right so that I also quite often see this kind of journey happen through that kind of acquisition process is that the searcher will be out there looking
00:20:29 PETE SELIGMAN
for businesses to buy. They'll find one that they really like to look off. They'll go and meet the vendor.
00:20:35 PETE SELIGMAN
vendor is wonderful and knows heaps about their business and they've got an excellent business and they're in a position that they want to sell. The vendor really loves the searcher and they're like, oh wow, this guy or girl is great. Look how experienced they are.
00:20:49 PETE SELIGMAN
at all the great ideas they've got. They could make such a great goal of the business that I've built to this point. They'll be out of the door.
00:20:57 PETE SELIGMAN
the things that I couldn't do and isn't that excellent. My legacy will live on and like they get all excited. Then the seller and the searcher develop a really good relationship over a series of months as the searcher is learning more and more about the business because the searcher is enjoying it because they're learning more about a business that they can start to see themselves running.
00:21:18 PETE SELIGMAN
seller is really loving it because they feel like they get a chance to transfer all of this great knowledge and experience that they've had to someone that can carry it forward. Then unfortunately what happens is you have to negotiate a sale. In that negotiation process it's just a fact of life that you will sit on the other side of certain issues.
00:21:40 PETE SELIGMAN
The seller will want X and the searcher will want Y and you'll have to negotiate that outcome. So that process, I was going to say by necessity, not necessarily by necessity, unfortunately will result in argument and argument hopefully in a rational and positive and good way to come to agreement, like an argument for the benefit of agreement. But equally it's very easy for some of those arguments to not be so productive.
00:22:11 PETE SELIGMAN
So it is one of those things where quite often I find myself coaching searches just like they'll say, I felt like I had such a great relationship with this vendor and now we're going through this process and they haven't been returning my calls or something's going on, it's okay. You can't expect this entire relationship journey to be rosy because there is part of this that just has to get serious. They're trying to sell their business for the highest possible value at the lowest possible risk.
00:22:44 PETE SELIGMAN
trying to buy their business at the lowest possible value for the lowest possible risk, right? But there's a gap and as some people joke sometimes, a good negotiation results in need of the party being perfectly happy and so I think that being accepting the fact that there will be ups and downs in that relationship will actually make your ability to keep that relationship strong better because you're like, okay, that's okay. And you can even have the conversation directly with the vendor, look, this is something we will argue about because you want this and I want
00:23:17 PETE SELIGMAN
that. That's okay, like we now need to have a debate about how we can find some ground on which we can both stand and that will probably leave both of us slightly disappointed but at least it gives us the opportunity to step forward to this ultimate objective which I think is important for both parties to keep in mind like ultimately, what are we trying to achieve? We're trying to achieve a transaction in which I buy your business for a value that you're happy with, you get a chance to sell it to someone that you're happy
00:23:45 PETE SELIGMAN
and you get to retire and take and crystallise the capital of this great business that you've built. There'll be niggles along the way but that's just a fact of life unfortunately.
00:20:07 NICK LALL
00:20:45 NICK LALL
wow,
00:23:50 NICK LALL
00:23:56 NICK LALL
I think that's one of the most important parts of the acquisition to get right.
00:24:03 NICK LALL
wondering if there are any examples you have of where things went south because someone didn't approach the negotiation the right way or I guess in other ways examples of success stories and examples of ways that building the relationship ended up creating a great win-win situation for both
00:24:21 PETE SELIGMAN
so I always want to try and be as transparent as I can in these calls but just given that some of these things are still alive. I'll be generic in my description, but I promise it's a real life situation. It goes back to again one of those fundamental
00:24:32 NICK LALL
00:24:43 PETE SELIGMAN
So there's a difference between
00:24:47 PETE SELIGMAN
is and what my position is. So what am I trying to achieve and in order to try and achieve that what position am I taking with you? So what often happens? Bunzies that particularly on the sell side, so the seller will have something in their mind that they're trying to achieve. They don't quite know how to articulate that to the buyer. And so they'll think of it of something that the
00:25:13 PETE SELIGMAN
is already talking about to help them achieve the thing that's in their mind. So I'll bring that to life a bit, right? So just say the seller is wanting to sell the business at a particular time, right?
00:25:31 PETE SELIGMAN
To line up with an acquisition that they want to make or because there's a particular date that works for them. But that hasn't been a topic of conversation. The buyer has been pushing to buy and complete on a particular date, but the seller wants to defer that a bit.
00:25:47 PETE SELIGMAN
Sometimes what the seller will do will just because they don't know how to just say, look, how about we think about changing the date because I've got these requirements and you've got these requirements, you know, would that work for you, you know, let's get this out in the open. They might start just debating another completely irrelevant point because in debating that point, they're deferring the execution of the agreement and effectively deferring the sale, right? They don't want to kill the sale, but they want to defer it.
00:26:13 PETE SELIGMAN
they're starting to argue on this other point. And then what happens is the buyer starts looking into this point that's suddenly the subject of debate and trying to work out what's going on. Like this seems like such an obvious point for us to agree on.
00:26:27 PETE SELIGMAN
Why is the seller debating me on this, right? And so you end up down this rabbit hole, but you've actually completely mispicked it because what you're trying to do is actually understand what's sitting behind the position that they've taken. So what happens through the course and like I said, you know, you have this great relationship between buyer and seller and then you get into negotiation and sometimes I can sell because you're trying to kind of agree on things that are somewhere in the middle and during that negotiation.
00:26:53 PETE SELIGMAN
What can also happen at that point is lawyers necessarily have to get involved in order to draft the agreements and do all those sorts of things. Sometimes the lawyers then put themselves in between buyer and seller and then you end up with a very formulaic communication approach, which is necessary for the lawyers, like I'm not saying they shouldn't do that, but that can cause a breakdown in a relationship between buyer and seller. And so in this example where, you know, there was this red herring thrown up by the seller in order to change a completely
00:27:24 PETE SELIGMAN
different unrelated
00:25:38 NICK LALL
00:27:17 NICK LALL
so in
00:27:27 PETE SELIGMAN
needed to do was go for a coffee with the seller and say, look, I just wanted to see where you're at on this deal. I don't want to ask you any specific questions, but how you feeling is still engaged, is still willing to sell, you know, is there anything that's on your mind. In that process face to face over a cup of coffee, the seller actually kind of just says, you know what, I just really keen for us to transact on this date.
00:27:49 PETE SELIGMAN
And then suddenly the buyer is like, okay, I get it. I understand like you've been fussing around with all these clauses that seem completely irrelevant, but actually there's this other thing sitting behind. So I think it's a very, it's a very nuanced process like any negotiation is, and you need to balance the need for rigor and discipline, which the lawyers will bring.
00:28:15 PETE SELIGMAN
And that softer side, which is how to manage that relationship with the seller that will always be in flux. So you'll have good days and bad days and that's okay, but you need to manage the relationship side and the structural side at the
00:28:29 NICK LALL
that's a great story. And I think it illustrates the point. Based on what you're saying, it
00:28:36 NICK LALL
intelligence, relationship building, patients, negotiation schools, those are all things that make good searches, swandering what else you look for in the searches you invest in, whether it's particular professional backgrounds or any other traits that they may have.
00:28:51 PETE SELIGMAN
so I actually think, I actually think those traits that you just articulated there are important
00:29:00 PETE SELIGMAN
navigate us, us an acquisition, but they don't all need to rest in the searcher. Right, one of the great things about the search model is that it's founded on the basis that the investors will be there as a, as a, you know, a group of coaches to help surround the searcher and fill the gaps that they might have. Right, so, so I definitely don't want anyone who's thinking about doing a search to feel as though if they haven't negotiated the sale and purchase agreement before they're not going to be a good enough searcher.
00:29:31 PETE SELIGMAN
Like all they need to do then is that it's meant to surround themselves with investors who have done it before and then be open to the coaching through that process. And it goes to any of the skill sets that might be required through the entire search journey and well into operation. So the things that I personally look for in a searcher, there's kind of some threshold criteria, which is like, you know, you need these things in order to even get a ticket to the game, right?
00:29:59 PETE SELIGMAN
that's like. Obviously, you need to have a certain level of skills in relation to communication and calculation, you need to know how to add up. You need to have a certain minimum level of capability when it comes to that regard. It doesn't necessarily mean you need an MBA. A lot of searches have an MBA. I don't think that's completely necessary.
00:30:27 PETE SELIGMAN
to have a certain intellect. I think what that does, though, also is it leads to my second
00:30:36 PETE SELIGMAN
think you need to have a problem solving mindset. They're always going to be issues and you need to have that mindset where you're actually intrigued by the process of solving problems rather than frustrated by the process of solving problems. I think you need to have a problem solving mindset.
00:30:52 PETE SELIGMAN
I think you need to demonstrate and have demonstrated a certain level of grit, like a level of determination, because right from the start and all the way to the end, it's not an easy journey. I talk about quite often that if the search journey is climbing a mountain, you need to be in it for the climb, not for the view from the top. You actually need to enjoy the, you know, when you're 20% up the mountain and, you know, your boots are wet and it's raining and it's cold and the strap on your backpack breaks,
00:31:28 PETE SELIGMAN
you need to kind of, you don't need to completely enjoy it. You need to embrace that. You need to say, OK, this is part of this journey.
00:31:34 PETE SELIGMAN
OK, how am I going to fix this? How am I going to solve that problem? How do I get to that next phase of this journey?
00:31:40 PETE SELIGMAN
I think that's really, really important. It's interesting. A lot of adventurers or extreme sportsmen talk about there's three types of fun.
00:31:50 PETE SELIGMAN
So there's type one fun, which is just fun, right? So that might be like powder skin or catching a great wave or, you know, or standing on top of the mountain. You know, this is stuff that in the moment, it's fun and you know, it's fun while you're standing there.
00:32:07 PETE SELIGMAN
Then there's type two fun, which is the fun that in the moment, you don't enjoy, but when you reflect back on it, you actually go, that was awesome. So that could be things, that could be things like the climb of the mountain or a mountain. You know, when you go to the gym and you push out those few extra sets and it's hard in the moment that you look back and you say that was actually really, really good.
00:32:29 PETE SELIGMAN
So that type two fun, I think, is something that's really important for searches to kind of relish. They want to know that there's going to be hard work and that's OK and I'm going to push
00:30:50 NICK LALL
00:30:59 NICK LALL
00:32:41 PETE SELIGMAN
And hopefully there's no type three fun because type three fun isn't fun at all, right? So type three fun is like getting caught in a avalanche, getting dumped by a massive wave, you know, all those things. You don't want type three fun.
00:32:53 PETE SELIGMAN
But yeah, this type two fun is something that I think is really relevant for search, which is why I look for grit. It's not going to be easy. I also think that you need a certain level of pragmatism, like a lot of people that think about search as a career path, potentially have come from relatively large organisations, like that might have come from a big management consultancy or a big accounting firm or a big corporate and they're thinking, OK, I'm going to take all these skills that I've built and I'm going to take them to
00:33:23 PETE SELIGMAN
a small business. I'm going to be the CEO. And that's great, like that absolutely can work. But the thing that you need to understand is that when you move into those smaller businesses, you won't be pulling the same pipe of levers that you would in a really, really big business. So like one way of articulating that is that the strategy challenge in a small business is actually quite simple. It won't be very challenging intellectually. So
00:33:25 NICK LALL
And
00:33:52 PETE SELIGMAN
come from a big management consulting kind of role and you've been solving big global supply chain issues for multi-billion dollar companies and then you buy a business that turns over $10 million and you're trying to work out what the next growth strategy is, it's not going to be hard. It'll be open up a new office in the next town. It'll be employee-five new people like strategically, not hard.
00:34:18 PETE SELIGMAN
But execution is really hard. And if you can embrace the execution challenge, then you'll really enjoy it because the execution piece of a small business is actually where the grid is required. So I think you need a certain pragmatism is, I think, it's really important because you need to be willing to go get down into the detail and just do those pragmatic things.
00:34:40 PETE SELIGMAN
And then probably the final thing is just the coachability. As I've kind of said a few times in this call, one of the fundamentals of the search model is you've got a searcher who, by definition, is relatively inexperienced in the role that they'll be taking on. And that's around a putting capital but have the appetite to contribute some of their time and expertise to help the searcher
00:35:05 NICK LALL
00:35:06 PETE SELIGMAN
who investors who are not only good. a searcher in that role who isn't really open to coaching, then you're going to miss out on all of the opportunity and actually like email may not be a success, but it's kind of not leveraging one of the most fundamental parts of the model. So I always looked for people that kind of demonstrate that they're that got that learning mindset and they're interested in being coached.
00:35:30 PETE SELIGMAN
and a little bit, I guess from my perspective, I want to work with someone that's keen to be coached because I'm keen to like work alongside someone and actually kind of collaborate with them as they grow. So so yeah so I mean I think I think yes there's a threshold criteria that you need to kind of have a brain of a certain kind of capability. I think you need to have a problem solving mindset. I
00:35:57 PETE SELIGMAN
you need to have a certain pragmatism to you because you know they're the things that need to be done quite practical. I think you need some grit because there are going to be hard times and I think you need to be coachable.
00:35:56 NICK LALL
00:36:09 NICK LALL
yeah then that's all really helpful and I think those are definitely good traits to look for in entrepreneurs of any type especially acquisition entrepreneurs. One one thing you said there that was wondering if you could expand on or give an example of is that people coming from management consulting or like a large corporation maybe used to doing strategy at a high level and maybe like more of an I guess I could say intellectual pursuit but then they may struggle when it comes to execution in a smaller business. I was wondering if you could maybe go
00:36:41 NICK LALL
a bit deeper into that and explain what the challenges of owning small business would be that these people who don't have that background may find surprising or more challenging than what they're
00:36:17 PETE SELIGMAN
00:36:26 PETE SELIGMAN
00:36:52 PETE SELIGMAN
sure so you know I'll try and think of a quick example but you know if you're working for a large organization that has the bigger the organization the more people in the organization the more
00:37:09 PETE SELIGMAN
it has the more locations it operates in you know the more markets it serves effectively the more diverse the levers you have to pull and so therefore the combination of levers you pull strategically can have all sorts of permutations and combinations right and so with that your strategic decision making becomes more complex because the problem itself is more complex. Now
00:37:33 PETE SELIGMAN
for strategy is to make it as simple as possible but in order to distill that simplicity you need to analyse quite a
00:37:42 PETE SELIGMAN
Now if every single one of those metrics is smaller so instead of having five markets you serve you serve one instead of having
00:37:51 NICK LALL
00:37:53 PETE SELIGMAN
50,000 people in the business you've got five or 20 right instead of
00:38:02 PETE SELIGMAN
all chart that you might consider redesigning for all sorts of things like matrix and you know regional or functional or whatever your all chart is actually only 15 people and so there's only a certain number of ways you can cut that right there's just less levers to pull with less numbers on any of those metrics so sometimes and even I had this conversation with some searches just last week and they brought this business to me and they said oh you know what like this looks like a great business on the surface of it but the
00:38:38 PETE SELIGMAN
more we've learnt about it it just seems really really simple and I'm like yep that's it's probably it probably is really really simple on the face of it right so so for example just say you buy an electrical services business in in a in a relatively medium sized town in state xyz right and you've got 25 people it's five administrators and 20 electrical technicians and you know it's turning over a reasonable amount it's got reasonable margin you're trying to think okay how come we grow there aren't really many strategic levers you're going to pull you
00:39:16 PETE SELIGMAN
might say okay we do have a lot of service revenue can we start selling some product into that mix when we deliver the
00:38:18 NICK LALL
00:38:29 NICK LALL
00:39:24 PETE SELIGMAN
servicing town a could we open up a new branch in town b which is one hour down the road and so therefore replicate what we've got here so 20 technicians and go and put 20 technicians in the adjacent town or you might say we're doing electrical services can we also do air conditioning services or fire services or they change our vertical mix so those are relatively simple strategic decisions to make you're not kind of you don't have to go to school for 15 years to learn how to kind of come up with those strategies so If you bring a big strategic mind to a business of that size, they'll either get bored by the simplicity of the strategic options or they'll overcook the strategy for the capability and capacity of the team of 25 people that you have sitting in town, a running electrical
00:40:18 PETE SELIGMAN
business. So
00:39:45 NICK LALL
00:40:19 PETE SELIGMAN
I mean is like side. On the execution side, the strategy might be simple. Okay, what we're going to do is we like what we do, we think that town A looks relatively similar to town B.
00:40:29 PETE SELIGMAN
got 20 electricians. All we want to do is we want to go and build a branch in town B. Executioner that actually then becomes really difficult.
00:40:37 PETE SELIGMAN
going to do it? Like who's going to you're going to go and recruit in town B? Are you going to poach from the electrician that's already operating in town B?
00:40:45 PETE SELIGMAN
Are you going to move one of your people from town A to town B? Like, okay, well let's just say that you want to move somewhere from town A to town B. You've got 20 electricians and three of them are supervisors.
00:40:56 PETE SELIGMAN
probably a supervisor. So he's be to the supervisors. No, then I really want to go.
00:41:00 PETE SELIGMAN
You're like, oh, okay, well, how are we going to get this new branch operating? Like I can continue down this path for a long time, but that you need to now work out how are you going to build a team of even five electricians in town B to start the genesis of your new branch? Where are those people going to come from?
00:41:20 PETE SELIGMAN
So you might actually find that there's a guy who's not yet a supervisor in your team of 20, but he's almost ready for promotion, but there's no space because you already got three. You're like, okay, well maybe we can get that guy and move him to town B, promote him to a supervisor, sent two of the other technicians over the town B, and they can start our new branch. You have a chat to that guy.
00:41:42 PETE SELIGMAN
really excited about yeah, I'll move to the new branch. That sounds awesome. It's great for my career. I've spoken to these two other guys that want to come with me whatever, right? Then you go and do that and one of the existing three supervisors said, what do you provide me any opportunity like that 10 years ago when I was a technician? You know, like, well, you never asked for an opportunity like that. And actually last week I asked you if you wanted to move to town B and you said no. And now
00:42:06 PETE SELIGMAN
thing where you've got one of your three money producing supervisors in town is now looking a bit sketchy and he might leave and go to a competitor like they can see what I mean, right? Like the execution, like it's obvious, 20 technicians in town, a build another 20 in town B strategically easy execution. Execution actually really hard because you've now have to and a lot of it is people a lot of it is trying to navigate the various career parts and aspirations and you know family situations of people in small teams.
00:42:41 PETE SELIGMAN
But then working out how to manage the dynamic between those people as you try to kind of push down this path where you're trying to create these new strategic opportunities. And so for me, like I find the ambiguity of that problem really interesting. Like there is no answer to that.
00:42:59 PETE SELIGMAN
There's only a whole series of iterative steps that you can take to try and navigate your way down this path a bit like climbing a mountain, right? There's not a set of stairs from the bottom of the top. There may be a pathway or they may not.
00:43:13 PETE SELIGMAN
But each step along the way you kind of looking up and trying to work out okay now to turn left or right all that rock fell over this tree now is over the path. Like that's that's the stuff that you really need to want to love that type to fund we're talking about in order to really engage in this process. And so from a searchers point of view, you need to look ahead knowing that you'll have all these challenges that can be really frustrating.
00:43:39 PETE SELIGMAN
Like you would have thought that you stand in front of your 20 employees in town, and so we're going to grow this business. It's opportunity for everyone. We're going to open up a new branch in town, but who wants to be part of it?
00:43:49 PETE SELIGMAN
And they all walk out and say, hmm, happy doing what I'm doing. You're like, but it's so obvious, right? But then how do you change tack to try and start motivating people to get on that journey and get on that growth?
00:44:00 PETE SELIGMAN
So I think that's why I think it's important for searches to have an open mind around what the reality of the journey looks like. It might sound nice to climb Everest, but what does it actually look like when you're 27% of the way up the hill and you're right boot is full of snow. Like it might sound nice to sail around the world, but what does it look like when you're stuck in the middle of the southern ocean and your master's cracked and you need to rebuild, you know, part of your engine because of stock
00:44:32 PETE SELIGMAN
work. Like so any opportunity a potential searcher has to spend time talking to current searches and business owners and operators to talk about what does it really look like that a day. I think is really useful.
00:44:44 PETE SELIGMAN
And so that's why as an investor, it's hard, but I try to understand those characteristics in the searcher when I'm I'm meeting them for the first time. Like are they going to when those things that are, look, obvious on paper, are really hard to get done in real
00:42:52 NICK LALL
I find
00:43:33 NICK LALL
a searchers point of
00:44:56 NICK LALL
00:45:06 NICK LALL
grit when it going really gets Definitely, yeah, you know, I think that it's, it's really important it shows that in small businesses, how much the human touch and management is such a big part of your life. And I think that's a great
00:45:21 NICK LALL
guess we're running a bit short on time, so just one last question. What motivates you as a search fund investor? What's your ultimate goal and what part of the process keeps
00:45:31 PETE SELIGMAN
like I, there's quite a few different parts to it. I, as I said just then, I really like the ambiguity of the challenge. I, as an in playing the investor role, I really like the personal challenge for me to try and do what I can to help the other person achieve the outcome.
00:45:51 PETE SELIGMAN
You know, I can't grab the wheel. You know, if, if we're sitting on a sailing boat, I'm sitting on the back watching this person hold the wheel. I'm not holding it.
00:46:02 PETE SELIGMAN
And I can't lean forward and grab it, even if I know what to do. So, so the challenge, the challenge I enjoy for me is how, how can I say the right things and ask the right questions to try and get that person to then learn how to make those decisions at the right time in the right way? So I really like that.
00:46:18 PETE SELIGMAN
I really like seeing people grow through their journey and even the businesses that I've owned and operated, I've loved watching people in our teams make their way through their careers and evolve and progress and learn. So I think I enjoy watching other people do that. And I also think just fundamentally from a macro point of view, there's a, everyone knows it.
00:46:38 PETE SELIGMAN
So it's kind of, it's not new information, but there's a massive issue globally and definitely in Australia with all of these excellent small businesses that most of which, almost regardless of what we do, most of which will die in the next five to 10 years because they don't have a succession plan, they don't have a good way to get an exit. And so like a whole
00:47:02 PETE SELIGMAN
will die that will then have to just be refounded again in some other shape by someone else that's starting from scratch rather than taking this legacy of great businesses we've got and finding new owners to take them forward. And so I think in some small way, the search model is a great way of addressing that. And so it's great.
00:47:22 PETE SELIGMAN
Every single time that happens, I feel like it's at least some small contribution to that kind of transition of ownership and legacy and
00:47:33 NICK LALL
Definitely. Well, yeah, thank you so much for joining me. It was an excellent conversation. Learned a lot and I'm really happy to have you on.
00:47:39 PETE SELIGMAN
Yeah, no worries. It was great to chat to you. And I wish you all the best with your own endeavors, but also with the rest of the podcast because you'll find that there's a lot of really interesting perspectives in this space.
00:47:53 PETE SELIGMAN
And I think that I always encourage every searcher to make sure that even when they're building their cap table get a real diversity of views. Because that's one of the really rich things about this particular community. Is there are lots of people with different opinions and all of those opinions can come together to produce results. So definitely, you know, reach out. People will be happy to chat. And I think you'll learn a lot along the
00:48:16 NICK LALL
Sure, absolutely. Thanks so much. Have a good day. I guess. Mr. Henry. Thank you.