Gray Matter Musings

Week 2 Book Reflections

We now understand what acquisition entrepreneurship truly means and the logic behind pursuing existing businesses with established infrastructure, revenue, and employees. Yet, the question remains, how do you go about finding businesses that may be a good fit for you? Furthermore, once a business is located, how do you go about evaluating and analyzing the opportunity? Let’s take a deeper dive and let Walker Deibel help provide some answers!

First, per Deibel, this process requires an open mind as most entrepreneurs narrow their search list to only industries in which they have familiarity. This could be a mistake, as Deibel shares that “the building blocks of how to build a company and a vision don’t come from what’s on the menu, but from aligning their attitude, aptitude, and action, and leveraging that alignment toward a specific opportunity” (Deibel, 2022b). In essence, Deibel is alluding to the “CEO mindset”, which entails actively seeking opportunities where the missing ingredients to growth and success are your strong suits! This may sound complicated, though it’s quite simple, as perhaps you are an accounting whiz and in turn, you seek an opportunity where proper accounting and financial management can lead a business toward prosperity. A company with an excellent operations department, though light on sales, might be the perfect fit for the sales minded entrepreneur. As Deibel shares, “knowing why and how you will win before you start is critical to know what game you are looking for in the first place” (Deibel, 2022b).

With the 3 A’s of attitude, aptitude, and action lined up, Deibel suggests creating a target statement, which documents your strengths and funnels them into the search process, by looking at companies based on opportunity first, then size, and industry last. The key takeaway in this process is to remember that you are seeking an opportunity via the “CEO mindset”, where your own unique secret sauce is the missing ingredient necessary to grow a profitable and rewarding business. Thus, honesty and self awareness play a pivotal role in successful evaluation of acquisition targets. When documenting our 3 A’s and creating our target statement, you must be brutally honest about your own skillsets, attributes, strengths, and weaknesses to find the right opportunity.

Next, Deibel discusses the process of defining the acquisition target, which begins with an “opportunity profile” based on growth potential versus value potential (Deibel, 2022b). Within this matrix, we have “eternally profitable” firms, which describes a firm that has limited growth potential but is very stable and unlikely to go away (Deibel, 2022b). Next, the “turnaround” business is the limited-growth fixer upper that likely has operational issues and financial woes, though with the right “CEO mindset”, could be turned into considerable value (Deibel, 2022b). Likewise, “high growth” firms are also on the matrix, where demand for the product or service is clearly in place, however, this is likely to come at a premium and success is dependent upon your skillset enabling continued growth (Deibel, 2022b). Finally, Walker discusses “platform” businesses, which often provides both high growth and value potential (Deibel, 2022b). For many acquisition entrepreneurs, this is the sweet spot as these firms are most often targets where the entrepreneur “will operate and manage the company themselves as the CEO” (Deibel, 2022b).

Size, industry type, growth potential, product or service, and potential limiters are all additional factors to consider. However, the formula for success in Deibel’s acquisition entrepreneurship method relies heavily on understanding and identifying opportunities where your skillset can magnify a businesses potential. Next week, we will jump into the search process itself, as well as how entrepreneurs should be valuing businesses to ensure they receive proper return on investment, in both their pockets and back into the business!

References:

Deibel, W. (2022b). Buy then build: How Acquisition Entrepreneurs Outsmart the Startup Game.