5 Reasons Why Your Business Search is Failing (and How to Fix It)

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So you’ve decided that you’re going to acquire a business rather than start from scratch.

Great idea!

However, if you’ve been in the business search process for any length of time, you know it takes time to find that perfect business for you

In a very aggressive timeline, it might take you six months, and, on the other end of the scale, it might take you a couple of years – search funds typically allow their searchers to search for a maximum of 24 months. 

Within this expansive timeline of six to 24 months to acquire a business, many buyers start to look for a business but never close on one

So why do they fail and what can we do to bridge that gap? We’re going to talk about that today. I’m going to share with you five reasons why your business search is failing and what you can do to fix it.

 

Avoiding the “Valley of Despair”

 

The first mistake first-time buyers make is getting stuck in the “valley of despair.” Before I address that, I want to illustrate the relationship between a first-time buyer’s effort versus the results he or she is seeing. 

When you first start your business search (dotted line above), your effort is typically high, but the results come slowly. You’re okay with that, though! You know it’s just part of the process. You’re coming out really strong because of your enthusiasm for buying a business – you’re reaching out to business brokers daily, scouring listings online, and signing NDAs to take a deeper look at some of these businesses.

That said, although there’s a lot happening, you don’t have much to show for it yet. This is partly because you’re still in an exploratory phase of the search process, where you’re still narrowing down what type of business and opportunity you’re looking for. Even if you think you know what you want and what type of business you’d align with, it will take reviewing actual deals to “sharpen the axe.” 

Now, over time, your effort might decrease just as your results are starting to build. You may not realize that your efforts in the beginning created a traction, where you’re starting to get the hang of the search process, but you don’t realize it. What used to be a challenging part of the search process now you can do in your sleep. That said, even though you’re continuing to refine the exact type of business you’re looking for and are getting closer to the target, you’re discouraged that you “haven’t found that business yet.” 

This segment of your journey is a dangerous one, often referred to as the valley of despair because this is where many searches fail. It’s the period where you’re investing significant time and energy but not seeing the desired outcomes. 

In fact, I would say there’s a wider danger zone that captures the valley of despair and the surrounding area, and this zone is where most people currently are and when most people fail. To put a timeline on it, based on my experience, I see this happening around the 12 month mark, plus or minus a few months on either side. 

Self-funded searchers are especially vulnerable at this juncture because they’ve given up so much time (and money) to pursue the search full time

Search funds are liable to quit at this time, too. Funded searchers have a false sense of effort because they have access to a lot of money to acquire the business, not realizing that it’s still a personal process that requires immense patience to find the right opportunity that’s aligned with the unique skills and strengths they bring to the table – not to mention the process of competing with buyers for that deal once you’ve found it.

How do you overcome the valley of despair? Know that you’re in it and persist anyhow. Remember your “why” in wanting to buy a business and remind yourself of the initial enthusiasm you had when you first decided to pursue this dream.

 

The Cognitive Bias Trap

 

The next thing I want to discuss is the Dunning-Kruger effect

The Dunning-Kruger effect is what happens when the least skilled people overestimate their abilities more than anyone else. Specifically to the acquisitions process, this highlights a common cognitive bias where first-time buyers get overly confident very quickly. 

They immerse themselves in learning everything about the acquisition process – they sign up for the online course, they read multiple books (mine included), and they think, “I got this! I’m buying a business in less than six months.” Not only do they think it, but they’re the loudest person at the party telling everyone how they’re going to buy a business. 

 

 

Empowered by Google and YouTube, they now have a superficial sense of mastery – just enough to be dangerous – but this initial confidence, termed the “king of ignorance,” can be misleading. 

As they get further along in the search process they start to realize:

Maybe valuations are harder to understand than I thought. 

Maybe I don’t really know how to properly analyze a business

Maybe it’s harder to get financing because my financial picture is not in order like I thought it was.

As they dive deeper into the acquisitions process, they realize how much they don’t know. Even though their knowledge base is slowly increasing, their confidence has taken a hit. Realizing they didn’t know as much as they thought they did, they start to feel overwhelmed.

They wonder, “Am I built for this?” 

Others around them don’t help. Their friends and family try to be encouraging, “Why don’t you stick with your job? You’re good at it, and the pay is reliable.” 

This is a critical phase where perseverance is key. If you stay on it and put one foot in front of the other, you will find the right business for you. You’ll transition from the “king of ignorance” to eventually recovering your initial confidence, but this time having actual mastery over the process. 

Don’t Bite Off More than You Can Chew

 

Sometimes people think – if a little is good, more is better! First-time buyers are not immune to this thought process, and this is where they go wrong. They think to fast-track their way to success, they should buy six companies all at once. 

This is not a good idea, for a number of reasons.

There’s a learning curve you’ll face once you acquire the business, so even if you’ve mastered the acquisitions process and are able to buy a business like a champ, running a business is an entirely different story. Running multiple is something you want to work your way toward – with time, experience, and a network of vetted operators that can help you with this goal. 

Additionally, if you’re using SBA financing, you’re buying a business with personally guaranteed debt. The personal guarantee allows you to get a considerable business for the 10-20% down payment, but if you’re personally guaranteeing multiple businesses, you’re piling on risk before you’ve fully reached mastery of running and operating business. 

 

Source: Darius Foroux

 

If you’re just getting started, start with one acquisition. This allows you to manage risk and learn through the process without becoming overwhelmed. Surround yourself with mentors and seek continuous feedback. This support network can help you navigate the complexities of the acquisition process and accelerate your learning curve.

 

Importance of the Deal Flywheel

 

Feeling overwhelmed during the acquisition process isn’t a question of “if” but “when.” 

When first-time buyers face this overwhelm, it paralyzes them, and oftentimes, the experience will be enough to make them give up. There’s a reason why only 10% of buyers end up closing on one

Not you. You’re going to be part of that 10%. The way to do this is to take decisive action when you’re facing mental overload. 

This is why the “deal flywheel” is so important. 

With any big goal, it’s a series of daily habits done consistently over time that results in achieving that goal. As I wrote about before, after deciding if you plan to do a full-time search or a part-time search, you need to create a routine where you evaluate deal flow and conduct broker outreach on a daily basis. At first, the search process may feel slow. However, once it ramps up, you’ll have continuous deal flow and the confidence to evaluate them. 

It’s a numbers game. The more deals you get, the more deals you evaluate, the higher the chances that one of them will pan out and be the business you’re looking to purchase. Allowing your deal flywheel to spin is what will allow you to detach from those moments of overwhelm and self-doubt. 

Remember that successful searchers often look at over 100 deals before closing on one. For instance, my first search took over two years and numerous deal evaluations before I succeeded. 

Later, when the SBA laws changed for the better, I decided I wanted to buy an online business for the first time. I probably looked at thousands of deals by that point, and I even made aggressive offers on two or three before I finally closed on one. 

Persistence and action will pay off.

 

No Man Is an Island

 

Lastly, when it comes to the M&A market, which is notoriously fragmented and difficult to navigate at times, it’s so important to have mentors and a community of other buyers that can help you along the way. 

When you’re in the early stages, have a feedback loop with mentors and get as much assistance as you can so you can accelerate through the valley of despair and achieve the point of mastery faster. Make sure you pick the right mentors as well. Sometimes the loudest personalities have the most limited experience (read: Dunning-Kruger effect), and conversely, the people who doubt their knowledge may actually have more of it than they think. 

Before I published Buy Then Build, I was nervous because I wondered if I really understood what I was doing. Was I ready to put myself out there? 

That said, I’ve been buying companies for over 20 years, and I’ve been involved in over 300 transactions. I’ve seen a lot of different situations and patterns, and most importantly, I’ve observed those in different macroeconomic climates. Some of the loudest voices in this space haven’t been through recessions or experienced volumes of employees quitting in a single day. 

Buying and running businesses over a long period of time tempers any false confidence because there’s so much risk and change inherent to this endeavor. 

So again, choose your mentors wisely, but do not go without mentorship or support throughout this process. The consequences of making the wrong decision in buying a business can be grave – personally and financially. 

When choosing mentors, there’s not one guru who can tell you everything you need to know. You need to get varied experiences from multiple people and pull them together for your own truth. 

That’s why we engineered the Acquisition Lab the way we did. We provide Lab members with world-class education, a vetted community, and resources to help you succeed. I’m not the only voice in the room. Our network of 412 coaches help you navigate the private capital markets effectively. 

Acquiring a business is no easy feat, but with the right approach and support, you can overcome the common pitfalls 90% of first-time buyers make. Focus on continuous learning, seek mentorship, and take decisive actions to move forward. 

Ready to acquire a business in the next 12 months? The Acquisition Lab is your first stop. Reach out to us today and get on the fast track to becoming an acquisition entrepreneur.

Picture of Walker Deibel

Walker Deibel

Walker Deibel is an entrepreneur and advisor. He is the author of Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game and Creator of Acquisition Lab.

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