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Launch Series Ep.1: Industry Research with Aaron Perrine and Kevin Oxendine – Ep.170

Today’s episode is the first in our new seven-episode series titled Launch Series, in collaboration with Trilogy Search Partners and Pacific Lake Partners.

Episode Description

Ep. 170: Alex (@Aebridgeman) is joined by Aaron Perrine (@AaronPerrine) and Kevin Oxendine (@KevinOxendine).

Today’s episode is the first in our new seven-episode series titled Launch Series, in collaboration with Trilogy Search Partners and Pacific Lake Partners. This series is meant to be a guide to preparing a search entrepreneur for their upcoming CEO role, the next major step in their career. Our episodes will focus on topics such as starting up a search, deal structuring, seller relationships, first hundred days, governance, and much more.

This first episode focuses on conducting effective industry research with guests Aaron Perrine and Kevin Oxendine, Partners of Trilogy and Pacific Lake, respectively.

Listen weekly and follow the show on Apple Podcasts, Spotify, Google Podcasts, Stitcher, Breaker, and TuneIn.

Learn more about Alex and Think Like an Owner at

Clips From This Episode

How to Write a Phenomenal PPM

Tools for Searchers Doing Industry Research

Ravix Group — Ravix Group is the leading outsourced accounting, fractional CFO, advisory & orderly wind down, and HR consulting firm in Silicon Valley. Whether you are a startup, a mid-sized business, are ready to go public, or are a nonprofit, when it comes to finance, accounting and HR, Ravix will prepare you for the journey ahead. To learn more, please visit their website at

Hood & Strong, LLP — Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. Hood & Strong is highly skilled in working with search funds, providing quality of earnings and due diligence services during the search, along with assurance and tax services post-acquisition. They offer a unique way to approach acquisition diligence and manage costs effectively. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at [email protected]

Oberle Risk Strategies– Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and employee benefits programs. Over the past decade, August Felker and his team have engaged with hundreds of searchers to provide due diligence and ultimately place the most competitive insurance program at closing. Given August’s experience as a searcher himself, he and his team understand all that goes into buying a business and pride themselves on making the insurance portion of closing seamless and hassle-free.

If you are under LOI, please reach out to August to learn more about how Oberle can help with insurance due diligence at Or reach out to August directly at [email protected].

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(00:02:40) Kevin and Aaron’s background and careers

(00:04:37) How Searchers are approaching Industry research and focus

(00:19:17) Evaluating M&A activity in an industry

(00:24:56) Characteristics or factors that remove industries from consideration for investment

(00:31:31) Finding Industry experts

(00:36:54) How Searchers can best tell their own story

(00:42:09) The process of doing online research before getting on the phone with owners

(00:45:50) Writing a phenomenal PPM

(00:49:14) Tools for Searchers Doing Industry Research

(00:51:12) Different Levels of Industry Research

Alex Bridgeman: Well, thank you both Aaron and Kevin for joining the podcast, the first of this new Launch Series with Trilogy and Pacific Lake. This first one is on industry research. It’s one that a lot of searchers are thinking about, and it’s a kind of an ongoing topic during a search and sometimes even after. I think it’d be first helpful to hear a quick 20 to 30 second background from each of you. And that way, we can set up our industry specific search and research topic. But Kevin, do you want to start?

Kevin Oxendine:  I’d be happy to, Alex. Thanks for having me on. My quick background, after business school, I led two different businesses, the first one a services business back in Washington, DC. That’s where I’m from originally. I moved to Boston and ran a software business for a handful of years. Both those companies had a lot of growth and a lot of company building. And really enjoyed kind of being in that CEO seat. After exiting the software business via Recap, I transitioned to Pacific Lake about six years ago, and I spend all of my time working with searchers, helping them along the path of trying to find a great business, working on closing the deal, and then being a really great CEO as they scale that business.

Aaron Perrine: Yeah, so excited to do this. And Kevin, Alex, I’m excited to do it with each of you. My name is Aaron Perrine, and I’m a partner at Trilogy. My background was in the military at an earlier stage of my career, post business school, spent some time at McKinsey and at Amazon and have been at Trilogy since 2018. And similar to Kevin, spend my time working with searchers, working with search backed businesses as a board member or just as engaged investor and spending a lot of our time thinking about the questions that we’re going to talk about today.

Alex Bridgeman: Yeah, certainly. Kind of diving in, I want to first kind of set up the question of a generalist search versus something that’s more industry specific. But I think a better way to approach that initial topic would be hearing some of the different ways you hear searchers approach industry research and industry focus. Do you hear folks with- I’m assuming many are generalist and pretty open, some have very specific industries, but there could be- I’m guessing there’s a lot of in between. What are the approaches you see searchers take to the industries they focus on for their search?

Aaron Perrine: I might start, Kevin, and you can pile on or extend. I think the first thing to say is, I think it’s a little bit of a false dichotomy between just a pure generalist and a pure sort of industry focused search. And I think you’re going to hear a lot today about why we believe really strongly in really high quality industry thesis research and an industry focus search and a more narrowly focused search. And there are some real advantages of doing it that way. And there are some macro trends that underlie that, one of which is email deliverability is just challenging and getting more challenging. There are more buyers than ever in the lower middle market. And so, searchers need to be able, entrepreneurs need to be able to distinguish themselves and their discussions with sellers and having a deep understanding or at least a credible understanding of the industry is one way of doing that. At the same time, a private placement memorandum is really not a contract. We don’t expect that searchers will necessarily acquire a business that’s in an industry that’s listed in their PPM. People often move into adjacencies, they often move into new verticals entirely, and particularly later on in a search, they can be more opportunistic, and that can make sense, and we can talk about why that makes sense. So I just want to emphasize upfront that it’s not as binary as I think sometimes is presented or sometimes is the beginning of conversations that we have.

Alex Bridgeman: Kevin, did you have something to add?

Kevin Oxendine: So Alex, on that spectrum you just asked about, from one end is someone who is just totally indifferent on the industry, you just hope that they have a business someday that has revenue and hopefully some cash flow, to someone who, on the other end of the spectrum, only wants to operate a business in a very specific industry. And then in between, you have folks who very well have an industry thesis that they want to pursue but aren’t wedded to just one industry thesis, they’re comfortable moving from industry to industry, but believe that the hallmark of having an industry thesis, of being differentiated, of having perspective on an end market is a key way to build up to buy a really great business. So that spectrum is actually pretty wide. There are searchers in all of those categories. We see varying degrees of success based off of which search strategy someone takes. And for that reason, it’s a really important decision for a searcher as they’re thinking about where do they sit on level of industry focus, level of industry thesis, level of commitment to an individual industry, all of which could make sense depending on the individual’s entrepreneurial journey.

Alex Bridgeman: Yeah, you touched on it a little bit there, but there’s value to the ability to connect with the seller and find a good deal to industry research and knowing enough about an industry to, quote unquote, speak the language of that industry to a seller. Where else does the value of good industry research show itself through search?

Kevin Oxendine: It’s really, really powerful for a searcher to decide to fish in the right pond. So if you can pre identify a market in which you want to operate, hopefully, there are macro trends that are driving long term durable growth, that you will be the beneficiary of when you’re running that company. Businesses that have- industries that have good moats, that have great end markets, that have attractive business models, that have mission criticality, some of those types of characteristics. If you buy a business in one of those industries, what you’re doing is you’re getting in a boat that has kind of a wind at your back that’s going to fill your sails, and it’s going to drive you for the coming years, tremendously different than if you buy a business that actually has the opposite. And it’s even a lot different than one that actually doesn’t have strong forces in either direction but is in a rather stable industry. So the power of actually having a great industry thesis, of buying a business in an industry that does have those types of tailwinds really can set you up for a very different type of CEO experience and entrepreneurial journey, where you are scaling a business, where you are figuring out how to manage growth versus in a tough fight with your competitors, trying to maintain your existing market position without actually getting much yield for all of that effort.

Alex Bridgeman: Yeah, we’re starting to touch on what makes a good industry. And you mentioned a couple of them off the top right there. But what else would you add to the definition of a good industry or characteristics or anything else about an industry that identifies as one worth exploring further?

Aaron Perrine: Yeah, in addition, I really like the points that Kevin made, there’s also something about starting with an industry that’s growing, where the pie is expanding. People talk about industries that are growing at maybe two times GDP as a rough way to assess that. There’s also then, I think, some further industry research and diligence that you can do. So, we talk about how big is the industry? What’s the total addressable market? Search is an interesting kind of acquisition strategy where a huge tam may not be what you’re looking for, and there’s different reasons for that. But as a rough starting point, we think $150 to 200 million as a total addressable market might actually be right. And venture investors often would say, look, we want to see a 9 or even a 10 figure market, we need to know that if this works, it’s going to have this incredible ability to scale. In some cases, because of the kinds of revenue quality that we are trying to underwrite to, that we’re trying to help searchers find, you don’t necessarily need that large of a business. Another thing that’s interesting to think about is, who are the competitors, how fragmented are the competitors, and what’s the nature of those competitors. And I think that’s something you wanted to get into a little later in the discussion. But it’s certainly worth knowing that up front as well.

Kevin Oxendine: If I could jump in, Alex, I would try to simplify this down. What’s a great industry? It’s big, it’s growing, it creates value for its customers, it has good business models. If it has that, you should probably spend some time there. I think there’s a temptation, and a lot of the business schools teach this, there’s a temptation to want to be overly precise when you’re looking at an industry. So you create a scorecard with 10, maybe 15 characteristics, and you rate it a one, a two, or three, and you say which one has the highest score? That precision is actually not helpful. Because what’s the difference between a two and a half and a three or a two and a two and a half and one of those characteristics, and instead simplify, what you’re looking at is, in totality, is this attractive, is this going to yield good opportunities, and an opportunity to grow a business to get to a really positive outcome. The reason why I’m emphasizing growth, and Aaron, you were just talking about growth also, is that overwhelmingly, the return generated on a search fund company is driven through the growth of revenue, the growth of EBITDA, and the benefits you have of building a business that has more scale to it. And so if you’re in an industry that’s growing, that makes it just a heck of a lot easier. But I would highly recommend simplify, actually, rather than make it more complex on the model of what a good industry is.

Alex Bridgeman: So if I’m understanding correctly, you’re saying that there’s power law at place here or inaction where you want to get kind of 80% there to realize that this is probably a good business and fill in the extra 20% as you go, the finer details of that industry, but look for generally simple metrics. Am I understanding that correctly?

Kevin Oxendine: I think that’s right. So the big picture, is there enough growth? Does it create value for its customers? Is the industry big enough, so you can actually build something there and also have enough potential companies to acquire in that industry. That’s much more important than understanding kind of the level of detail on exogenous risk and customer concentration and a bunch of other factors at the industry level. Start at those few big characteristics. And then as you get deeper, yes, you want to fill in some more to understand it. But those should be your initial qualifiers.

Aaron Perrine: Yeah, I really agree with that. And I think there’s a couple specific ways that people might look at that as an example. We’re seeing entrepreneurs using search tools like Grata even earlier in the process where you might have an industry vertical thesis, you’d like to know how many companies, what is the size of the universe? And so we talked about the kind of total addressable market that you’re selling into, but there’s another sort of total addressable market from the perspective of your search, how many potential targets are there out there? And being thoughtful about that on the front end I think is helpful as well.

Alex Bridgeman: Is there a minimum number of targets that makes the most sense to pursue an industry further, or what are the nuances with analyzing or evaluating the number of prospects within an industry?

Aaron Perrine: So I think the search is- one of the key activities in search is list making. So you could sort of say there’s this thesis development. And there’s an activity of trying to identify all the companies that fit within that thesis. And then there’s a third bucket of outreach. And I’m probably conflating a bunch of activities, but just in very broad terms. And you hear about searchers in the mid 90s and the 2000s where the way that that research was done has really evolved. And so, even in 2015, ’16, the entrepreneurs were writing Python scripts that would scrape LinkedIn and then build lists. Not the totality but certainly the plurality of that activity now is happening in tools like Grata. But a question you have to ask if you’re going to use one of those tools is do I believe that that tool actually sees the universe? And if I build a good enough query, am I actually- do I want to rely on that data in concluding how many targets there are? And I think in some cases, that can make sense. In other cases, maybe not so much. But in general, just to try to give a concrete answer, and, Kevin, really interested if you have a different view on this. I mean, I think it’s like hundreds. It’s probably not dozens, and it’s probably not thousands. And so, a way to just zero in on that is, if you think about a four to six week campaign, outreach campaign that you want to be fairly highly personalized, that’s probably a few hundred targets that you can address in that way over a four to six week campaign. If there’s a dozen, it might be fine to get the lines in the water. But in terms of the chances of having meaningful owner conversations with that low a total number of targets, I’d be less, if it’s thousands, you may need to think about narrowing that down a bit only because the chances to really personalize that outreach is going to be lower. And so, the chance of getting really meaningful responses and developing significant owner relationships might well be more challenging.

Kevin Oxendine: I generally agree with Aaron’s points that you need enough targets to be worthwhile, but not so many that, like it is an incredibly fragmented market. Typically, when a market has thousands of prospects, it is just incredibly fragmented and fragmented for a reason. Something to really think about. I think actually a mistake sometimes people make when they’re thinking about search is they actually have fragmentation as one of their criteria. You do need enough companies to actually pursue. But if there are tens of thousands or many thousands, it’s an incredibly fragmented market today, and that’s probably for a reason. It might be an industry that’s not quite as attractive if you’re trying to build a nice business. One thing I would say is most businesses, and honestly, many of the businesses, of the very best businesses that we buy, when you actually look at their competitive set, it’s less than 10. And so when you’re thinking about an industry, you actually don’t need to find an individual niche that has hundreds. But you need to find an industry thesis that’s going to encompass potentially multiple niches that are attractive, that still fit under the same thesis, that serve that same end market, where you can build credibility, and yet get some scale benefits of having enough prospective targets. I think it’s really important to put those two things together, versus assume that the end market- actually that the industry in which you acquire is going to have hundreds of competitors. It’s just not the case for a lot of the best businesses.

Aaron Perrine: I think that’s right. And I think it’s interesting as we go through this discussion to think about where we’re talking about software and where we’re talking about more sort of laws of physics based b2b services. So, of course, in home services businesses, there might well theoretically be hundreds of competitors, but really, in that geographic area, there’s a very small set. For software, that could be a much different calculus.

Alex Bridgeman: And so, then how would you evaluate other M&A activity within an industry or that specific niche? So if you see other private equity buyers, other searchers, or strategics, or just general M&A activity, in what ways could that be a positive or negative signal for that industry or niche?

Aaron Perrine: I think it can work both ways. As an example, I think there are some healthcare provider verticals where there are a number of private equity backed platforms. And to some degree, that validates the business model. It validates the ability of a financial buyer to strike a deal with providers that makes sense for both sides and that’s durable. And it may well mean that there’s a really great pool of potential acquirers for the platform that we built later on. On the other hand, the opposite might well be true. And particularly in that same healthcare example, I think we’ve seen cases where a provider’s bias around working with a financial sponsor might well be based on their sort of industry understanding of what they’ve heard from other providers working with a large private equity backed platform, that might just not be the kind of way that they want to practice or the kind of business that they want to be part of. And so, I think from a- So one element of it is what does it say about perceptions and biases of sellers in that industry. Another would, of course, just be competitive pressure. And if there’s really strong operators who have created scale, that could well be a downside.

Kevin Oxendine: I would generally not take it as a huge signal. I would do my own underwriting on that space. But recognize that if there’s been a ton of buyer activity in a market for a long period of time, particularly a consolidation, that there might be limited opportunity. It’s hard to be at the tail end of a consolidated market as a search fund, that you’re trying to buy the last few companies. I think that’s probably a place you’d want to avoid.

Aaron Perrine: There’s sort of an additional- I agree with that, too. There’s an additional way that this comes up, which is search fund entrepreneurs sense that they’re seeing other private equity buyers, that they’re seeing other searchers competing for the same targets. And so, I think that there’s a sense in which that’s a feature of the search process, rather than a sea change in the competitiveness of the lower middle market. In other words, it’s sort of part of the phenomenon of search; there tends to be a point in the search where you’ve just come across a few targets recently that other searchers were also looking at or that private equity came in and snapped up, and it’s really hard not to feel like you have some pattern recognition on like things are just getting really harder, rather than it’s specific to the businesses that you’re looking at. That phenomenon has come up recently with particular listings in Grata, where if you are not doing fairly sophisticated query building, you may well be getting similar lists to what other people that are doing sourcing activity are getting. And so, sometimes you have to, I think, sort of abstract a bit from the way that you’re building the list, and not necessarily apply that same logic to the question of is there more competitive intensity in this part of the market for acquisitions than I originally thought?

Kevin Oxendine: So, Aaron, we’ve had a similar observation of searchers bumping into other searchers at a higher rate than we have historically. And in every case, we’ve tracked it back to the searcher was using Grata as their primary data tool, as are many other searchers. I think this goes back to kind of the initial premise on why do you need or what is the benefit of having an industry thesis search and developing a real point of view on an industry, becoming an insider, having perspective. Because if you’re reaching out to the exact same list that dozens of other people have access to with basically the same amount of insight on an industry that everyone else does, it’s going to be really hard to make an impression with a business owner and for that business owner to say, yes, I think you could be the next CEO of this business, and I want to sell this business to you.

Aaron Perrine: I love that point. And I guess for me and how we have advised searchers, the takeaway is not to not use Grata. And in fact, I think increasingly, that’s not even an option. But it is to be- it’s like each point you just made there. Either you’ve got to have more sophisticated query building that’s coming back with a different set of results, or you’ve got to really be- you have to be able to differentiate yourself at a later phase in the process in some way, either by having a really exceptional understanding of that business or by in some other way having a set of experiences that makes you a particularly good fit for what that seller is looking for.

Alex Bridgeman: So, I want to make sure we dive into how to make yourself stand out, what does really effective industry research look like that helps you stand out from others. But one step before doing that, what would kill an industry? What factor or characteristic would kind of end the discussion for a certain industry and/or are there industries that you just will not invest in period?

Kevin Oxendine: Those key criteria we talked about a few minutes ago, big, growing, creates value for customers, attractive business models, if you’re spending time understanding the industry, and it doesn’t meet some minimum criteria on those, it’s time to move on. So that’s number one. Number two, you find an industry that you think is attractive, and you start talking to business owners, and you prove one of those things actually isn’t true, your hypothesis like is not proven out in those conversations, it’s time to move on. And ideally, that moving on might mean going to something that’s tangential, where you’re able to use the knowledge you’ve already developed and apply that to something that’s a 5 or 10 degree pivot away, because that means you’re still carrying forward this insight that you’ve already developed on a space from talking with a number of business owners or market participants. The other thing is, if you go through an industry, you’re really excited about it, and you’re extinguishing the opportunities, at some point, you also need to move on. Your time as a searcher is incredibly precious. And you could find a super attractive industry, one that we would all love to buy a business in. But it’s just not possible to transact with one of the business owners today for whatever reason that might be. And if so, it’s time to move on. So you have to have a lot of discipline here, of working through an industry, making sure that is validating your thesis, and that there are opportunities to actually buy a business. And the second question, actually, let me hold on there. Aaron, it looked like you’re going to jump in.

Aaron Perrine: No, I’m just agreeing with you. I think one thing I’ve learned to draw attention to is that point of sometimes it’s a great industry, and there’s just nothing available right now, and you need to leave your lines in the water. And I don’t know, Kevin, it just seems it’s so common that somebody does some initial outreach, and they’ve moved on from a vertical, and 6 or 8 or 12 or 15 months later, one of those initial conversations comes back around. And that’s such a great indicator that you have a real seller, that the relationship you built with that seller really had some substance to it. So I don’t think people should be afraid to set lines in the water and move on. It doesn’t mean that you’ve, yeah, it’s not that you’ve killed the industry for structural reasons around that industry. It just means, as you said, time is precious, and you’ve got to keep the sourcing machine going. I thought it’d be fun, I don’t know if you have- we get asked all the time, I’m sure you guys do too, are there any industries you wouldn’t invest in? And I think one of the really fun and just intellectually stimulating things about what we do is we’re looking for certain characteristics of an industry, and in many other ways, we’re quite industry agnostic and in fact really happy to explore a new industry that meets the- or an industry where we’ve not acquired something or where a search fund has not acquired a business in the past. But just to try to give a specific answer, I could think of two industries where we just said probably not for us. One was reputation management, in the reputation management industry. And so, these are the companies where they offer to, through some technique, get problematic or controversial web content removed. And gosh, the margins looked great, very easy to think that the industry was probably growing. Not sure you had repeat customers, but you certainly had reoccurring business. But at the same time, it was just- I think that was the one time where it just felt icky. And there were examples of some really terrible things people had done that they wanted, of course, to have removed from the internet, and they just felt like look- I’m not saying it’s not a good business, but we’re not going to put our investors’ money into it. The only other example I could come up with was we looked at pawnshop software at some point, which I actually was okay, kind of got our heads around that. A significant part of the revenue then turned out to also be title pawn software. And I’ll just say, as a veteran, anyone that spent time on a military base, you go outside the base, and there’s these title pawn shops, you drop off the title to your vehicle, and as long as you come back in two weeks with a $600 fee, you get the title back. It just felt very, very aggressive and just like something, just an industry we just didn’t want to be involved in. I don’t know, Kevin, if you have other examples. The point being that’s a very narrow subset. Like most of the time, we’re very willing to think about a new industry and go down that road with an entrepreneur. There’s only been a very few circumstances where it hasn’t been a fit for us.

Kevin Oxendine: The thing I’d add to that is there are some business models that are just pretty darn complicated for a first time CEO. Heck, they are complicated for a second or third time CEO, but especially complicated for a first time CEO. Consumer retail can be one of those where you’re managing bricks and mortar and having to choose real estate locations and selling to consumers and consumer tastes changes, and there’s a lack of recurring revenue. Those end up being pretty challenging businesses to manage and ones that we tend to avoid because of that. Think about some businesses that are commodity driven businesses, where the fate of the business is largely out of the entrepreneur’s control. It’s going to go the way that the commodity price goes. That’s another business that we tend to avoid. So we’re really looking for really healthy business models in a growing market that tend to be asset light, without those types of complicated elements in the operating model. So it tends to look mostly, like traditional search talks about, b2b, recurring revenue services businesses, software businesses, some healthcare services businesses is really the key part of the fairway.

Alex Bridgeman: So once you’ve identified an industry for kind of the next stage, which is deeper research into its characteristics and the way it looks and feels, what are some effective ways to find- it sounds like finding river guides can be helpful, like finding someone in the industry or getting on the phone with people generally through industry experts or conferences, or I’ve heard folks use Tegus for certain industry conversations as well. What are some helpful or effective ways to meet people in an industry and as part of your process of researching that industry?

Kevin Oxendine: Alex, you already mentioned a few of the really good ones – conferences, finding research reports, reaching out to a business owner. One of my favorites that’s outside of that and in my opinion is much lower risk is talking with a salesperson who works at a company or used to work at a company in that industry. I tend to find that the sales folks are very happy to talk and share insight and wisdom, they have a perspective on the company that they work for as well as the competitive set because they’ve been selling against that competitive set for a number of years, and you can learn just a tremendous amount about end market and what the end market cares about, around the service offerings, around what actually matters to customers. And it’s pretty low risk. You are not getting lose out on an opportunity to buy a business. It’s not going to be that hard to find someone to talk with; it can be someone who used to be in the industry or someone who’s still in it today.

Aaron Perrine: That’s a great one. I really like that. I was just going to emphasize that one of the values of doing an industry focused search is actually just precisely the ability to spend time in all those kinds of activities. So, the time to go to the trade show, the fact that once you’ve had half a dozen owner discussions in a space, you’ve likely heard a lot of the questions or issues in that industry, and you’re actually going to be at a point where you’re a value added conversation for the next owner because you have some interesting questions to talk about. It’s very common that by the end of a search, an industry focus searcher is really a true expert at what’s going on in the lower middle market end of that industry, such that they get called by sellers to ask them about their opinions on things. And that’s a great sort of feedback loop to know that you’ve really built a level of familiarity with the kinds of issues that that group of operators is facing.

Kevin Oxendine: I know a searcher who in the middle of her search, while looking for a company to acquire, was invited to sit on a panel at an industry conference, even though she had not yet acquired in the industry, like remarkable.

Alex Bridgeman: What did she do? Were there certain extra degrees of research that she did to get in that position?

Kevin Oxendine: She developed a network. She became an insider. She had perspective on the industry, where it was going, what an attractive business was versus a less attractive business within the industry, and had even become known to the industry association. That was one of the resources that she had used to really get to know what was happening. I think developing- I’m not suggesting that every searcher out there should set that as the benchmark of I should be more knowledgeable than most business owners; that is not a good use of your time. However, if like Aaron said, the conversation that you have with that business owner is actually useful for the business owner and establishes credibility, that is to your benefit, especially in a world in which data and access and being able to reach out to a business owner is totally commoditized.

Aaron Perrine: I think this is an interesting transition to another question I know you’re going to ask us, Alex, around someone’s past experience. But Kevin and I both know a CEO who in a past consulting career literally helped write the value based care algorithm that CMS uses to compensate the industry in which he’s now operating. And so, there are also times in which through expertise from a prior career can just be so helpful here, and you can imagine the conversations with operators that that entrepreneur had before he acquired where he was just able to go really, really deep. And that’s another person who’s routinely asked to be on panels, has a professional network that was quite deep, even going into a search.

Alex Bridgeman: That question around past experience, which I am curious about, is oriented around how do you tell your story and demonstrate enough of your expertise to owners to reflect the industry research that you’ve been doing and how much of that is influenced by past experience and how much you can shape. Like if you worked at a software company, is that experience somehow applicable if you’re approaching someone in energy or healthcare industries? So how have you seen searchers effectively tell their own personal story as a compliment to the industry research that they’ve done?

Aaron Perrine: I think it is another really interesting choice. I think a little bit about how entrepreneurs choose to set up their search websites where you’re going to make some choices around the kinds of businesses that you’re wanting to appeal to. And there’s an interesting mix of telling a personal story which can be very, very meaningful. Kevin and I’s funds have both backed former NFL players, former racecar drivers, just people with really interesting stories, where even apart from industry expertise, a seller may well take a call because it just sounds like an interesting conversation to have. That can work. As a veteran, and I know both our funds enthusiastically back folks with military experience, that’s another example of just a profile that may well be able to have a generalist approach in some senses because sellers are willing to just have that interaction and take that call. At the same time, boy, past experience can be really, really helpful, can be extremely helpful in healthcare, extremely helpful in software. Of course, once you’re starting to operate the business, but equally in having a really deep meaningful initial conversation and distinguishing yourselves from other entrepreneurs that might well be trying the same business. My take is MBA coursework can be very, very helpful, depending on the industry. Past experience can be very, very helpful. And the one maybe watch out I wanted to call out is I think there are times where there’s a lot of folks with consulting backgrounds who come into search, and it can be the case that work that was done in an industry where the client was a client of McKinsey, a client of BCG, a client of Bain, that may well just have been on a slightly different scale than what’s happening now in the lower middle market. And so, occasionally, that experience will have been so specialized or so specific to like sort of slight margin improvement in a billion dollar company that it just won’t translate as well. But in general, that industry experience I think can be super helpful and relevant.

Kevin Oxendine: Prior experience can really be a double edged sword. It can be extremely positive, like Aaron was just saying, because it is a way that you can help establish credibility, you can apply your prior experience and that knowledge into a conversation with a business owner. On the other side of it, though, it can also be limiting because every once in a while, I will see searchers who really constrain the areas that they want to pursue based off of things that they’ve seen in their past. All of their theses are related to something that they saw in their prior career. And that’s how they believe they have to establish themselves. The reality is a really smart, talented, driven person can become an insider in most any industry. If you apply yourself, if you build the knowledge, if you build the network, if you find the river guide, if you go to the conference, if you talk to the former business owner, if you start talking to current business owners, you can build the base of knowledge that establishes credibility, validates your thesis, and sets you up to be a really great CEO in the space and someone who a business owner is going to want to sell to. Where it gets most challenging is when someone’s prior experience might be in an industry that’s actually not that attractive, yet they’re still limiting themselves. Instead, go look for that big growing industry that creates real value for their customers and has good business models. Become an insider there. Apply your time there. And it’s a little bit different. It’s not as fast out of the gates. And instead, you have to go slow to be able to ultimately go fast. But that sets you up for the next 5 to 10 years as a CEO, of learning and building credibility and establishing yourself. And honestly, being able to buy a great business in an industry where you’re going to want to keep building it, versus a limited industry where you already had expertise.

Aaron Perrine: It’s one of the great joys of what we do when you get to see somebody who, as you said, was not an expert at the beginning, not a true expert, but now is a couple years in and is really like one of the industry thought leaders. And look, that’s the kind of entrepreneurs that we’re backing. We are backing people with the capability set to go into one of these industries and truly lead that industry over time. So man, I totally agree with that. And it’s the ability to really believe in yourself, do the work, and get to that point is I think a big part of success in search.

Alex Bridgeman: One thing we’ve talked a lot about is getting on the phone with owners and just being in person or at least talking with other people within an industry to learn about that industry. Obviously, there’s other ways to learn about an industry; there’s online resources, industry reports, perhaps there’s podcasts or videos with key folks in the industry to listen to or study. How quickly should a searcher aim to get through kind of the resources available from a laptop before getting on the phone with somebody? Like should that be a fairly quick process? Like there’s the most value in talking to people; I imagine there’s the most value in getting on the phone with people in that industry. But how quickly should one aim to get through any resources that you can research very quickly on the internet until you get on the phone with somebody?

Aaron Perrine: I think that really varies. And I think increasingly entrepreneurs that are still in business school are spending some of the last part of business school thinking about industry thesis, using the usually kind of vast resources that that program has. The same, of course, is true for folks coming out of large consultancies where they have really significant opportunities often to do industry research. So, I think only the individual can know when they’re ready to jump in. Sometimes people talk about well, I’m going to do- I’m going to work on this vertical that’s not my favorite vertical first, so when I get around to my favorite vertical, I’m kind of more ready. I don’t know. When I’m on a backpacking trip, I kind of have the theory, just eat your favorite meal first, that way you’ll always be eating the favorite one. I think you just jump in, and I think people can figure it out. I think there’s a characteristic of the entrepreneurs that we try to back and enjoy working with where they’re really resilient, they’re learning really quickly, and it’s not uncommon that someone’s going to put a piece of knowledge to work that they learned 30 minutes ago on an owner call and the next owner call 30 minutes later. And so I think if you can do that, if you can take in that information, start to understand what’s really important, you can do that, and certainly in weeks and maybe even less.

Kevin Oxendine: I think it’s a mistake to try to learn about an industry from a computer, that the scale and the level of the industries in which searchers are successful at buying businesses means that there is no industry report for these industries. If you’re looking at an industry report, you’re actually two levels too high. Because the industries that you’re really buying in, like the niches you’re buying in, don’t have an industry report. So if you’re spending more than a couple of days doing desktop research and what you can find there, I think you’re spending too much time and get on the phone. It doesn’t have to be with a business owner. You don’t have to be doing outreach yet. But talk to industry participants. Go and talk to someone in the end market that is being served. Go and talk to that salesperson. Call the industry association, talk to a former owner, call a professor, or call someone who’s invested in this space before. There are tons of different people. Call the banker or the broker who sells businesses in this industry if there’s a specialist, not just some random banker broker, call the person who specializes who sells half the businesses in that industry and learn a ton. You’re going to learn more in one of those conversations than you will typically learn spending a day on your computer trying to do research.

Alex Bridgeman: So then applying these, applying what we’ve talked about on industry research to the actual PPM of a searcher, what do you look for a searcher to add and include in that PPM? How specific or broad? We talked about, or Kevin, you talked about the key questions within an industry, kind of the simplified look at how an industry performs as a crucial part of all of this. But as one starts to write their PPM, what should be there on industry research? How should that be written?

Kevin Oxendine: It’d be helpful to have a 15 point scorecard on each industry. I’m kidding, I just said don’t build 15 points scored cards. But a one pager on each industry describing its size, its targets, the attractiveness of the business model, the growth rate, why you are attracted to this space, is incredibly helpful. In a PPM discussion, we’re trying to understand how you think and what a good business looks like to you. And so you’re able to telegraph that really very clearly in your PPM. And the benefit is with all of the investors you talk with, you’re trying to figure out, is there an impedance match? Is this investor excited about the types of businesses that I’m excited about and that I want to go run and where I want to be the CEO. And so you’re using those conversations in order to figure that out. So you need to have done enough research, you need of laid out enough, to be able to have a conversation with a prospective partner in your search fund about that. Every once awhile, I see where people just list three industries, that’s insufficient. You need to put more thought. You need to be able have to have a detailed conversation. That’s really the key.

Aaron Perrine: Yeah, I really like where searchers are trying to show something around the size of the number of targets. I think that can be helpful thinking. I think a couple logos in the verticals that a searcher’s identified, I think those can be really helpful. It doesn’t have to be a company that you’ve reached out to or they even know is for sale, just sometimes it can be really useful just to kind of click through to a logo and understand the idea that an entrepreneur was trying to get to. And this might be a little bit geeky, I like when somebody takes the time, whether it’s something like Helmers Seven Powers analysis or Porter or SWOT or something, but just to show how you’ve thought through a company in that industry sort of right to win, right to have durable margins over time. And Kevin, to your point around the 15 point scales, I agree that there’s like a- it’s like a significant digit fallacy sometimes in how those are constructed. It’s not that they’re bad as think pieces. But it’s more that what’s interesting about them is how a different line, how they’re relative to each other, where their kind of relative strengths and weaknesses are, what it shows about how someone’s thinking through the industry versus, hey, this was a one, this was a four. That tends to be- It’s fine, but it’s not, I think, sufficient itself.

Alex Bridgeman: We talked about a number of tools, and both of you mentioned using Grata as one of them for example, I’ve heard of folks using Tegus. What other tools for industry research have been really effective so far?

Kevin Oxendine: I would discourage folks from trying to find tools versus get in the streets, talk to people, use your network, build a new network. That is the key way of really understanding what’s happening.

Aaron Perrine: Yeah, and I think I should say that our fund is an investor in Grata. I think Grata is not where industry ideas originate. I think it can be a place where industry ideas are diligenced for some of the reasons that we’ve just been discussing. And otherwise, I think I agree with Kevin. I think it’s not enough when you’re talking about broad friends to sign a McKinsey study about companies moving infrastructure to the cloud. And that’s all we need to know about this kind of cloud services company. Like, you have to get deeper than that. We’re in the kind of gritty end of the market. And I think those ideas most often originate from conversations with operators in that space.

Kevin Oxendine: I think this is also critical for actually buying a business. This is the characteristic that differentiates people who buy businesses from those who struggle in their search, is do they have a bias to action? Do they have a bias to build connections with others? Are they engaging in conversations? Are they taking what they’re learning, taking and compounding it with more learning, with more conversations, with getting deeper? Versus a bias to analysis and research. Lean in, apply yourself, get out there. Good things happen.

Alex Bridgeman: Anything about industry research I haven’t asked about or we’ve haven’t talked about yet that’s important to mention?

Kevin Oxendine: I would say I think there are a couple of levels of industry research. We’re talking about industry research to develop an initial thesis. When you’re actually diligencing a company, you should already have great insight on an industry if you took this search approach. And so that actually is super streamlined. But you’re going to revalidate elements of the industry on how it impacts this specific company that you are then under LOI with or that you are diligencing. So I just want to call it out, there are two different levels of industry research. One, top level, would we want to buy a business here in this industry? The second one is for this specific company, how does it fit into the industry? Is it positioned well to succeed visa vie its competitors? And don’t confuse the two.

Alex Bridgeman: Thank you both so much for coming on this podcast and this first episode in the series this year. I always enjoy chats about preparing for a search and especially industry research. It’s a really interesting topic with I think a lot of depth. So this has been really fun. Thank you both for sharing.

Kevin Oxendine: Thank you for having us.

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