How search fund entrepreneurs build target lists and what they do with them

Today, for people launching a search fund, the most common way to buy a small business is to send (approximately) 7,000 cold emails to (approximately) 7,000 small business owners over a 12-to-24-month period.

To do that, you must begin by finding those 7,000 people.

Step one: Find your list.

There are two common ways to build a list of the right small businesses to pitch. Searching through the PPP loan database and using Grata are useful ways to find out which businesses are looking for a new owner.

But you don't have to do that, and in some cases, it might even make sense to do it some other way.

For example:

• Look for lists of successful small business owners and work your way from the bottom up. The Inc 5000 list, various local awards and state government licensee lists can be a place to start. These companies have already succeeded and may be open to an offer from the right person. Find the companies that fit your search criteria, and then reach out.
• Use tech tools to filter a list of companies by their size in a certain area, and then find their owners. In some cases, this could even mean pounding the pavement in person, differentiating you from other buyers who can only engage over Zoom.
• Write to conferences in your industry and ask for a copy of the attendee list in advance. You might even ask for the materials from last year's conference at a discount. You don't have to attend the conference, but it's a great place to find qualified, pre-selected people in one place. And participants don't expect to hear from non-attendees (why would they?), so your letter/phone call/email will get far more noticed and taken seriously.

Step two: Make the offer.

Once you have your list, you're not searching for a company that wants to sell itself to any buyer, but for one that wants to sell itself to you.

Sellers with a choice will pick the right buyer, not just any buyer.

You've got to make an offer to the entire list of potentially interested sellers. You don't have to offer the same thing to each person, and you can give them a range of choices, but if you offer to enough potential sellers, you'll eventually find a taker.

Here are some things you could do to get a better response rate:

• Show up the way you want to be seen. If you're backed by several institutional investors, complete with a story and a website, you'll have a better chance of being taken seriously. It might be worth it to pay someone to build you a professional site for your firm and to put a stake in the ground about your industry focus.
• Go to conferences and the events that the owners of the sorts of businesses you seek go to. Talk to them. They're going to be thrilled to find someone who gets what they do. Plan ahead, be prepared and realize that this is not a first step. Do this when you're ready to make offers.
• Get introduced. When possible, talk to the owners after you've been introduced to them by someone they know and trust. This is so much more powerful than sending a cold pitch. Make it easy for the referrer to be helpful. Get an introduction to the owner from someone they care about, and you're better off if that person isn't a potential seller themselves.
• Have a really good reason for them to sell. If it's simply market price and terms, then they're going to shop you around for a while. But if your offer includes something that they need or want, and the other offers don't, you're going to earn first position.
• Be yourself. "I'm a thoughtful and insightful person who has been trained and who knows a lot and has a point of view, and I believe I can make a difference in your life and in the life of your company." This changes everything.

It's possible that you're going to have to reach out to 10,000 owners in order to have the right sort of conversation with a dozen of them. But you will find the one that fits, if you're patient, generous and specific in your search.

If you enjoyed this, you can find more insights like this on the Feta Fund website.