Tips for Investing in a Business

Striking out as an entrepreneur began in a traditional sense: I built my own company from the ground up. After several years of advancing Develop Intelligence, I shifted my attention to building a business that someone would want to buy. I started looking through the lens of an investor, rather than that of a business owner, and it was eventually acquired by a larger tech workforce development company.

I began to reposition myself during this phase of life. After 20 years of iteration on the same business problem, I decided it was time for a change. The business domain I was working in had become uninspiring to me after repeatedly hashing out the same challenges. So, I turned my attention toward investing and became interested in Entrepreneurship Through Acquisition (ETA) as a lucrative opportunity to put my business skills to work and keep my career path exciting. 

Being well-versed and still going through a few mishaps helped build my investment strategy muscles. Trial and error may not be the most efficient method of learning, but it's a method that makes the lessons and insights harder to forget. Here are a few of my take-aways:

• Lesson #1: Not everybody's going to run a business the way that I ran a business. I decided to start my business without investors, and I learned a lot from doing that. I admit I am biased toward starting a business this way, but I’ve come to realize that not every bootstrapper is going to be as diligent or have the same spark that I had when I was running Develop Intelligence. More broadly, every business owner, whether the business is bootstrapped or has investors, will run things differently.
• Lesson #2: Ask more questions. I'm talking about more than just business questions. When the owner of a company is going through an investment pitch, they're going to give you all the polish. Ask more behavioral questions that will lend insight into how the leader of the business thinks and whether they are capable of making hard decisions. A business owner's propensity toward certain attitudes or behaviors can greatly impact the direction of the business.
• Lesson #3: Have a personal standard of metrics for evaluating a business. With a false sense of confidence, I’ve made the mistake of assuming I knew what I was getting into. I thought I knew the space, could make some introductions, and experience an instant increase on the valuation of my investment. I went in head first and dove in too fast. I let the business tell me what their metrics were, and I should have also engaged with them using my own metrics. This led me to creating a personal standard set of metrics to use when evaluating a business.

No investor is perfect, and everyone makes mistakes from time to time. The key is to be mindful and be as informed as possible. If you make a mistake, use the experience as an opportunity to learn and grow. Knowing when you make mistakes, and how to reflect on them effectively will help you become a successful investor.