Host: Pop Quiz Name the Books People Read to learn about Buying a business I'm betting that quiz was too easy and that you correctly guessed the HBR Guide to Buying a Small Business. I wanted to commemorate 300 episodes of acquiring Minds by interviewing the authors of this canonical work. And happily, Rick Ruback and Royce Yudkoff agreed. Rick and Royce, as they're known to students, are professors at Harvard Business School. They teach ETA there to classes that are often standing room only. And for those of us who did not attend hbs, we know Rick and Royce through the aforementioned book. Today's interview is an introduction to this duo and the story of how they became such an influential force in our ecosystem. One of my favorite parts in the interview is when they learn what small businesses sell for. You'll hear that even for them, as with so many of us, the power of entrepreneurship through acquisition was like an exciting discovery. We started looking at the market and talking to people and finding out that in this small firm space, the multiples were really magical, they explain. So our attention was arrested by that and it made us feel like it's a great opportunity. Another favorite part of the interview is the partnership itself. It's clear after five minutes just how much fun Rick and Royce are having together and with this material, see if you agree. Here are Rick Ruback and Royce Yudkoff, professors at hbs, authors of the HBR Guide to Buying a Small Business, and now hosts of the podcast Think Big, Buy small and happy 300th episode everyone. Thank you for listening and helping me get Acquiring Minds this far. Announcements A webinar this Thursday, November 14th where searchers go Wrong Having witnessed the searches of hundreds of would be business buyers, Acquisition Lab Co founder Chelsea Wood knows what separates those who succeed in closing a deal from those who do not. In this one hour session, Chelsea will share key mistakes to avoid mistakes that she sees so many searchers unfortunately make. This webinar is also an Office Hours, so come with your questions. We're going to leave a good chunk of time at the end for q&a. That is this coming Thursday, November 14th, noon Eastern. The link to register in today's show notes or on the Acquiring Minds homepage Acquiringminds Co. Then next Thursday, November 21, attorneys James David Williams and Bill Barlow, whose entire practice is devoted to business acquisition, return for legal Office hours. This month's topic the Waterfall the Private Equity Waterfall. This is the shorthand for how proceeds are distributed in most private investment, from traditional private equity to real estate. To search, it defines when and how everyone in a deal is paid or paid back. It is crucial to understand. So come get a primer on this core concept in business acquisition. The Waterfall as office hours, all legal questions, not just those related to waterfalls, are fair game. So come get any legal question you have about your deal or your search answered by James, David and Bill that's next Thursday, November 21, noon Eastern. Link to register for that webinar in today's show notes or on the Acquiring Minds homepage. Acquiring Minds Co and finally, Smith List has five great new opportunities posted. All of them some version of leading and operating a small business. These roles are posted by owners who are seeking entrepreneurial operators. The same type of people who might buy their own business one day, but for now are eager to just get in the seat and lead one. In a few of these jobs, the owners are also looking for operators that could evolve into the buyer that they eventually sell the business to. So an opportunity to run and lead and build a business and then be first in line to acquire it. Very interesting roles here. Head to smithlist.com to check out these new roles for entrepreneurial operators. And while you're there, sign up for the alerts so that you're notified as we post yet more opportunities from the SMB and ETA ecosystem. Smithlist.com Smithlist.com. Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people who do it. August Felker is a two time successful searcher, first with a traditional search fund. The second time around he did a self funded search. Today August runs Oberly Risk Strategies, an insurance firm with a dedicated practice group for searchers and acquisition entrepreneurs like you. If you've got a business under Loi Oberle will provide complimentary due diligence on that business's insurance and benefits program. A great no risk way to get to know August and team. They love helping searchers. They've worked with hundreds. Oberly is a specialty insurance brokerage for searchers. By a former searcher. Check out oberly-risk.com O B E R L E- risk.com link in the show notes Rick Rubek Royce Yudkoff welcome to Acquiring Minds.

[6:13] Guest 2: We're delighted to be here. Thank you Will.

Guest 3: Yeah, thank you for having us.

Host: Royce Rick, you are the co authors of a book that is read by literally almost everyone considering buying a small business in 2024. Countless acquiring minds guests refer to it. It is not an exaggeration to say that it was a seminal book for an entire ecosystem. And of course I'm referring to the HBR Guide to Buying a Small Business, which so many of us have on our very desks. And of course that work is an offshoot of a course that you teach at Harvard Business School, hbs on same topic. I'm thrilled to have you gentlemen here. We're going to spend the next hour getting to know the two of you and your careers and the why behind your role in the growth of entrepreneurship through acquisition. And then we'll turn our attention to ETA itself and get your thoughts on some of the theory and practice of it. Let's begin with some backstory on each of you would love to know about your careers before becoming professors of eta. Rick, will you kick us off?

Guest 3: Sure, I'd be happy to. So I got my PhD from the University of Rochester. The year before I got that, I left and began teaching corporate finance at mit. And I taught at MIT for six or seven years and then switched over to the Harvard Business School. I am a. I think my background is that of most professors. That is to say I got a PhD around 25 years old. Maybe I was a little younger than a lot of people, but I got my PhD at a relatively early age. Taught corporate finance and continued doing that when I moved from MIT to Harvard. Just a big move across the river for me. And HBS has been a great home. It encouraged me to think about practical things as well as the research I was interested in. I enjoyed and thrived. Love teaching by the case method. Still do. Did it three times today. It was great. At least great for me. I don't know, we'll have to ask the students if they learned anything. But I enjoyed it.

Guest 2: And,

Guest 3: and so at hbs I taught basically everything on the corporate finance side of of our business. I taught introductory corporate finance, designed some of the first direct year curriculum, taught a second year course called Corporate Financial Management redesigned that, taught in the private equity space, taught a course called Private Equity Finance and that's where I met Royce. I had written a case on Royce's prior company abri, and that he had founded with his partner and was intrigued by some of the things that that private equity firm was doing and so wanted to talk more about that. Got to meet Royce. I think we had a pretty good relationship at the outset. Had lunch a couple times after the case was done and then at one point Royce decided, I think to

[9:40] Host: move

Guest 3: away from day to day activities at abri, his private equity firm, that he had bonded and reached out and said he'd like to do something at hbs. And we said, well, let's do something together. And then the interesting question was, what do we do together? Now I was a tenured professor. I could sort of do anything, but I wanted to do something in corporate finance or something that was close enough to corporate finance that I would be able to understand it. We would share a common language, common kinds of analysis, or at least we could understand the analysis that was done. We didn't want to do something that we had already done. So we could have done a. We could have worked more on the course on private equity finance, but that wouldn't be very new to Royce because he knew everything there was from his career in private equity. So we decided to do a firm a course on small firms, because that had not been done before. And so that's the backstory of how we got to here.

Guest 2: Shall I pick up on that, Rick? Yeah, please give my thread. I think that's exactly right. So I originally went to Harvard Business School as an mba. It was a transformative experience for me. I left profoundly grateful for what the school taught me and pursued a career in the private sector. As Rick said, I founded a private equity firm, ran it for a quarter century. It was a marvelous experience. I'd always been keen to come back to academics and to a university setting. I didn't have the formal training that my partner Rick has. I don't have the PhD, but I did understand how the Harvard Business School taught from my years as a student. And we teamed back up. And just to pick up on Rick's thread, we pretty quickly, as we started looking at small firms, found this thread read of search, which was much smaller 14 years ago, which is when Rick and I partnered, actually 15, 15, 15 years ago. And will, you'll remember this as a practitioner and a viewer of this space. It was a small thing then, but we were intrigued by it for a couple of reasons. One, we saw it as a wonderful economic opportunity for founders that wanted to retire, for young would be entrepreneurs to become entrepreneurs. And for our students at the Harvard Business School, who often come here to be general managers, it was really a wonderful career. And so we began to do research and write cases and form a course. And that led to the book and the podcast, which kind of brings you current. And it's been a wonderful, fun partnership we've had.

[12:14] Guest 3: Yeah, it's been so much fun. It's been so much fun. And, you know, we have a catchphrase, which is the magic is in the multiples. And, and for us, the magic was in the multiples. When we first looked at this space, we had written a couple of cases on running small firms, but when we first looked at the acquisition of a small firm might have been Great Eastern Pet Foods was one of the first acquisition cases we looked at. And we said, my word, he's buying this firm at like two and a half times EBITDA, maybe less, because that was even like $100,000. He paid $700,000 or in equity or something. It was really small. And how you deal with the owner, all that, we don't need to get into that for here, but it was really small. And we looked at that and said, wow, he's buying this business basically for his inventory costs. That can't ever happen again. And we started looking at the market and talking to people and finding out that in this small firm space, the multiples were really magical. That, that the private company, small company multiples were, what would you say, half to a third of what you had been trading when you were in the private equity business. So it was like, oh my God, how is this possible?

Guest 2: And the quality of the businesses could be excellent. You know, it was just a matter of small scale that made the multiples small. So our attention was arrested by that and made us feel like it's a great opportunity.

Guest 3: I mean, it created, for me, it created so many intellectual questions. Why in the world could this market coexist? How could that happen? How could it be that a small firm with a million bucks of EBITDA can sell for $4 million, where a firm in the same industry with $10 million is going to sell for $100 million at a 10 times multiple. Just, it was, how is that possible? And sort of digging into that led to all kinds of interesting, you know, interesting rabbit holes, if you will, pieces of, of the market that we were like, oh, that's really interesting. I wonder why that's like that. And then one thing led to another led thing to another. And so we started our course. You know, people thought, my unit head at the time said to me, when I proposed this idea, he said, Rick, you know, you've been, you've been teaching here for a long time, you're respected, tenured guy, you've got a good research record. So I really can't say no. But I, but I gotta tell you, I don't think you're gonna get any students. And if you, because the students don't come to have business school, learn about small business and so if you don't get any students, you're eventually gonna have to do something else. So I said, sure, I'll work in the parking lot if I need to, but let's give this a go. And we've had. Since then,

[15:09] Guest 2: we've had almost 4,000 students take the course. And at the PE opening our doors to it, it was almost 300 a year. So that's a lot.

Guest 3: Yeah. And every seat is filled. So if you walk into one of our classes and you know, if you're ever in Boston, come on by. If you walk into one of our classes, you will find that on virtually every day, every seat is filled. So today we had our guests speaking, and when our guest got up to speak, I didn't want to take her chair. And so there was like one extra seat in the room for me to find from a student who had a cold or flu or recruiting or something. It's a pretty special experience.

Host: Well, we hear so much about how it's grown, how quickly it's grown. So was it standing room only from year one or is that where it is? That's where it is today. But how was it in the early years?

Guest 3: We had 17 students the first time we offered the course.

Guest 2: Yeah. And it's sort of grown steadily year over year for our students. You know, at first, this seemed like a quirky, non traditional thing for HBS grads to do. And then as other students saw prior cohorts making their way and buying companies and becoming CEOs and major owners in the company, more and more confidence grew that this was an option. And I think this thing has just accumulated year after year after year.

Guest 3: Right. It's not a career path. So it used to be a career path that if you said, I'm going to search, people would say, oh, you couldn't get a job. You know, you couldn't get a job. And then when the search would begin, they'd be sitting at home, you know, in their pajamas, talking on the telephone all day. And people would say, are looking at their computers all day. And people would say, oh, my word. Have you, have you thought about seeing somebody? You know, you're clearly, you're clearly in psychological distress. Right. You, you know, may. Maybe you could, maybe you could get some therapy and then you could get a real job. Most of those people are rich now, so. But, but it was really interesting that it just wasn't very accepted. Whereas now it's. It's viewed as a mainstream career. Yeah, as a mainstream career. It is, it is I mean, I think there's still more people that go to consulting than, than small, than buying a small firm for sure. But it's, it's gaining, well, the image

Host: of the person at home in their pajamas and any onlooker saying what the heck are you doing? I mean that very image has happened in a, in a recent interview where somebody's working from, doing their search from, from mom and dad's house to save money and mom and dad are, are the ones saying wt what? You know, what are you doing?

[18:11] Guest 3: Yeah.

Host: And that person is now doing very, very well. Thank you very much. You know that one of the most common levers to pull in a target acquisition is technology updating the systems of a business that may still be running off a spreadsheet or even pen and paper. But tech is complicated with tons of solutions out there. So choosing the right cloud platform, CRM, telephony compliance and cybersecurity, not to mention implementing all that is a job in itself. Acquiring minds guest Nick Akers knows this firsthand. As a former searcher who now owns ENSO Technologies, Nick has seen the tech challenges searchers face when acquiring businesses. His team at INSO regularly works with searchers and their acquisitions, offering a complimentary IT audit of the target company. Nick takes a personal interest in all their searcher clients, drawing from his own experience in the search phase. Enzo dates back to 1989. So this is a company that has managed the tech for hundreds of small businesses over decades. And one last thing, no long term contracts with Enzo, a big differentiator. Check out enzotechnologies.com I N Z O or email Nick directly@nicknzotechnologies.com and don't forget to tell him you're a searcher.

Guest 3: I'll just tell you one funny story. We have a session in our spring course. We haven't talked about our courses but we, we teach this spring course on that actually goes through the mechanics of making a small firm acquisition. And as part of that course we have an evening session in which we have panels, a panel, a single panel of, of people who are spouses, of people who searched. So women who search.

Host: I told I should do that very panel. So you guys are doing.

Guest 3: So we do that, we do that every year and we do it on Zoom and you know last year we had about 200 or 250 people from all around the world joining us. A lot of fun.

Guest 2: The spouses of our students, the parents and in laws of our students. Everyone who loves them we invited to sit in on this and listen to the panelists talk about the effect on family.

Guest 3: And it's so cool. But every once in a while you get this remarkable comment. And one year we got this comment from this, from this guy who was clearly unsettled, he was clearly anxious. This. And, and, and, and I asked him, I said, what are you thinking about? And he said, you know, here's what I'm thinking. My son in law, I think, I think that in that case it was a son in law said, my son in law went to the Hobbit business school and I had a good sense of what the future held. It held a good life, a house in the suburbs and grandchildren. And now you've taken this wonderful life and you're telling him to do this weird thing. Can't you just leave well enough alone? And it was like such an arresting comment because it really drove home that if you're not into this community and you don't really know what it's like, it can be very off putting. And it made us feel, I think it added credibility to this idea of doing the friends and family night a lot because I hope when that session was over, the person felt better about their kid's choice.

[21:51] Guest 2: Well, and the effect of it is that people look around that Zoom room and say, there are a lot of sensible people who are pursuing this career and there's something here. It's a real thing.

Guest 3: Yeah.

Guest 2: Which is a lot of what Rick and I have been trying to do.

Host: Rick, you are now in the same shoes, is that other person, are you not? Your son is searching, didn't you say?

Guest 3: Yeah, that's right. My son Sam is searching and actually

Guest 2: my son is too, coincidentally.

Host: Oh, you're kidding now.

Guest 3: Yeah. Not together, but yeah. And, and it is very different. It is very different to be on the parent side of the equation. It's, it's. I don't think that, I don't think that he's not doing anything. I never think that. And I'm sure you don't think your son. They're very busy. But.

Host: What is the but, Rick? What is the but?

Guest 3: Well, the but is that. How do I put this? The but is that I really want him to be successful, obviously. But I also recognize that if for some reason he ends up deciding, you know, he's about an hour away from us. Last night I went to go see one of his daughters in a play. About an hour away. So not so bad. But if he were to move, say a plane flight away, my wife.

Guest 2: You're A dead man.

Guest 3: My wife might kill me. Yeah, my wife might kill me. I, I, I, I, I, she would be so upset with me. And, and so there is this sense that, that my son has a strong geographical preference to stay in New England and we have a strong geographical preference for having to stay in New England. But I recognize that that's not always the way it works out.

Host: And of course, you could say that about getting a job as well.

Guest 3: I can say that about getting a job as well, absolutely.

Guest 2: When you join a big company, you can get that phone call that says you're now in our Singapore office. You know, you can move there or move out.

[24:00] Guest 3: Right. And he's had, and as, and as part of, you know, he's a bit of a mid career searcher and, and his jobs have required him to travel a lot, spend a lot of time in Asia, spend a lot of time in the road domestically. And so there's a flip side to that coin. But I don't want to, I don't want to make that argument over the dinner table if I don't have to.

Host: Royce, are there any buts to your son searching for?

Guest 2: It's so interesting listening to my partner Rick on this and I fully get this point on geography. For me it's a little different, which is, I think both Rick and I feel like buying your own small firm is a less risky path to entrepreneurship. Surely less risky than doing a startup, but in many ways less risky than being part of a large company. We really believe that. But if you do well or don't do well in your own business, it's quite visible, at least to the entrepreneur and their family. And if you do well or don't do well inside of a large company, it's more opaque, it's just less clear what's going on inside.

Guest 3: My boss is a jerk.

Guest 2: Yeah, my boss is a jerk. I'm doing, I work for this brand name company and I have some executive position. It's just less clear. And so, you know, I feel that tension for my son, who I have great confidence in. I feel great tension for him because the outcomes are so visible as an entrepreneur. Whereas if you were embedded in McKinsey or Goldman Sachs or any, you know, Procter and Gamble, it would just be much harder to discern. And so I feel that very keenly.

Guest 3: Do you think it, that's interesting. Do you think it's like the college application process, you know, the uncertainty of your kid getting into college and which college they're going to go to and

Guest 2: yeah, that it's a very public sort of mark of success.

Guest 3: It's a very public mark of success and it's going to have an impact on the trajectory of their lives in a way that's highly uncertain at the time they take that first step. Yeah.

Guest 2: So it's nervous making for the families, but. But I think we both believe that each of our sons has made a very smart career move here. Intellectually, we believe that, clearly.

Guest 3: I also think, at least for my son, that. And I think for yours as well. But for my son, you know, he's been in the corporate workforce for, I don't know, not 20 years, but more than 15 years. And I think he will find a company that fits him better than the corporate jobs he's had. That's what I think. I think he's going to thrive in this role as CEO, owner, but I think the uncertainty is hotter. You know, he's married, three kids, dog, I can't tell you how many fish, three cats. You know, he's got a life. And it's. And whenever you, Whenever you make a change, even if it's a change much for the better, it's challenging. Right?

[27:05] Host: Yeah, sure. Well, one of the things that strikes me about the course and why you chose to teach it is that it feels probably to differentiated from maybe all the other classes at HBS or most of them, in that there's a hint of advocacy to it. It's the two of you saying, this is an amazing thing. This is an amazing path. We recommend for the right person that you take it. There's an implied recommendation almost that I assume doesn't exist in private equity finance 101 sort of thing, which gives it a certain character.

Guest 2: I think that's a really good observation, Will. And you're right. And Rick, you know, you've often said this, that at the Harvard Business School we teach the major traditional professions, have their own advocates. The consulting firms come up and hold recruiting dinners and talk about how great consulting is, the investment bankers, the private equity firms. But there's really no advocate for small business. And so, you know, it's not so much that we're trying to persuade people, it's that we want to draw people's attention to this option because we truly believe, believe it is a great option, but it's just that it's one of many possible career options. So, yes, you know, we do kind of ring the bell and say, look at this, learn about this thoroughly, decide if it's right for you to sort of equalize it among all the noisy choices that appear on campus. But it is certainly true. You know, we've spent 15 years studying this area, and we really believe that if for someone who wants to be a general manager and values professional independence, this is a great path. We truly believe that.

Guest 3: Yeah, absolutely. Absolutely.

Host: Back to the rise of in popularity and to the 17 students in year one and to the standard, the much larger class today, 4,000 students in total. Just get. Contextualize those numbers for us. So, so, because we hear, oh, it's, it's. It's exploded in popularity. But then maybe when you compare it to the entire graduating class at hbs, it's still a small minority, but I don't know those numbers. So maybe contextualize it for us.

Guest 3: Sure. So we have about 920 students graduating a year. And in our fall class, which is the case class, that talks about small firms and managing and buying small firms, that has for the last several years, we've had two sections of 97 each. 97 is a magical number because the room sits 101. We have guest most classes.

Guest 2: And us.

Guest 3: And us. And so that takes off three. And we need one for slack. And so that gives us four. And oftentimes we have people sitting in these portable chairs behind the. Behind the permanent seats just because we've sold out with guests and whatever. Yeah, so. So basically, you know, it's not literally right, but almost 20% of the class takes our course.

[30:28] Host: And, and of those, how many do you think do it? Do a search?

Guest 3: Well, we. We have some data on that.

Guest 2: Yeah. Like last year, about 30 people went off and searched at graduation, and we generally see a roughly equal number within the next five years, leave their traditional post HBS jobs and go off in search. And then, Rick, you know, I'd say if you catch our classes 10 or 15 years out, the percentage is much higher than that as people gradually move towards entrepreneurship. So those are kind of the statistics on this.

Guest 3: I think that's right. I think that's right. And increasingly we're seeing HBS alums that did not take our class reaching out to us at alumni events or other things. Email saying, I didn't take your class, but now I want to buy a small firm. How do I do that?

Host: Is that a perfect segue to the book?

Guest 3: Because that is the first thing we say you should read. This is really great book on it.

Host: You should read it before. Sorry, Royce, but before we get to the. Because I want to do the hear about the book, of course, and the podcast. The more Recent project. But I do want to. Just one more question about the evolution of ETA and your role in it. Why now?

Guest 2: Why?

Host: Your observation, your discovery, the magic in the multiples. In 2009, 2010, those multiples had been sitting there forever. Small businesses had been sitting there forever. Sure, the Silver Tsunami, but I'm not really. I think that gets overplayed a little bit. Why do you think only in the last 15 years has this path become so viable and so popular?

Guest 2: Maybe I could offer a couple of thoughts. And I'd love to hear your thoughts, too.

Guest 3: I'm actually clicking sound as I was thinking.

Guest 2: Yeah, well, I think there are at least a couple of things that have gone on over the last last 15 years. You know, one is, I think the. The deal, the traditional deal of going to work for a large company has gotten worse. I think the job security has gotten worse. I think in many industries, the opportunity for advancement has gotten slower. Not all industries, some, it's gotten faster.

Guest 3: But I.

Guest 2: And I think just culturally, there are many people who don't feel great about being part of a large organization. And that has nothing to do with us. But I think it's in the backdrop.

Guest 3: It's a societal thing and it's a generational thing. Right?

Guest 2: Exactly, Exactly. And I think a second force is that, of course, small businesses were always bought and sold. There were sort of entrepreneurs and employees who bought them, people in the local community who came in contact with an entrepreneur who needed to retire and sell. But I think what Rick and I and others like you will have done is we've drawn the attention of this market opportunity to people who never thought of this as an option. I mean, one of the experiences Rick and I have had for years is people would come to the Harvard Business School, they'd take our class, and they'd say to us, I never realized this was even possible. It never occurred to me I could buy one of the thousands and thousands of great small companies that come for sale each year. So I think there's been a group of people like you, like us, handful of others who have kind of rung the bell and drawn attention and said, look at this.

[33:51] Guest 3: Yeah, we did an alumni event in New York City. What was it? Two weeks ago. And it was a gathering of 50 or 60 of our former students. And to hear tell the alumni office, it sold out like the day that they posted it. And we had students, so we imagined all the people would be from New York City. They were not. We had people from the Midwest who flew in to have A drink with us. And that was a delight. But what was even more delightful is almost every person we encountered said something like, you know, your course changed my life. Your course changed my life. And I can tell you, you can treat, you can teach corporate financial management for a lot of years before, before you hear that once. Never mind, never mind here at like, you know, I don't know how many times we heard it that evening, but it was, it was, it was wonderfully affirming for the past. So I think, I think the course, you know, we like to think that one of the things HBS does is it's transformational. It gives people a chance to see beyond what they've done, to see beyond their resume and imagine what's possible. And our class really fits into that. It allows people who hadn't thought about buying a small business, don't even know much about what it's about, to look at the possibilities. And one of the things that we, we do is almost every class, we bring in the case protagonist. And, and we do that for a reason. And, and the reason is we want the students to look at these case protagonists and say, you know, are they taller, smarter, faster, or could I do this? Could that be me? And most of the time they conclude that could be me. And it may be. Not every one of them could be, you know, you know, so the guy who's the PhD in biology who buys a biological company, okay, maybe I can't do that. But, you know, today's class was somebody who bought a specially special specialty printing business. Everybody in the class could have bought

[36:21] Guest 2: that specialty printing business.

Guest 3: So it, so it's creating a sense of the possible. And, and it is expanding horizons. And so I think, I think some of that is, is part of it. And I think, you know, Stanford had been doing this kind of at scale for a few years before us. I hate to say that, but I think it's true. And although, you know, people claim HBS did it first, blah, blah, blah, but we don't need to go there. And what I think is when you find people from Harvard and Stanford doing things, it doesn't take long for people at other business schools to want to do these things. We ran a conference, what was it, two years ago now, Two years ago in December, for educators, people who are teaching about ETA and small business. And again, we thought, like, how many people are we going to get? We're not going to get very many people. And what do we have? 25, 30 people? 30 people who are teaching this course all over the world, all over the world. Teaching this course at universities all over the world. And I mean we probably get two emails a month about when are we going to do the next one because even more people are teaching it. So it's, it's, it has grown. And, and can I say one more thing on this topic, please. The other thing I think is really interesting is that a lot of the initial interest in search was around funded search. And Will, I know you're an advocate for unfunded search, self funded search, unfunded search, spouse funded search, family funded search. I can never come up with the right word, but not investor funded search. And I think opening that door and normalizing that has brought many people in because there are a lot of people who don't fit into the funded search world because investor funded search world, perhaps because they want to do a geographic search, perhaps because they want to do an industry search, perhaps because they don't like the economic deal, perhaps because they want more independence. Whatever the reason, that shoe just doesn't fit them. But now that the unfunded search opportunity is well known and publicized, I think that has both by the way improved the economics for the funded searchers, but it also creates another alternative or another vehicle venue for people interested in unfunded search. So I think, I think that has also boosted the interest.

[39:04] Host: Well, that's always the fun irony to search.

Guest 2: Right.

Host: Because traditional search funds, or funded search as you're calling it, we act as if that was the original way, whereas that itself was an innovation. Self funded search is the true original. Original original, which is you found, you know, you figured out a way to get a deal done.

Guest 3: Yeah, right, exactly.

Host: However you could.

Guest 3: Well, but that has become more mechanized and orderly and more. What's the right word? You know, those deals. While there's more variation in self funded deals than there are in funded deals, they have, they follow a familiar pattern and not having to reinvent that pattern makes. It makes it easier on everybody.

Host: True. The terms are standardizing somewhat and there's expectations around.

Guest 2: Exactly.

Host: Rick, you said a couple of things there that I just want to echo. The changed my life thing. I'll get that from people. And it's just incredible to hear those words directed in your direction. I mean, is there anything more gratifying? And the word you used, another word that is among my favorites, possibility, possibilities. And, and I. You used it in the context of, you know, seeing different people on stage and, and you know, I can imagine myself and all of the as, as doing what all these People are doing and I think of it that way. But also when you, when you start searching and you see all of these interesting quirky businesses out there, all these little, the infinite corners and niches within the economy, it just, it, to me, it, it just, it was like, you know, the, it cracked open the angels saying it was like wow, there are so many paths here and it's very, and this is I think most exciting for more mid career types. It's very easy as you get older to see the narrow, the, the options ahead of you narrow. And this has the opposite effect and it's just a wonderful feature I think of this path.

Guest 3: I agree entirely with every word you said. It's exactly right. It is, it is something that expands opportunities.

Guest 2: Nothing is more fascinating than to sort of find these businesses that you never knew that service existed. And some entrepreneur has created a lovely business making a million and a half dollars a year by, by delivering a great service.

Guest 3: Are some of the businesses you never thought about as businesses. Right? I'm thinking the pool business that, that we did a podcast on, it's like, or the gift basket business. Who'd imagine these are real businesses, right?

Guest 2: Businesses. Profitable business.

Guest 3: Profitable business and great businesses that people are, are, are thriving at. Who would imagine it?

Host: Well, I, I kind of my own entrepreneurial roots are in zero to one entrepreneurship. So a lot of thinking about what will this idea work? And so many businesses that searchers buy. I say to myself man, if somebody had come to me with a pitch to start that business from scratch, I would have said never would have worked. And yet here are these million and a half EBITDA businesses are merrily throwing off cash.

[42:18] Guest 3: Yeah. Students also often say why should I pay four times for a business that I could just start? And, and you know, we have lots of answers for that customer's ongoing, it's a going concern, all that but, but one of the biggest things is that, is that what you're getting is a business model that works.

Guest 2: Right?

Guest 3: That's what you're getting. You're getting a business model that works. You're getting customers, you're getting workers, you're getting suppliers, you're getting a business model that works. And so many 0 to ones as you say, they might have great technology, but they don't have a business model that works.

Host: What do the following acquiring minds guests all have in common? Doug Johns, Morley Desai, Tim Erickson, Chirag Shah, Shane Ursam. They all went through the acquisition lab, the accelerator and community for people serious about buying a business. But they represent just a sliver of the Lab's success stories. The number of deals across the Lab's cohorts now stands at over 120, with over $300 million in aggregate transaction value. The Acquisition Lab was founded by Walker Deibel, author of Buy Then Build, the book that introduced so many of you to the very idea of buying a business. The Lab offers a month long, intensive, almost daily Q and A sessions with advisors, live deal reviews with Walker, Deal team introductions, and in an active community of serious searchers, check out acquisition lab.com link in the notes or email the Lab's co founder, Chelsea Wood. Chelsea buy, then build.com this is so much fun, gentlemen. Let's get to the book. We have a long way to go, so let's get to the book. How, how did the book happen?

Guest 2: Well, I would start this off, Rick, by saying that even though Rick and I teach at the Harvard Business School, we don't remotely think that entrepreneurship through acquisition is limited to people who go to the Harvard Business School, and we don't even think it's limited to people who have MBAs. And so part of the mission of the book was to reach beyond campus and present something that was very straightforward as a how to to people who had an entrepreneurial bug, but they didn't have a big idea for zero to one entrepreneurship or, or they were quite reasonably worried about the risks of a plain old startup, but they wanted to be an entrepreneur and this would lay out for them how you could do that. And so that was the idea to reach all those people who had the potential to do this, but may or may not be in any business school. They may be people who had collected a lot of experience in their careers.

[45:06] Guest 3: Right. And the other thing we were trying to do in the book was sneak in. Not sneak in, but, but teach a lot of the necessary economics to do this. Well, while we were teaching the mechanics. So we have concepts of enduringly profitable businesses, recurring revenue, what to look for, why. Why profit margin is so important. So we talk about all those bits and pieces. Barriers to entry. Can service be a barrier to entry? We talk about those pieces, some of which are slippery economic concepts, but we do it in the context of practical examples with how to's and situations and opportunities. And I think there are how to books out there, but what ours does that I think has made it so popular is that is that we're providing some economic context and some bigger ideas along the way. You know, how many copies of the book have we sold?

Guest 2: Well, this has Shocked us, Will, because when Rick and I wrote this, we thought, Rick Royce, how many could we sell? I mean, how many searchers are there?

Guest 3: Well, I remember asking the editor. I remember asking the editor, what does. This is a common question of mine. So I apologize. But it's. What does success look like? How do I tell when I've done it? Well, and you know what they said?

Guest 2: I don't. I want you to remind me.

Guest 3: They said, well, most sell. Most of these. Sell about. Most of these books in this series sell about 10,000 copies, and if you could sell 20,000 copies, you would be just fabulous.

Guest 2: Which. And the book has now sold over 75,000 copies, which is. Well, you know, the world of search. That's a lot of people who are looking at search and thinking about it, which we think of as the objective.

Guest 3: Right. And I don't think. I don't think there are 75,000 people who are more likely than not to go search. That's not what I think, but I think there are 75,000 people who've thought about it, wonder what it's like, are interested in how small businesses work and why they work the way they do and. And how to tell a good business from a bad business. And. And the book reaches out to that audience a lot. So it's not only the people who are interested in searching, but also the people who are interested in a little practical advice on what makes a business more or less valuable.

Host: Do you think that's one thing that you realize in this world while assessing businesses to buy is that you're basically thinking like an investor in some ways?

Guest 3: Yeah.

Host: So. So good investors. I mean, it's similar kind of matrix to apply on businesses.

[48:05] Guest 2: That's exactly right. Well, yeah, you're both investors and the operator entrepreneur are looking for the same qualities in that enduringly profitable business.

Guest 3: Right. But those qualities are a little bit different in a smaller business than in a big business. So if you, if you think about, for example, barriers, barriers to entry, what. What limits your competition? You, you, in big business, you tend to look for formal barriers, a patent, a brand. A brand, something like that. You know, why is it that people can't copy me? Or massive scale, but like, even massive scale. So, you know, Home Depot is, you know, there's Lowe's and Home Depot and, you know, so there's burger King and McDonald's. Right. So even massive scale is not a barrier to entry. And so one of the things we struggle with, for example, in this concept, is what makes for a barrier to entry. In a small business, it's different than in a big business. For a small business, often it's just simply providing your service at a really high level that delights your customers at a good price is a barrier to entry. They have no reason to look for somebody else. And, you know, that's not how most people think about it, as a barrier to entry. But in small business, it's probably the most significant barrier.

Host: So the idea for the book was your own or the publishing? The HBR Press came to you?

Guest 3: I can't remember which of us. It was our own, but I can't remember which of us had the idea.

Guest 2: I think you and I have been working together for so long, we don't really have ideas. They kind of end up, you know, all folding together.

Guest 3: Yeah, it's kind of like. It's kind of like both our brains have been put in a Cuisinart sometimes, you know, and. And we can't tell. Today we finished a couple other sentences. That was scary. But I'll tell you, the book, the book began with Royce. You know, we have a. We have a really interesting relationship. Royce. When you put something on Royce's to do list, he cannot sleep until he's completed the to do list. And so apparently, write. The book got on his to do list. And as fate would have it, your wife's not going to listen to this issue.

Guest 2: I won't tell her about this.

Host: Okay.

Guest 3: He goes on a tra. His family goes on a traditional December vacation. Am I revealing?

Guest 2: Yes. No, that's right.

Guest 3: And do you want to describe this vacation that. That led to the book?

Guest 2: Well, under my wife's guidance, we got on a ship and went to Antarctica. Antarctica. Which is a terrible place unless you have sort of an obsessive desire to see penguins.

[51:02] Guest 3: And how many are interesting, right.

Guest 2: I mean, after the first thousand. And so I kind of ret. Retired to my cabin and spent two weeks drafting this book. And I think to your horror.

Guest 3: Yeah, no, a book appeared. And, And, And. And that's amazing, I must say. None of the. None of that draft survived survived. But. But. But created a momentum. It created momentum. So it sort of forced me to say, okay, well, how would I rewrite these chapters? And then we rewrote the chapters. Then we looked for a publisher, and as we were looking for a publisher, we found HBR and a fabulous editor. She's just wonderful. And she nudged us even more. And so the final draft of the book, or the final drafts of the book were done, I think, two or three years after the first draft.

Guest 2: Right. With you and me and our editor just passing them around and around.

Guest 3: Right. But we, we redid the structure of the book entirely and, and built it around this concept of enduring profitability. And, and with that, I think it. It sort of worked much better than sort of 14 independent chapters.

Host: So the Antarctica fever dream, that was the start, right?

Guest 3: That was the start. That was the start. But this is. But this often happens in our relationship where, where we discuss some idea. And I think, oh, you know, maybe

Guest 2: in the Interesting conversation.

Guest 3: Interesting conversation. Maybe in the fullness of time, we'll do something about that.

Guest 2: And.

Guest 3: And poof. I think it's.

Guest 2: We'd agree it's been a very good partnership with us contributing back and forth.

Guest 3: No, no, no, that's absolutely right. Absolutely right. Because my perspective as an academic is that it's really important to get it as right as you can get it. So good enough isn't a concept, right? You. You, you getting it. Having it be better than what existed before is not good enough. You have to have it be as good as it can be, as clear as it could be, as conceptually pristine as you can make it. So if it's a. If it's a complicated concept, you have to keep working it until you get a thinner, simpler concept.

Guest 2: And I guess I would have to say part of my commercial experience is that it has to get done in order to be of value.

Host: So.

Guest 2: And we blend those. Right.

Guest 3: And so. And it's a happy blending of getting

Host: the perfectionist and the. The action taker.

Guest 3: Sure. I'm a perfect. I think I kind of think about myself as a recovering perfectionist.

Host: Okay.

Guest 2: We get a lot done.

[54:00] Host: I did just hear you use the word pristine, Rick. So.

Guest 3: Yeah, no, and say that. And. And well, the other thing that's really interesting about our relationship and this happened over that we had this happen today is that oftentimes we switch sides.

Guest 2: Yeah. So. So debate something and passionately, and then a day later get back together and we're holding exactly the other person's views and we'll debating that.

Guest 3: I have convinced. You know, you said. You said today at lunch, but you convinced me of the opposite position when we did this case last year. And I said, yeah, you know, maybe.

Guest 2: Yeah.

Host: What did you disagree about today? Do you recall? I mean, is it. Does it pertain to eta?

Guest 3: It does. It was. What was it about?

Guest 2: Oh, you know, we show a week to our students that we call Stephen King Week. This is a title actually Rick came up with a few years ago where we take searches that did not turn out well. And we walk those through the students because we want them to see that ETA has a full range of outcomes. While it's a, on average and in most cases, very attractive outcomes, there are situations that are less attractive. And so we take them out through these unhappy stories of real life cases. And many of those are set in the trauma of either the Great Recession or Covid. And years ago, when we started this, we had had a discussion.

Guest 3: Well, pre. Covid.

Guest 2: Yeah, pre. Covid. We started it. We had a discussion. Isn't it a little narrowing to have these all set in something like the Great Recession? Won't students get confused that the message is just don't buy a business right before a recession? Which is a silly lesson to teach, because how would you ever know?

Guest 3: And these students. These students. So our students, our students are between 28 and 35 or something like that, 32. So our students were basically in high school during the Great Recession.

Guest 2: And you made the point in that conversation of saying, no, Royce, it's not about the Great Recession. We're not teaching them to watch out for that. It's like you put a piece of equipment in a laboratory under a pressurizer, and you turn up the pressure and you see when it collapses, when it implodes. And what we're doing is taking this period of great pressure, and we're looking at businesses that collapsed, and then we're asking the question, what decisions did you make to put yourself in harm's way?

Guest 3: That sounds like such a sensible idea.

Guest 2: It does, doesn't it? And it. And it's. So it's not about the recession. It's about what caused your revenue and your cost structure not to work anymore. And that's the only reason we're using these. This is a high pressure experiment. And then somehow today at lunch, we kind of reversed.

Guest 3: Well, today's case was somebody whose business was dramatically affected by Covid. You know, the class kept on coming to the discussion, you know, coming to the conclusion, well, we shouldn't buy this business just before COVID And yeah, okay, thank you. Thank you. And. And you shouldn't buy a business like this because if Covid happened, the business had some characteristics, high effective operating leverage, for example, that, that, that would cause this business particularly to suffer in Covid. And while I, while I understood most of that, I thought, well, that is a very high standard to ask for a business that it be Covid proof, because who knew? And I said, you know, luckily, this isn't a Presidential debate. You're not cnbc, so I'm not going to hear about this on the headline tomorrow. But I said, is it your view that we need to make sure we don't buy businesses that would suffer in the case of an alien invasion, a low probability event? Well, so was Covid. Right, right, right.

[57:54] Host: I mean, can a business really be black swan proof?

Guest 3: Yeah, that was. That was that. That. That's a more adult version of the question I was posing to our students.

Host: And,

Guest 3: and so at lunch, Royce was pointing out that. No, no, no, no, no, no, no. There's, you know, this is. It wasn't that it be alien proof or Covid proof. We're looking at these examples because they put the business as under stress. That's true, but we want to be careful about overgeneralizing.

Guest 2: What we're really looking at, in my view at lunch, was that when revenue comes under pressure, how much headroom is there in the business? That's part of what makes an enduringly profitable business. Anyway, we're getting into the inside baseball of how to construct the class here. The sense of the back and forth.

Host: I love your expression or your use of the word headroom, which I notice comes up a lot in your. In your podcast. It's not what I'm. I use that I will start to use in speaking of the podcast, what of the inception of that project? How. How did that come about? And then I want to kind of talk podcaster to podcaster, see what you think of the medium.

Guest 2: Well, we're big admirers of you and your podcast, Will, but, Rick, I would start out by saying this is in some ways an extension of the mission of the book, which is we want to reach out to all kinds of people who are thinking about being entrepreneurs but don't know how. And maybe the only form of entrepreneurship they're familiar with is our more famous cousin of entrepreneurship via startup. And we want to first let them know that this is a real thing and that this is something that, you know, all sorts of people can do. Business school. No business school. If you've gotten some meaningful executive experience, you could do this. And here's. How would you sort of say that's the origin? Or would you. What would you add to that?

Guest 3: Yeah, I would add. I would add just a personal story, which is. My thesis advisor when I was getting my PhD is Mike was Mike Jensen. He passed away recently. And I was very close to Mike for a long time, and at one point in his career, he published a paper in the Harvard Business Review. I remember being at a dinner once where his more academic colleague said to him, mike, I can't believe you published in the Hybrid Business Review. You should publish in the American Economic Review. You should publish in the Journal of Finance. You should publish in the Journal of Financial Economics, the Journal of Business, the Journal of Political Economy. These are real journals, not the Hybrid Business Review. Mike said. In a line that I will remember for my whole life, he said, if I could publish and read his Digest, I would, because if I could reach 60 million people, I would think that's a great success. And the podcast is a little bit like that for me because, you know, we have a limited number of people we can reach in the classroom. We have a limited number of people we can reach with our book. I mean, we can sell more copies of the book, and people should buy them. But, you know, there's all. But. But the podcast is kind of the. The vehicle that this generation uses to learn about things, and we wanted to reach more people. So, yes, an extension of the book, but this idea that we want to really get beyond just our local environment and try to expand our audience as much as possible, because as professors, we measure success by influence. If we're influencing people's lives, decisions, giving them something new to think about, we're doing our jobs.

[1:01:41] Guest 2: It's kind of why we gave it the title Think Big, Buy Small. You know, that's. That's what we're trying to get people to do. Think big, buy small.

Guest 3: But if we just talk to ourselves and convince ourselves that we're really smart and have good ideas, we've already done that. We've done that. We can continue to do that. We enjoy doing that. But.

Host: So how's it going? How do you like the format? What do you think of podcasting?

Guest 2: So the format that Rick and I have chosen is, like many podcasts, we bring on a guest who has taken a journey through entrepreneurship, through acquisition, and, you know, we have them lay out their journey. But what we're also trying hard to do is at points during that description, Rick and I have a dialogue with each other to try and draw out a generalizable lesson for the people listening. Like, they'll talk about the type of business they look for, and we'll highlight why recurring revenue is so important or. Or why not having to reinvest in capital expenditures and inventory is so valuable and makes your EBITDA more valuable. Because we are teachers, and we want these podcasts to both be interesting and let people answer the question, could this be for me. But we also want to make sure they walk away with lessons that make them better possible searchers or at least,

Guest 3: or at least highlight the things we thought were curious or hard to understand or complicated or when people do things that we deeply admire, we wanna, we wanna, we wanna highlight that and say, wow, that is a really good business. We really like that business. And here's why. We really like that business. Wow, why did you make that? How did you make that decision? And why? And then, and then maybe dig into that decisional context in our little drop in. So for us, it's, it's, it's both an extension of the book and tries to have the same flavor of the book in the sense that the book tries to do some teaching about how to, but also teaching of some of the underlying concepts. And the podcast, we're trying to elucidate some journeys but also highlight some more general lessons along, along the way.

[1:03:58] Host: Well, it's a very effective format. I loved how, I mean, I try to do the same, try to, you know, pluck out the learnings. I do it in real time, so I'm often a little bit clumsy or a lot of it clumsy and tripping over my words. You all will have a segment and then it, and then you'll have, then you'll record a separate segment where it's the two of you debriefing what you just heard or using it as a teachable moment and then return to the interview. So it's nice too because mine are just long blocks of interview, whereas yours has kind of different segments to it. And it had, you know, so it, it's, it's, it's more dynamic. It's, it's really wonderful. And then of course, some of the stories are phenomenal. The, the story, I think you ended the season with Jared Pierce. I, I, he is not on my radar and, and boy, am I going to get, or try to get him on. Acquiring minds. What a story. What a unbelievable.

Guest 2: He starts out in foster homes eating food out of dumpsters and ends as a multimillionaire successful entrepreneur. It's a great story about him and about America, frankly.

Guest 3: I mean, it's capitalism at work, right? It's capitalism at work. He transforms the world he lives in by providing services that delight his customers.

Guest 2: I think one of the things you and I enjoy about these podcasts is we meet people that we really admire and we like and they're people who are not only trying to make a career and a living, but they're trying to lead A life that is a full life for them, taking control of their careers. Don't you think?

Guest 3: Yeah, I think that's right. I think, I think, you know, when we started the podcast, we had a bunch of decisions to make. Some of them are, for example, do we want to interview people with. We know well, do we want to interview people we hardly know? Or a little bit of both. And we decided for a little bit of both or a lot of both, depending on how you think about the workload. And so we interview people like Robin Kit, who I had as a student before we started teaching these small firm courses. And Robin goes off and buys a gift back company and we've written a case on Robin. I visited there and she comes to class often. So we know Robin very well. Her husband joins us for that spouses night that we talked about, Friends and family night. So we know Robin really well. But then we talk to people like Jeff Duckworth. And I know Jeff as a skier, but I never knew Jeff's entrepreneurial journey. I just knew that Jeff mentioned that he found our book and decided to search. And he was telling my son Sam about this great opportunity called Search. And there were this book written by a couple Harvard professors and Sam really ought to get a copy of it. And Sam said, do you know who they were? And he said, no. Yeah, amazing. That's a pretty funny story. Jeff's a great guy and has, you know, has a great journey himself. But it was. Has been just a lot of fun meeting people that we didn't really know. Hearing about this story, season two has even more of that coming up where we're talking to people that, that are, are brand new to us. Some people we know, but most of the people are brand new to us. And the journeys are really interesting and the lessons are really interesting.

[1:07:36] Host: Well, one of the things that I found is this will be the 300th episode with the two of you. It's kind of like, how am I not bored, frankly? Because many of the stories follow a similar pattern format. There's the search, there's the, the negotiation, there's the transition, there's the operations, and then maybe there's an exit and a sale. And I just find that there's so much the details in the individuals keep it fresh and interesting time after time. So. So while, while the template is repetitive, the stories don't feel that way at all to me, nor and nor do the actors. So it's been, it's really great.

Guest 2: You know, we, I think we feel the same way and when you watch someone leave a job in someone else's company and want to gain control over their career and how they overcome the challenges of search and then accomplish it, it's a great drama to watch and you feel great at the end of it.

Host: Yeah, yeah, agree. So let's turn now to just a couple ETA specific questions. Most people here are going to know the napkin math of search and why it's compelling, but I do want to just Jared Pierce, the aforementioned guest of your of a recent episode of your podcast Think Big Buy Small, refers to a chart, Rick, that you show the class. And you were so delighted because, because it really, it sent them off in a, in a direct and it was basically, I haven't gotten my hands on this chart. I would like to. And I would love to link to it if possible. I don't know if.

[1:09:25] Guest 3: Yeah, not a problem. Just, you know what, just email me and I'll find you a copy. This is the ANCS chart, right, Roy?

Guest 2: This is the chart that compares how much living you make as a employed person and how much income you make can expect to make in entrepreneurship through acquisition.

Guest 3: I can look at it. I can get to that chart too.

Host: And can you give me 30 seconds on the visual and why it moved Jared so much for those listening.

Guest 3: Sure.

Host: Well,

Guest 3: That chart show. What it shows is cash flows through time. And what happens is that a typical HBS graduate, these are somewhat old data, but a typical HBS graduate goes out, gets a job and they grow. I can't Remember is it 10% a year or 7% a year or something like that range, something like that. So there's a number that our career services had put out a few several years ago about what the 5 and 10 year wind wage growth was of our graduates. And so I applauded that. Just I took whatever the compound annual growth rate there was and grew it out. And I can't remember what the number was, but it's a number like 10 or 11 or 12 or 9 or 8, something like that. It's relatively small number. And so you plot the HBS salary and you just draw the line of what the HBS salary looks like growing. And of course when you get to your 10, you're kind of at two and a half or three times depending on what the growth rate is. You're at two and a half or three times. We started off at. So you're making a lot of money, hundreds of thousands of dollars. And that looks just great. And then what I did was I superimposed on that what a searcher would make just through the waterfall. And I took the example of a relatively small business, I think it was, I'll have to look, but there's different versions of this chart floating around. You know, I'm an academic, you can't leave anything alone. You have to tinker with everything. But I think the one he would have seen would have began with EBITDA of about a million and a half dollars and then waterfall it out and see what happens to the searcher. And what you can see very visually is after the search period and then maybe year or two, your salary as an HBS CEO, as a CEO of a business you own grows pretty. I mean, it's not growing very as fast as the HBS salary, but it's keeping, you know, it's close. And then I think I had that growing at 5%. So you have, you know, the difference in compound interest between 5% and, and 10 or 11 or 12, whatever the number was. But then there's this payoff at the end when you sell the business. And so there's an arresting change that you look and you just say, oh my word, I can actually do this. And if I am successful, I will create wealth that will change the course of my, my, my life and the life, life of my family. Because it's not inconceivable that I can buy this simple business and repay the debt and grow it at 5%. And boy, before you know it, I've accumulated several million dollars on exit. So that, that I think is the chart he looked at.

[1:13:12] Host: That was fantastic. Thank you, Rick. Yeah, I would love to get my hands on it and share that with the audience.

Guest 3: Yeah, and there's a version, you know, as I say, I can't help but tinker with things, but there's a version, version that does this traditional search and then there's another version that does it as a self funded searcher. And as you might imagine, the traditional search guys hate that chat and tell me all the time why it's wrong. We buy bigger businesses, we have more money, they make more money, blah, blah, blah, you know, but if you run the model good, it's pretty arresting.

Host: Well, we'll leave self funded search versus traditional search for our next interview because that one can be an hour in its own right.

Guest 3: Yeah, that's right, that's right. And I have few enough friends as it is. You know,

Host: guys, so much of the spirit of what you've done has been evangelizing, spreading the word about this path. There is a Certain. I don't know if I'm using the word correctly. Irony to it that many of the early searchers in searcher stories come out of the hallowed halls of hbs, Stanford and increasingly other extremely high pedigree schools. So there, there, there's also something that I have done is, is really tried to, in the spirit of showing possibility, is not have, just is, is to try to show a really diverse array of guests who've gone down this path. But sometimes I have to reach a little bit because the MBAs from the best schools, the former former private equity types, the former finance folks are overrepresented in this, in this world for obvious reasons. It's kind of where they start, they're exposed to it, et cetera. But, but 99 of the people plus listening to our conversation right now won't have gone to Harvard or Stanford for business school. Is there anything more you, you want to say to them? You may have already said everything that needs to be said, which is that this path is open to all. But I just wanted to give you an opportunity because, you know, the elephant in the room here is your Harvard professors and so many of your students are going to be successful almost no matter what they do. I mean, crude over overstatement, but you, you understand what I'm saying?

[1:15:40] Guest 3: I, I do. And I think, and I think what our message is and what we're trying to communicate in the book, and certainly in the podcast, is the idea that you don't need a Harvard MBA to do a search effectively and to be the CEO of your own small business. It is not a prerequisite. Is helpful to have some training in finance, to have some training in hr, to have some training in sales, to have some pattern recognition that you get from the case method, for example. So I think at hbs, we do a really good job of training general managers and there's no more general management, no more intriguing and all consuming general management challenge than running a small business, I think. So I think at hbs, we do a really good job at preparing people for this, for this career path, but I don't think you need the HBS education to do it. I think if you're curious, industrious, you know, you may not know how to do proof of cash if you didn't go to hbs. But I got sad news for you. Most of our HBS students don't know how to do a proof of cash either. What they do know is that there's this thing called a proof of cash and they Know, if they get the bank statements and the financial records of the company, they can sit down with Excel and figure out what a proof of cash is and learn something about the business through that activity and that they should do that.

Guest 2: I agree with what Rick just said completely. And I would just add that for evidence of this. When you look at who the owners are of most small businesses in North America, they are energetic entrepreneurs who didn't go to hbs, don't have an MBA and did the incredibly difficult job of taking that business from zero from an idea to an enduringly profitable, successful business that you, the searcher, are gonna buy. And so if those people can do it without an mba, then you, the searcher, who is inheriting a business with an established business model with employees and customers, ought to be able to run that business with a transition period for that seller. And that seems to me to be

[1:18:09] Guest 3: a proof point that you do not

Guest 2: need an MBA to do this.

Guest 3: Nicely said.

Host: Well said.

Guest 3: Nicely said. I hope our admissions department don't that doesn't call us.

Guest 2: I'm going to tell them that you said it.

Host: As ETA has grown so in our world, it feels big and bigger all the time, but relative to all the other professional paths or what have you, it's probably still quite small. But let's say it keeps growing. Do you ever think about any of the second or third order effects of this? Is it possible that, you know, in 20 years this is, this is such an established path that many, many, many thousands of people do it? I mean, I just wonder what the ceiling is here and not just more people do it, but if there are ripple effects to people doing this path,

Guest 3: I don't know what the ceiling is. What I think is true is that there are a lot of small businesses out there that need some transition. What did you call it?

Host: The Silver Tsunami?

Guest 3: The Silver Tsunami. With my head, I kind of think it's the absence of here tsunami. But anyway, because there was a time I had here when we started this project I had here. You must have caused me to lose my head.

Guest 2: I think I did.

Guest 3: I think. Yeah. So I think there are lots of businesses that, that are available for sale and need to transition. What you call the Silver Tsunami. Nice phrase. I like it. I also think though that, that what we're seeing is ETA going down to smaller businesses and more interest, you know, that are, that are not jobs, more than a job, but maybe not a giant business, you know, 2, 3, $400,000 of cash flow instead of million dollars of cash flow. So I think when you expand the pyramid down there, there's lots of companies for sale. So I don't think there's a question about the size or the supply of businesses for sale. I think that's there. I think people love the independence. So I don't know, could, could it be, you know, could, could Harvard Business School end up graduating 100 people a year that, that go out and buy small businesses? Sure, why not? It could happen. Hasn't happened yet, but it could happen. And I, I sort of think it might be a really good thing for our country if it did happen.

Guest 2: I'd just add that as more and more people search and buy businesses, whether they have MBAs or not, I would expect there'd be a knock on effect on the quality of jobs that larger corporations offer. Because whenever you get energetic, talented people saying, you know, I could always go over here, I could always buy my own smaller firm and be my own boss, it causes a response from the other bidders for labor. You know, they have to, they have to offer jobs that are ever better, offer more independence, offer more money. And so there's a knock on effect if this profession continues to grow in popularity, awareness.

[1:21:36] Guest 3: But will, I must say that one of the things that I think is so interesting is how mindsets have changed. So we had a discussion today in class where our protagonist was a mid career searcher and she had had senior jobs at a consulting firm and then went into industry and had a senior strategic role in a Fortune 500 company. And then she went on to buy a specialty print shop. And Royce asked the question, what, what, what goal was she trying to fulfill by buying the specialty print shop? I think that was your question.

Host: Right.

Guest 3: And one of the students said, in one of the most amazing comments of the year, I will say she said, well, she was looking for something more interesting to do. And I thought to myself, we have gone full circle. We should just stop and retire today because we're done. Because this student felt that, right? Running a print shop with a million dollars of EBITDA was more interesting than being high up in the strategy department of a Fortune 500 company. How cool is that? That says that there's been a transformation in the attitude.

Host: Yeah, what a wonderful line. Last question for you. Because it is rare that I have Harvard business professors on the podcast and folks from the perch that you have your own, your own successful careers and then just being exposed to hundreds of hungry young people sort of at the beginnings ish of their careers where presumably many of them are intending to build wealth for themselves. Just about, about wealth and money. You know, it's always, it's the backdrop of so much of what we do here, of entrepreneurship. And so I guess I just wonder, I wanted to ask if you have any, anything you tell students or anything you'd want to communicate to people who are, who are younger about the pursuit of it, you know, and so maybe to anchor my question a little bit, one extreme, you know, the spectrum. And one extreme would be, you know, money doesn't matter. It's all about relationships. You can't take it with you. The deathbed tests, nobody wished they worked, you know, worked that extra hour for that extra dollar. Other extreme would be no, actually building wealth is extremely important. It's, it's status. It's what I can do for my family and my children. It's the influence I can have in America in 2024 is largely driven by how much money you have or can be driven by how much money you have. So with that kind of crude spectrum in mind, how do you all think about it even in your own lives, in your own, your own wealth building experiences?

[1:24:47] Guest 2: Rick, you and I grew up in families that were similar in the way that while we weren't in any way deprived, we didn't come from families with money. And so both you and, and I had to think about these issues of what we wanted to do with our careers and be mindful at the same time of making a living for our families. My reaction to this and Rick, I don't know we've talked much about this, so I'd be keen to hear your reaction. But mine is you're solving for two problems. One is to have a really fulfilling career where you metaphorically run to work every day because you like what you do. And maybe you like the people or you like satisfying the customer, whatever the combination is that you enjoy the work. And the second is that you want it to be work that has a reasonable chance to give you the kind of living you aspire to, because there are lots of jobs that will satisfy one or the other. The problem with those jobs is that you end up being an unhappy person. You up end, you end up being a person who's making a lot of money but hates the work they do. Or you end up with a person

Guest 3: who second heart attack, third wife, second

Guest 2: heart attack, third wife kind of people. Or you end up with a career you love, but you're constantly deprived of giving your kids the things that kids need and having the kind of security that frankly, money gives You. And so you need to look at this set of choices, which is actually fairly plentiful, of careers that deliver both. It's not all careers. Some careers offer one or the other. And it's a little bit like when you do a geographic search, you reduce the addressable market of companies, but you get other things through that. And I would assert that that pool of opportunities that gives you both of those is large enough that reasonable people who are reasonably flexible can find something that brings both. Rick, what do you think about that?

Guest 3: Well, I agree with everything you've just said. Royce. Hadn't thought about it that way. I agree with it. And, and it's a nice perspective. I would also add, add two other points. One is I really do believe in capitalism as a system for creating good in the world. And, and every time you make money, you're delighting a customer. You're making, you're making somebody better off because you were there and you sold that product and you're selling that product and you're making some money at selling that product. That doesn't mean you're price gouging. That means that you're producing something that people value and the customers lives are better off because they've purchased from you or else they wouldn't purchase from you. There's no, they're not compelled to buy you. So I think when you run your own small business and you're able to create wealth, it is a bit of a scorecard. It is telling you a little bit about how much good you've done in the world. Now that doesn't mean that there aren't, you know, there aren't high school teachers or elementary school teachers or nurses or doctors or philosophers or what English professors who, who are not making great money. It doesn't mean they're not contributing to the world. I'm not really trying to say that, but I'm trying to say that, that if you, if you adopted business as a school, if you've adopted business as a career, it's not so bad to adopt a money as a scorecard. In part, that doesn't mean you want to be a corrupt person or not follow the rules or treat your employees with dignity and your customers fairly. That's not what I'm saying. I'm saying if you do all those things right and you make money, it just shows you're doing it. You're creating value for the world. So that's number one. The second thing I would say is that there's a lot of discussion these days about wealth creation, particularly among communities that don't have a lot of cool wealth. And I would say, as Gerald Pierce points out in the podcast we did with him, there's no better way to create wealth than through this path, through the path of entrepreneurship through acquisition. Nobody cares what color the entrepreneur is. Nobody cares if they're a man or woman or what their sexual preference is or anything else, or Democrat or Republican. Nobody cares about that. What they care about is, are you providing a product that I want to buy? And so I think it solves so many problems. I'm not sure if that's responsive to your question.

[1:29:48] Host: It was wonderful, both of your answers. Thank you for indulging that particular question. Is there anything that you wanted to say that I didn't ask?

Guest 2: Well, we're very appreciative of the contribution you make to entrepreneurship through acquisition, through your podcast. It's a delight to listen to, and it offers so many lessons.

[1:30:08] Guest 3: Yeah. Yeah. Thank you. And the only thing I would add is how much fun I have working with Royce. It's been a wonderful 15 year partnership. In some ways, were alike. Sometimes our students get confused about which one of us.

Guest 2: Call us by the other name.

Guest 3: Yeah, they call us by the other name. They. They say to me, well, you know, we should ask Royce about the theory because, you know, yeah, you spent your life in industry. And I said the other way around. But, you know, I view those comments as great successes, actually. So it's just been a delightful partnership. I've really enjoyed it. And, you know, I always tell my students if they want a partner, they should get a dog. And sometimes Royce takes umbrage at that comment. It's been a wonderful partnership.

Guest 2: Yeah. Back at you, Rick. And well, happy 300th birthday.

Host: Thank you. Thank you, gentlemen. Thank you for doing this special episode for. For my 300th. Rick Rubeck. Royce Yudkoff, otherwise known as Rick and Royce. The name of the book, the famous book is, if anybody needs reminding, is the HBR Guide to Buying a Small Business. And more recently, everybody go check out Think Big, Buy Small, the podcast. I've been really enjoying it. You guys are doing it in seasons. Season one wrapped a month or so ago. Season two is coming out when?

Guest 2: First quarter. First quarter. 2025.

Host: Yeah.

Guest 3: Roy says January. Rick says maybe a little later. Depends on how much snow. How much snow there is in January. So we'll see.

Host: All right, gentlemen, thank you so much.

Guest 2: Thank you.

Guest 3: All right, thank you.