Key Points From the Interview
teve Divitkos had already spent a year and eight months searching for a business to buy when he found Microdea, now Transflo.
Steve was exhausted, but also excited by the opportunity. He chose Microdea because, he says, “There was enough right and enough wrong with it.”
Steve liked that Microdea had been consistently profitable for the last 25 years, with a diverse customer base and high retention rates. He knew that it could withstand any “rookie mistakes” he’d make as a new CEO.
On the other hand, Steve could also identify opportunities for improvement, like focusing the product on a specific industry, investing in new tools, and building out a strong management team. Under his leadership, Microdea doubled its revenue, and was consistently ranked as one of Canada’s best places to work.
“Even if you run the best due diligence process that has ever been run, I strongly suspect you will learn much more about your company in the first month inside of it than in the eight months outside that preceded it.”
Steve’s biggest piece of advice to searchers and new CEOs is to stay humble. Relationship building is key through the entire process, especially when it comes to managing sellers. For Steve, maintaining a courteous relationship with his sellers was critical in ensuring minimal business disruption as he transitioned into CEO.
While humility is extremely important, Steve notes that new CEOs must still be prepared to make tough decisions. “It's a balance between being humble and thoughtful versus candidly acting on things that need to be acted on,” he says. It helps to surround yourself with a trusted group of advisors, and use their expertise for guidance.
In this episode, Steve walks through the entire lifecycle of a traditional search fund, including finding a business, negotiating with sellers, building up revenue, and ultimately exiting. Learn how to successfully transition from searcher to CEO, and two ways to immediately create value as a new leader.
✳️ Top takeaways from the episode
✳️ Episode highlights with timestamps
Acquisition Entrepreneur: Steve Divitkos
💵 What he acquired: Steve acquired software company Microdea in 2014, and sold the business to Transflo in 2020 after doubling its revenue and quadrupling its equity value. After the sale, Steve began his blog In the Trenches to give practical advice to entrepreneurs and CEOs.
💡 Key quote: “It is absolutely the right thing to take a humble, listen-first approach when you take over a business. However, it's important for people to understand that problems don't wait until you are ready to present themselves.”
👋 Where to find him: LinkedIn
Acquisition Tips From the Episode
Top takeaways from this conversation
🔍 Searching for a business to acquire can be miserable.
For Steve, finding the right business was a nearly two-year grind of market research, outreach campaigns, and near-constant rejection. He feels that it’s extremely important for aspiring acquirers to understand the emotional toll that the search can take — especially a traditional search, which requires searchers find their business within two years.
Steve warns that the search can often be lonely, and it’s also difficult to understand whether or not you’re making progress, as there are few feedback mechanisms built into the process.
Another hurdle to overcome is imposter syndrome. As a searcher, it can be difficult convincing a seller who has owned their business for decades that you can improve it.
Steve shares his experience not to scare off would-be acquirers, but to help them prepare for the inevitable ups and downs of the search.
🤝 It’s critical to maintain a working relationship with the seller post-acquisition.
Steve notes that a dysfunctional relationship with the seller can catastrophically damage the company by dividing the employee base, stopping the knowledge transfer, and fracturing company culture.
“You would be well served to be thoughtful and humble, and deferential and respectful — no matter how frustrated you get,” he says. “Because don't forget: on day one, you're going to need [the seller’s] help way more than they're going to need your help.”
Steve recommends considering the “price of peace,” and picking your battles when coming up against the seller — especially after the deal closes. Lastly, he talks about creating transition contracts that are fair to both the buyer and the seller.
For example, Steve originally asked the sellers to remain with the business for two additional years in order to transfer knowledge. Steve quickly found, however, that it was hard on the sellers to see him making changes to their business, and it was also hard for him to make strategic decisions. In retrospect, Steve would have offered a one-year employment contract to phase out the sellers.
🏆 As the new CEO of your acquired business, do these two things first.
For Steve, a company’s employees are sacred. It was important to him to make sure his new employees felt comfortable with his leadership. To help establish trust, he did two things:
Steve spent his first two weeks as CEO having one-on-one meetings with every single employee to understand their roles, ideas, and worries. Through these meetings, Steve was able to prioritize his initiatives for the next three to six months, while more quickly building relationships with his new employees.
While Steve advises the listen-first approach for new CEOs, he also says to look for quick wins. For example, after hearing from numerous employees that the software they were using was clunky and outdated, he immediately tasked a manager with finding, validating, and deploying new tools within 90 days. He also focused on smaller wins, like buying a radio for the front desk so his receptionist would feel less lonely, and changing a burnt-out light bulb in the office.
🤲 The greatest CEOs aren’t risk takers, they are humble risk mitigators.
Steve shares that the best piece of advice he ever received was to understand the difference between taking a risk and mitigating one.
According to Steve, “Most CEOs, founders, and entrepreneurs that achieve enduring success are not even close to the risk-taking, swashbuckling cowboys that are portrayed in the media. In fact, they're quite the opposite. They're quiet, they're thoughtful. They're humble.”
Steve urges CEOs to prioritize humility, and understand that their relationships are their most valuable asset.
Inflection points from the show
[3:02] From private equity to traditional search: Steve got his start in private equity, but quickly realized he was meant for something different. Soon thereafter, he headed to business school and began his traditional search.
[4:55] Why Steve wanted to acquire a business: Steve knew that he wanted to be an entrepreneur, but he also knew that starting a business could be extremely risky. He felt that acquiring a business gave him a chance to grow something while maintaining a lower risk profile.
[6:26] Busting a myth about entrepreneurship: The most successful entrepreneurs aren’t big risk takers. Acquisition entrepreneurship offers risk-mitigating benefits, like the ability to have a market CEO salary, earn equity, and run a business with a history of profitability.
[9:25] Two books every acquisition entrepreneur should read: Steve recommends reading “Good to Great” by Jim Collins and “The Outsiders” by William Thorndike to understand the key skills needed to be a successful CEO.
[10:57] There are two ways to approach the search process: The first way is to view the search as a means to an end, i.e. a vehicle to get you into entrepreneurship. Alternatively, some people take on a search because they love doing deals. Steve cautions against the second approach, and advises everyone to think very deeply about why they want to acquire a business.
[16:27] The search process can be very emotional: Steve doesn’t sugarcoat it: Searching for a business to acquire can be miserable. He says that people should go into the search “eyes wide open” and not take rejection too hard.
[18:12] There’s no formula for a successful search: From the time it takes you to find your business, to the amount of interns you use, to the way you negotiate your deal, everyone’s search process is unique.
[19:12] There are two ways to find companies: The first — intermediated deal flow — involves using middlemen like brokers, investment banks, and accounting firms to find your deals. Proprietary search, on the other hand, means reaching out cold to business owners and asking if they might entertain an acquisition of their business. Steve did both to find Microdea.
[20:27] Working with interns to land Microdea: Unlike other traditional searchers, Steve hired relatively few interns over the course of his search. To maximize their impact, he gave them tasks that he knew weren’t his strong suit, like updating Salesforce, managing direct mail logistics, and handling initial email communications.
[21:37] Why Steve chose Microdea: The business was fairly stable, and Steve knew it would be able to withstand short-term setbacks or potential mistakes. However, there were also clear opportunities for Steve to grow the business.
[24:38] Be prepared to make unpopular decisions: In 2015, Steve made a huge pivot by narrowing Microdea’s target industry to trucking transportation and logistics. This effectively “fired” more than 20% of the customer base. While the company saw big benefits, the sellers strongly opposed Steve’s decision.
[26:59] Remember that your relationship with the seller lasts longer than the sale: Although you’re on opposite sides of the table for the buying process, after closing, you will need their expertise as you take on the new business. It’s important to maintain courteous relationships to ensure the business’s continued success.
[29:50] Don’t employ your sellers for too long: Steve recommends a one-year contract to ensure a smooth transition and knowledge transfer. Longer transitions can be hard emotionally on both parties, as the business diverges from the seller’s original direction.
[32:48] The price of peace: Be thoughtful about how you interact with the seller, and whether you’re willing to push a decision they disagree with. In short, pick your battles.
[34:59] Your people are your greatest assets: After Steve acquired Microdea, he spent his first two weeks as CEO meeting face-to-face with his new employees. Steve says these meetings were invaluable in understanding the inner workings of the business, and building relationships with his new team.
[40:17] Diagnose before you prescribe: Steve says that new CEOs should spend the majority of their first months listening and learning about the business before making any major changes.
[43:48] Issues won’t wait until you’re ready: Even though you may be new to the company, remember that it’s an up-and-running business with problems that may need immediate attention. In Steve’s first few weeks, he faced personnel issues that required him to make strategic decisions early on.
Links & Mentions
✅ Transflo (the acquirer of Microdea)
✅ Steve's blog, In the Trenches
✅ Blog post referenced in the interview: Lessons From my First Month as the CEO of a Newly Acquired Company
✅ Good to Great by Jim Collins
✅ The Outsiders by William N. Thorndike