(The title of this post pays homage to Steven Crist’s book of the same title, which I highly recommend reading)
All in the family (business)
I come from a family of entrepreneurs. Parents, grandparents, great-grandparents, uncles, distant relatives - for generations people in my family hung their shingle and tried to make a living on their own. No one achieved huge success but the made a life for their families and spread the entrepreneurial gene in the process. When I was 18 I skipped college to give it a go myself - an alternative form of tuition that was expensive but worth it. In my mid-20s I was given the opportunity to manage one of the family businesses where I got to see it all. Some days I was in the field working alongside the crew, others I was in the office hunting for better insurance rates, or figuring out how to replace paper with cloud storage, or slogging through invoices to determine our transaction privilige tax liability (if you know, you know). Small business is messy, sometimes dirty, and it’s always on your mind (all the more so when family is involved).
For some time I’ve thought about buying and operating a small business. The act of getting inside a complex system, learning the internals intimately, and trying to make it better is hugely appealing. Juggling a number of tasks, being the go-to person, trying things and observing the outputs, getting hands-on. Open-ended problems, nonlinear solutions, and lots of unstructured learning along the way. Being responsible for something greater than myself, being depended upon. These are the kinds of exercises I find fun & interesting. I’ve been mulling over doing my own thing for a few years with progressively increasing desire, and I can’t sit on the sidelines much longer.
But don’t you have a cushy W2 job? Why would you give that up?
Yep, I lucked out. I left the family business to try to become a software engineer and failed upward - I couldn’t hack it as a coder but had enough technical skill to find an adjacent role at one of the most successful companies in the industry. Up the career ladder I went, my salary acending in tandem. All the neat tech benefits like great insurance, unlimited PTO, fitness reimbursement, the whole shebang - I’ve got them all. Why on earth would I risk all this - - to say nothing of the personal guarantee I’d need to put on an SBA loan - - and deal with the crap that comes with being a small business owner?
Times are changing. Kombucha on tap and Nerf fights no more. ZIRP is over, funding has dried up, and layoffs abound. No one knows what the impact of LLMs on tech employees will be, but it might not be good. As fortunate as I am to be largely insulated from the worst of it, the dynamics are changing for me, too. My employer is no longer remote-friendly, meaning if I want to transition to another team, move into management, etc. I’ll need to relocate to places I don’t want to live. In tandem, there’s a transition toward becoming “data driven”, which is a term used by VP-level folks who are completely abstracted away from the day-to-day work of the people below them to justify decisions made based on spreadsheets populated with numbers of questionable quality that were delivered in a random manner. “KPIs”, “OKRs” and meetings about meetings about acronyms were never a thought in the past but are now par for the course. This is a long-winded way of saying “the culture is changing, and I’m becoming less of a fit”.
There’s also the risk of concentrating in one field, in one industry, at one company. The chance of my employer declining in the next ~5 years is relatively small, and we haven’t done layoffs (hiring enough is our challege, in fact) but the risk of the environment changing in ways that don’t align with my personality and lifestyle is real. That, and in order to continue making this high salary I have to live in an egregiously expensive area (My income is p95 or higher virtually everywhere except where I live now). I don’t want my degrees of economic and lifestyle freedom contingent on my employer, but the longer I stay, the probability of those contingencies becoming reality inches closer to 1.
Finally, there’s personal risk in a minimum variance lifestyle. My greatest periods of personal growth were when my back was against the wall and I had to figure it out or else. When I was trying to break in to the tech industry I had little in the way of skills, no network, no relevant work experience - none of the things you really should posses if you want to find employment. I lived on credit card balance transfer offers and spent my days applying to jobs en masse. To overcome those hardships and thrive, to fly in the face of every “supposed to” and succeed anyway - that is a story worth telling. 20 years from now could I look back fondly on the fact that I “made it” and never again strayed from the straight and narrow? That ain’t me. I need to keep reinventing myself to be at my best, and I need a little turbulence to feel alive.
What’s the plan, then?
I’ve got some money and an eclectic set of skills and experiences ranging from the bluest of blue collar work to enterprise sales, and I’m ready to get my hands dirty. But I need to be smart in my approach given the very real consequences of getting it wrong. There are two things on my mind:
Don’t go broke. Defaulting on a six or seven figure SBA loan is the worst possible outcome. The probability of such an event is low, and a decent percentage of my assets have some level of protection in the event of a bankruptcy, but this is the Sword of Damocles dangling above my head.
Don’t be materially worse off than I’d be keeping the W2. “Worse off” is difficult to quantify. I can imagine a world where five years from now as a business owner I’m making less money or working harder yet enjoying life more. I can also imagine being stressed and miserable as a business owner just as I can being a W2 employee. They way I see it: if by year 5 I don’t have a reasonable chance of having greater upside in the form of equity in the business by say, year 10, than if I had kept grinding out the W2 and investing my savings elsewhere, I’d consider the venture a failure.
With those things in mind, I’m keeping my job and searching on the side At the moment I’m targeting businesses up to $1mm in EBITDA located in Washington state and primarily “blue collar” industries, but I may need to adjust as I go. If I had to estimate how much conviction I have in my search critera, I’d say I have about 70% clarity on exactly where I want to live, the ideal size of business for acquisition, and the industries that appeal to me. I’m quite sure of industries to avoid such as general contracting, any sort of trades focused on new construction, retail, ecommerce, B2C software, etc.
I want to find a business that an idiot can run, because I will be that idiot (hopefully only for the first year or two). Because I can’t count on being as good an operator as the previous owner, I need to minimize the chance of failure in the early years - that means not paying too much, adding investors to my cap table to reduce leverage and put folks who know they’re doing in my corner, and make damn sure whatever I buy is something I can operate successfully.
I’m going on the smaller side because I think it’s more likely I’ll find something that is good with the potential to become great for a lower multiple than a larger business. I like businesses that have stood the test of time yet never really took off because the owner couldn’t or didn’t want to get out of operator mode (ideally because they loved operating or just never put in effort to transition). True to my namesake, I’m seeking an opportunity for growth at a reasonable price.
So for now the plan is:
Keep my W2, ideally until the ink is dry and the keys have been handed over
Maintain a high personal savings rate
Talk to as many owners, investors, and brokers as I can
Do the work of searching