What are the toughest personal questions you have to ask before searching for a small company to buy?

Over the years, I’ve spoken with hundreds of potential entrepreneurs interested in starting a search fund. Here are three of the most important categories of personal questions I’ve seen people grapple with before deciding to launch a search fund.

Competency. For search funders, there are two types of competency.

• Experiential competency. Do I have relevant experience or education to be a promising small-medium business (“SMB”) leader? For example, have you managed P&L? Have you managed people at varying levels of education and age groups? Did they stay motivated and enjoy working for you?
• Emotional competency. Can you make timely decisions with limited resources? For example, you’ll have to make people decisions without an HR function? Have you faced adversity and had to quickly bounced back? Do you handle difficult conversations well? Are you okay with rejection and setbacks?

Commitment. Of time and emotional commitment.

• Time. Can you commit and be patient for 2+ years of your life to a “search” process and face the adversity that comes along with it? If you are an MBA or a mid-career professional, are you okay seeing your peers’ careers take-off while yours might take a little longer? Are you intrinsically satisfied and motivated to be an independent SMB entrepreneur?
• Emotion. Are there others you need commitment from, such as family and spouses? Can you do this on your own or with committed partners — as either an investor or search partner?

Capital. Do you have the capital to fund your search and acquisition costs/equity? Is there a market for search fund investments right now — will you be able to tap into a network of search fund investors who will complement you and give you fair investment terms?

Talk to those who have purchased companies directly to understand their decisions. More relevantly, speak with those who passed on a search fund. There are more people out there who pass on the search fund path rather than pursue it. Mainly because very few people have the capability, commitment and capital required.

Another good place to start for more resources: The Business Buying Decision