How to buy a business
Lessons from Jessica Cullen - Regenerative Capital CEO-in-Residence!
The Come Up highlights successful business owners’ & operators ‘come-up’ stories in an easy-to-read, written interview format.
All content is transcribed from live interviews.
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This issue is a little different, as we’re featuring Jessica Cullen on her search to acquire a business through Regenerative Capital’s CEO-in-Residence Program!
Ideal Company Quick Stats:
📈 Target EBITDA: $2.5 - $5M
💵 Target Top-Line Revenue: $15-$25M
📊 Target Profit Margin: 15%+
🌎 Target Region: Western Canada, Southwestern Ontario
🏢 Target Industry: Wholesale and Distribution
📄 LOIs sent: 1 EOI
🤝 # of Business owners spoken to face-to-face: 40+
📞 # of Cold Calls to-date: 800+
⏳ Time spent searching for a business: 5+ Months
Before you started buying a business…
Before setting out to buy a business, I worked at Home Hardware as Director of Communications. I oversaw all of the public relations, government relations, corporate communications, french translation, CSR portfolio and agency.
The department was developed in 2020, and I built it from scratch, during the pandemic, which is probably what I’m most proud of during my time there.
I was first introduced into the M&A world when I supported the acquisition of the Patrick Morin stores in Quebec.
Over this time, I also did some freelance consulting in the industrial, manufacturing, technology and private equity spaces, essentially helping people in left brain industries tell a strong and clear story. When you have a product that is really complex — which is usually built by engineers or scientists — it's often hard to explain what they do without stripping out the jargon. My focus was to simplify the complexity and tell a clear and energizing story - I loved it.
Growing up in an entrepreneurial family, it ran in my blood and I spent my career supporting entrepreneurs and understanding the unique challenges they faced. And during the Home Hardware days, I got a front row seat from a communications perspective on buying and selling businesses, so I had a pretty good idea of how complex that process can be.
I also saw what a rush it was and I had a great respect for the teams that were involved.
Why pivot?
Because this was a once in a lifetime opportunity and it just fits perfectly with what I want to spend the rest of my career doing.
I loved Home Hardware. And despite being entrepreneurial, I thrived in a corporate setting because I believe in being an intrapreneur — working in a corporation but acting as an entrepreneur within it.
I was really fortunate to have leaders that gave me almost unlimited freedom to create and build.
There's a fun book called This Might Get Me Fired. It is a manual for thriving in the corporate entrepreneurial underground. With the right mindset, I believe that entrepreneurs can thrive in a corporate environment if you're in the right one.
I believe that corporations need entrepreneurial thinking for innovation. If you become a cog in a wheel, then you'll continue to do things the way they've always done. So that was one thing I prided myself in working at Home Hardware — I was always bringing a new perspective when looking at something and the energy to make it happen.
I am also a very curious person, so if I see someone who's doing something interesting or different, I'm going to take them out for coffee and ask them a bunch of questions.
That was the origin story of this pivot. I reached out to Lisa Cashmore who was in my network and she was doing this wildly interesting thing that was focused on supporting Canadian small/medium business AND social impact. It was fascinating and I was drawn to know everything.
When we had the discussion, I was originally going to see if I could do some consulting but she encouraged me to apply to be a CEO-in-Residence. Originally, I had a great deal of imposter syndrome with that idea but I work hard to live my life without regrets - even though it felt like I was jumping into an arena that I didn’t have a space in, I trusted my intuition and just went for it!
The more I learned, the more I fell in love with everything we are doing. It wasn’t just something I wanted to do anymore, it was something I NEEDED to do. So yes, it was difficult to say goodbye to a career and company I loved, but for me, this is a calling.
What are you doing now?
I’m searching to buy a profitable, Canadian distribution company!
I'm what you call a traditional searcher, which means that I'm fully funded, I've been vetted, and when I find the right company for me, I can move extremely quickly with the funding already secured.
I am part of the first ever CEO-in-Residence program at Regenerative Capital Group — where they invest in and train leaders to acquire Canadian businesses.
Through a long and rigorous process, they choose five “CEOs in Residence” and they give us all the tools, training, and support to be able to ultimately acquire a company. And we use that as a platform for impact, growth, purpose, and profit.
We aren't traditional private equity or search funds where we look to acquire a company, maximize profits and resell in five years. We are playing a long-term and regenerative game really focusing on the long term success of the business and preserving the legacy of the company. My goal is not to buy and sell a company but to sustain and grow it.
I will also be focusing on social impact within the company I buy - making sure the people of the business are thriving, we are leaving the planet and our people better than how we found them.
On joining the CEO-in-Residence program…
The process just to get accepted was lengthy and pretty rigorous.
After my resume was accepted, I needed to submit a 10 minute video on my search focus and describe why I wanted to be in the program.
I can't even tell you what I said in that video, but it needed to be exactly ten minutes. It was a quick turnaround time, so I didn’t have much time to prepare - I just spoke from the heart and pressed send.
To be honest, I thought that my experience would end there, but I made it to the next few rounds with a case study and meeting different members of their team.
The final step was a one week off site with the final twelve applicants who were an extraordinarily talented group of people. I think my imposter syndrome hit an all-time high going into that week, but I tried to keep an attitude that I was grateful just to have had the invitation to experience that week to relax and just be completely myself.
I brought my road bike and Zwift and did my training in my room in the mornings before breakfast…
I have a photo of me where I climbed up on a giant wicker reindeer…
I took a dare to ask a ridiculous question in a fireside chat situation…
It ended up being the most amazing experience.
And at the end of the week, the head investor said to us, you thought that this week was about your skill sets, but it was all about character. What we're trying to do is founded on strong character and purpose.
So in the end, I’d say the cohort they chose is exactly that and I don’t have enough words to describe what incredible humans the other 4 selected CEO-in-Residences are.
After being selected, we started with a boot camp at the beginning of the year in Puerto Vallarta, Mexico where they downloaded all of the key information we needed to embark on a search.
What’s the process for buying a business?
Essentially, I’m going shopping, and it's like the best shopping spree you can imagine, because I'm looking at businesses all day.
The first thing I’ve done is set a thesis — and mine is really based on my central skill sets in operations, marketing and sales - layered with what I have experience in. This helps me focus my attention on the right targets.
For me, I come with over a decade of leadership experience in the wholesale and distribution industries so that is my arena.
It is a business model I know well and when I look at buying a business, I want as many tailwinds as I possibly can have so I can grow it.
I think a lot of searchers make the mistake of being too general. You can be general in one area but not all of them. For instance, if you have a really limited geographical area, you might be more industry agnostic. But I am looking in a wider geographical area so I am much more targeted in my industry.
About 20% of my time is talking to brokers, meeting with bankers, lawyers, accountants, anyone who would fall under the intermediary bucket that would support a transaction because they have their finger on the pulse and they know.
But then I also have this huge section of my outreach which is proprietary. I research amazing distribution companies and think about where in Canada would I like to live. Once I find a business I love, I cold call the owner and ask them if they're looking to sell.
Now, the likelihood of that happening is quite low (20% or less). But once I am interested in a business and it fits everything I am looking for, I put in what's called a letter of intent - they say less than 50% of your letter of intents are actually accepted, so I’m working hard to make sure I have a lot of irons in the fire.
If my LOI (Letter of Intent) is accepted, then I go into an exclusive and rigorous due diligence phase where I am basically just verifying everything the business owner said about their business. Once we emerge on the other side of that, we close on the sale, announce to the teams and have a big celebration dinner with the owner!
What IS your investment thesis?
In one sentence? I am looking for a profitable, well-established, high quality distribution company with sustainable competitive advantage, steady cash flows, growth potential and strong leadership with EBITDA between $2.5-5 million.
I am targeting Southwestern Ontario and Western Canada. I don't want any turnaround situations.
And I want the driver of the business to be either marketing, sales and operations because those are my central skill sets.
What makes a compelling business?
This is going to be different for everyone, but I have 5 Golden Rules for buying a good business and won’t look at a business if it doesn’t fit in this list:
1.Independent Leadership - established leadership team in place/owner is not the business
2.Profitable Product - Product and service has a high gross margin
3.Strong Market Position – Built in demand for products with market differentiation and competitive advantage
4.B2B business – business that serves other businesses
5.Personal Alignment – I will prioritize opportunities that align with my skill sets in operations, sales and marketing and that energize/excite me.
On regionality…
I’m fortunate because my husband is supportive of this as an incredible adventure and with his business, he can move anywhere. I am searching in Southwestern Ontario, Alberta and British Columbia.
Another thing I have learned is the benefit to looking in the locations where other people are not looking, such as some of the smaller towns that are not as central — Lethbridge or Edmonton instead of just in Calgary for instance, or Port Coquitlam instead of Vancouver.
I'm thinking about lifestyle all the time too. My husband and I are super active, so Western Canada really excites us.
On finding a good deal…(and what it takes to find one)
I am always searching…always.
I have a t-shirt that says “Sell me your business” and I have worn it to the grocery store.
I aim for a minimum of 10 face-to-face meetings a month with owners that are serious leads. I work to hit 20 meaningful conversations every single day.
Most of my search is proprietary meaning I will pick up the phone and cold call. Everyone hates to do it and that’s why it works. Last week, I had an owner who thanked me for calling him because it was refreshing to not get an email request. Finding ways to stand out and connect with them in ways others are not is key. You need to do things like drop by in person, pick up the phone or send a handwritten note.
Email is always the very last resort for me. And I get in-person as quickly as I can. I want to know them and I want them to know me.
Following up is really critical, too. I'm sure anyone in sales knows this — but if you don't get someone initially, it’s always good to revisit with them later. I view a no as a ‘not today’. You would be shocked how many conversations I have now with serious sellers who told me ‘no’ three months ago.
But to address the deal part, I'm not looking for a business that is a deal, and I’ll explain why: My dad owns his own business, and has put his entire life into it. If someone were to ask him to sell, he deserves to get a fair price and exactly what the business is truly worth.
So that's my approach. I'm not looking to shop a deal. I'm looking for a business that is rock solid. It's likely going to be in an unsexy industry and I want to pay the owner what they deserve for building an amazing company.
Thoughts on selling price…
It takes a great deal of empathy and sensitivity to come to this number because you’re evaluating this owner's life’s work, and they will almost always overvalue their business, especially if they are not working with a broker.
We are also coming out of the pandemic. The multiples for sale price were much higher during that period and expectations haven’t changed with interest rates.
There's some gentle education that usually needs to happen with the owner, but what traditionally happens is businesses in the industries that I'm looking at are sold at three to five times multiple their EBITDA.
That is an incredible simplification because you need to look at the financials, the employees, the suppliers, the competitors, the goodwill and everything that makes up the business to truly understand what a company is worth.
But this is where the fun comes in as well - it’s not entirely straightforward - there's so much creativity that comes with structuring a deal.
There are so many types of ways you can structure a deal so everyone leaves happy - it’s fun to be creative and think about it in a number of different ways.
Would you do this on your own?
If I could, I wouldn’t want to!
With RCG, I get paid to search and have the support of a premium advisory team as well as my cohort of CEO-in-Residences. They help gut check my business offers and ensure that I buy a really great company.
I have heard a stat that 97% of searchers never acquire a business. There are so many roadblocks that can stop you from doing this on your own, especially your first time.
But once you get your first company, you're off to the races and it's so much easier to start acquiring if that is your goal.
Canadian search is much newer than in the US but it is gaining popularity. So if you're a searcher, you need to find a strong differentiator. Being able to come from a fully funded, fully vetted company is a great differentiator and validates me to the buyers.
Biggest challenges to date…
Being a beginner in everything.
I essentially did a full career change. I spent over ten years at Home Hardware and was successful, knew what I was doing and the industry well.
With this change, I was a beginner at everything. Things took twice as long to do and I was needing to learn as fast as I could. I felt like I was doing a poor job at almost everything and for someone who works hard to be a top performer, that is a challenge.
I am not comfortable if I am not growing but to grow I need to be uncomfortable. We have support from Regenerative, but we do need to take complete ownership of the process - it’s our opportunity to lose.
How did I get through it?
There were definitely moments where I felt defeated but mindset has been everything. We talk a lot about approaching things with an attitude of possibility. So the days I felt exceptionally crummy, I just realized that this was today. Bad days build better days. And eventually, it got much, much easier.
Now three and a bit months into searching and I feel like I know what I'm doing. I feel like that three month mark, it was like a switch flipped. I know the people to talk to. I know what the flow of my days are, but getting there was a lot of testing and learning.
On misperceptions about M&A…
One is that it is easy! A public perception surrounding search from online influencers is that you can easily buy a business, no money down, and become a millionaire.
One thing that I've learned in life is if it sounds too good to be true, it probably is. What you don't hear is the thousands of stories of people failing at it. So I don’t want to glamorize searching for a business because even though it is an adventure, it’s a grind.
You do your reps day after day, and there are days that don’t go well. There's been a couple times where I've gotten so far down the path with an owner and then we hit a roadblock that means it’s no longer going to work. And you need to abandon it, despite the sunk cost. So you need to have a strong level of resilience and just being able to like, dust yourself off and say, okay, on to the next one!
I actually have no idea how people say they can buy a business with 0% down because when you look at lawyer fees, accounting fees, and doing it with the right level of professionalism and care, it costs hundreds of thousands of dollars.
In terms of my actual process, every Sunday I sit down and I journal about what worked, what didn't work, and one new thing that I'm going to try next week in my search. So I'm really methodical.
I cold call every single day, I send out emails every single day - personalization is a huge part about what I do.
And this is where I think my background in communications is a strength because I know how to speak where they feel it is specifically to them. When I really have a business I'm interested in, I'll stop and take 15 to 20 minutes to write out an email thoughtfully and research them. And I get high response rates because of that. I work to have a lot of meaningful connections with people.
Why is buying a business a great idea?
Right now we're in the middle of the greatest transfer of wealth in world history. A huge number of baby boomers are either looking to sell or exit their businesses in some capacity.
76% of Canadian businesses are going to be up for sale over the next decade, and 91% of those sellers don’t have a succession plan. So when you look at the impact that might have on Canadian small business, it's sobering.
There is a whole network of people who are coming up with solutions to that problem — whether that's individual searchers who are self funded, traditional searchers like me, who are funded or private equity groups. So there's lots and lots of different buyers that can come to this.
And all of them have different ways of solving this problem. And there's not a right or wrong answer either, but as the buyer, there's this need to impress them, because they're handing over their life's work to you, and you need to be able to answer the question, why should I sell it to you?
What happens when you actually buy one?
Then the magic begins. laughs
There's a great deal of humility I'm going to bring because when I buy a great business, it's not been successful because of anything I've done up to this point.
For the first six months at least, it's my job to learn it inside out and become a master in it to preserve the legacy of the company. I’ll take all the information I can get from the owner. I’ll make sure that my key leadership team is fully established, that they're going to stay, that they feel valued.
Metrics will be important to monitor the health of the business, not just financially but also with regeneration and social impact.
I will make sure my employees feel valued, that they're getting paid fair wages, that the community feels engaged, that suppliers feel happy and confident to work with us. And then from there, I'm going to continue to sustain and grow the business.
Buying and growing a business is my approach because when you look at the regenerative approach I'm trying to take, it takes real patience and buy-in.
And the great thing is — I don't need to do this alone.
That is why I chose to go with a company like Regenerative Capital.
I don’t put up any of my own equity, and then I get a generous percentage of the business based on my sweat equity and leadership of the business. It’s life changing for me.
I also have a full advisory team where I have accountants, I have lawyers, I have people who specialize in acquisitions and regenerative leadership. Our head investor, Mike Miller has been a senior executive at three publicly traded companies and overseen 12 acquisitions. He grew one of his companies from under $8 million in revenue to $200 million. I get to be a student of people like him who are going to help me do this very well.
I've also built out my personal board of directors that has experts in the industries that I'm looking to acquire. So I also have all these mentors that are going to be working with me to make sure that whatever business I buy will be a home run.
If you surround yourself with the right people, doing this successfully isn’t that much of a long shot.
I know I'm going to nail this because I stay super curious, maximize my energy and I surround myself with people who are smarter than me, always.
As long as you do that, you can do anything.
That’s it for issue this issue!
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Interview by: Alex Tribe
Edited by: Angus Merry