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Start for freeAcquiring and running a small business can be an incredibly challenging yet rewarding experience. In this article, we'll explore the journey of IO Phillips, an acquisition entrepreneur who went through significant struggles before ultimately finding success. His story offers valuable lessons for anyone considering buying and operating their own business.
The Path to Acquisition Entrepreneurship
IO Phillips grew up in Nigeria before moving to the United States as a teenager. From a young age, his father instilled in him the value of entrepreneurship and owning a business. After studying chemical engineering in college and working in corporate America for several years, IO felt unfulfilled in his career and decided to pursue his entrepreneurial dreams.
He applied to business school as a way to transition into entrepreneurship while maintaining a safety net. It was during this time that IO discovered the concept of search funds - a model where investors back an entrepreneur to acquire and operate an existing small business. This appealed to IO as a way to become a business owner without starting from scratch.
The Acquisition Process
Rather than raising capital from traditional search fund investors, IO partnered with a single family office to back his acquisition. This allowed him more flexibility in the types of businesses he could pursue, but also meant less diversification of his investor base.
After nearly two years of searching, IO acquired a business that provided resurfacing and refinishing services to apartment complexes. The company had about 20 employees and was smaller than a typical search fund acquisition. In hindsight, there were several red flags with the business that IO overlooked in his eagerness to close a deal:
- The business was in a highly competitive, low-margin industry
- Revenues had been declining prior to the acquisition
- There were unethical practices occurring to win business
- The local market dynamics created challenges
Early Struggles as a New Owner
IO faced significant challenges almost immediately after taking over the business:
- His wife had serious complications during childbirth, requiring IO to be away from the business for several weeks
- Hurricane Harvey hit Houston, where the business was located, disrupting operations
- Many employees left to start competing businesses
- Unethical practices by employees were uncovered
- Revenues and profits declined rapidly
IO found himself in frequent "fetal position moments" as he grappled with the stress of trying to turn the struggling business around while also dealing with family health issues. He describes it as the hardest period of his life, taking a major toll on his mental health and personal relationships.
Pivoting the Business Model
After about 18 months of declining performance, IO realized the original business model was not viable. He decided to pivot and treat the company more like a startup, testing out several new service offerings:
- Driveway resurfacing
- Roofing
- HVAC services (which failed)
- Opening a store to sell supplies to competitors
While these brought in some additional revenue, the real breakthrough came when IO identified an opportunity in the emerging single-family rental market. Large institutional investors were buying up single-family homes to rent out, but lacked service providers to handle property turnovers between tenants.
IO repositioned the business to focus on providing turnover services for single-family rental properties. This new market was less competitive and more profitable than the original apartment complex business. Within a few months, it was generating significant revenue from just one client.
Navigating the COVID-19 Pandemic
Just as the business was gaining momentum with its new model, the COVID-19 pandemic hit in early 2020. Revenue dropped to zero almost overnight. However, IO had been through so many challenges already that he felt better equipped to handle this crisis.
He made difficult decisions to cut costs while retaining key employees. As the economy reopened, the business was well-positioned to capture pent-up demand. They achieved record revenues and profits in the months following the initial lockdowns.
The Decision to Exit
Despite the improved financial performance, IO was feeling burnt out after years of intense stress. The business model had changed significantly from what he originally acquired, now resembling more of a construction company. He also wanted to reinvest in his family relationships that had been strained.
IO decided to step back from day-to-day operations and brought on a general manager. However, his investors wisely advised that it's "difficult to be accountable but not in charge." They encouraged IO to explore selling the business entirely.
Fortunately, there was interest from strategic acquirers in the industry. IO was able to sell the business for what he describes as a good, but not spectacular, outcome given how close they had come to failure just a few years earlier. While it wasn't a huge financial windfall, IO views it as a successful exit considering the journey.
Key Lessons for Acquisition Entrepreneurs
IO's experience offers several valuable insights for aspiring business buyers:
1. Choose Your Industry Wisely
The industry and local market dynamics can make or break a business much faster than an owner's individual skills. Highly competitive, low-margin industries with unethical practices should be avoided. Look for industries with strong fundamentals and room for a small player to compete effectively.
2. Don't Ignore Red Flags During Due Diligence
In his eagerness to close a deal, IO overlooked several warning signs about the business he acquired. Take the time to thoroughly investigate any concerns that arise during due diligence, even if it means walking away from a deal.
3. Be Prepared for Intense Accountability
Many people pursue entrepreneurship to escape having a boss. However, as a business owner you are accountable to customers, employees, vendors, and investors - often in much harsher ways than a corporate job. Be ready for this increased pressure and scrutiny.
4. Focus on Making Decisions Good, Not Just Making Good Decisions
Rather than obsessing over finding the perfect choice between similar options, put your energy into executing well on the decisions you do make. Avoid second-guessing past choices and instead focus on making your selected path successful.
5. Be Willing to Pivot When Necessary
Don't let ego or sunk costs prevent you from changing course when the original plan isn't working. The most successful businesses are often willing to pivot their model. View it as an "eloquent quit" rather than a failure.
6. Manage Your Emotions
Running a small business comes with extreme highs and lows. Learn to regulate your emotions and maintain perspective that "things are never as good or as bad as they seem." This emotional stability is critical for making sound decisions.
7. Find Support and Outlets
Being a CEO can be lonely, as you can't always confide in employees, investors, or even your spouse. Find peer groups, mentors, or coaches who can provide guidance and a safe space to discuss challenges.
8. Do the Hard Things
While incredibly difficult at times, IO views his journey as the greatest professional experience of his life. Pushing through challenges is how we grow. If entrepreneurship aligns with your goals, don't shy away from the struggle.
Conclusion
IO Phillips' story of acquiring and turning around a struggling business highlights both the immense challenges and potential rewards of acquisition entrepreneurship. While not every journey will be as tumultuous, his experience offers valuable lessons on industry selection, managing through crises, pivoting when necessary, and maintaining perspective as a business owner.
For those considering buying a business, IO's advice is to ensure you're pursuing it for the right reasons. The financial outcomes are uncertain, but the personal growth is guaranteed if you embrace the challenges. With the right mindset, support system, and willingness to adapt, acquisition entrepreneurship can be an incredibly fulfilling path.
Article created from: https://www.youtube.com/watch?v=ZN2q6YVvfbI