From Tech Executive to Business Owner: Navigating the Acquisition of a Hawaii-Based Digital Marketing Agency

Ken Seio's journey from a successful tech career to business ownership offers valuable insights for aspiring entrepreneurs. After years in lucrative roles at Microsoft and Coinbase, Ken decided to pursue entrepreneurship through acquisition, ultimately purchasing Lights On Digital, a Hawaii-based digital marketing agency specializing in the hospitality industry.

The Path to Entrepreneurship

Ken's story begins with his upbringing in Macau and subsequent move to the United States for college. His career in tech flourished, leading to roles at Microsoft and later Coinbase. Despite the financial success, Ken felt a growing desire for more control over his time and career.

Real Estate Side Hustle

Ken's first foray into entrepreneurship was through real estate investing. He started with small multi-family properties, renovating and renting them out. This experience gave him a taste of business ownership and control over his financial destiny.

The Entrepreneurial Awakening

Unlike many entrepreneurs who always dreamed of starting a business, Ken's entrepreneurial awakening came later in life. Personal experiences, such as needing flexibility to care for ill family members, made him realize the value of owning a business and having control over his time and location.

The Search for a Business

After being laid off from Coinbase in early 2023, Ken decided to pursue business ownership full-time. He initially focused on real estate but soon realized he wanted a business with more recurring revenue and less time commitment on weekends.

Discovering Acquisition Entrepreneurship

Ken attended a local masterclass on buying small businesses, which opened his eyes to the possibility of acquisition entrepreneurship. He began educating himself through podcasts, online communities, and resources like Cody Sanchez's program.

Search Criteria

Ken's initial search focused on:

• Blue-collar trade businesses
• 3-5x multiple
• Located in the Seattle area
• Purchase price under $1 million

However, he soon realized that managing a blue-collar workforce didn't align with his skills and experience. He pivoted to white-collar businesses like staffing agencies, marketing agencies, and home care agencies.

The Acquisition of Lights On Digital

Through his network, Ken was introduced to the owners of Lights On Digital, a Hawaii-based digital marketing agency specializing in the hospitality industry.

Business Overview

Lights On Digital offers:

• Revenue management for hotels (dynamic pricing)
• Digital marketing services
• Social media management

The business has about 15 employees and generates mid to high six-figure SDE (Seller's Discretionary Earnings) with roughly 30% margins.

Deal Structure

The final deal structure was:

• 15% seller financing
• 15% from Ken's funds
• 70% SBA loan

The total purchase price fell in the range of $1.5 to $4 million.

Challenges and Considerations

Remote Ownership

One of the biggest challenges Ken faces is managing a Hawaii-based business from Seattle. He currently splits his time between the two locations, spending about two weeks per month in Hawaii.

Cultural Considerations

Ken notes that business in Hawaii is very relationship-based, making his presence on the island important for maintaining client and team relationships.

Growth Strategy

While the business has a strong presence in Hawaii, future growth opportunities lie in expanding to the mainland US market. This creates a dilemma for Ken in deciding whether to relocate to Hawaii or remain in Seattle to facilitate mainland expansion.

Lessons Learned and Advice

Working Capital

Ken emphasizes the importance of securing adequate working capital and a line of credit when acquiring a business. He secured:

• $150,000 in working capital
• $150,000 line of credit
• Aims to maintain $300,000 in cash reserves

SBA Loan Considerations

For those with real estate holdings, Ken advises being aware of additional costs related to SBA loans, such as appraisals and lien recordings on properties.

ROBS (Rollover for Business Startups)

Ken initially considered using ROBS to tap into his 401(k) for the acquisition but ultimately decided against it due to restrictions on profit distributions and potential complications in buying out the 401(k)'s share of the business in the future.

Post-Acquisition Realities

Ken highlights that new business owners should expect additional expenses just to maintain the status quo, such as:

• Hiring a bookkeeper
• Employing an accounts receivable specialist
• Potential retention bonuses for key employees

The Importance of Patience and Persistence

Ken stresses that the search process and business ownership are much more challenging than many people realize. He advises aspiring entrepreneurs to be prepared for a long and difficult journey, but one that can be incredibly rewarding for those willing to put in the effort.

Conclusion

Ken Seio's transition from tech executive to business owner illustrates the challenges and rewards of acquisition entrepreneurship. His experience highlights the importance of thorough due diligence, understanding the unique aspects of the business and its location, and being prepared for the demands of business ownership. For those considering a similar path, Ken's journey offers valuable insights into the realities of buying and running a business, emphasizing the need for patience, persistence, and a clear understanding of one's motivations and goals.

Article created from: https://www.youtube.com/watch?v=VI-uIL6OHXg