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In our continued quest of radical transparency, follow along as we are openly sharing information to build trust and keep all stakeholders updated through a monthly newsletter. Thanks for joining us on this journey!
TLDR
Searching with precision - no longer chasing the shiny object
Buying a business is a relationship business
Smaller SMB acquisition vs new franchise opportunities
Navigating the emotional rollercoaster of buying a business
Shoutouts
Shannon Jones for his valuable feedback and support, and for introducing us to some critical research materials (see the Subject Deep Dive below!).
Adam Markley for his continued support of the Brandt Point team, and for having Duncan as a panelist at the May ETA Denver Meetup. Click the link to sign up for the next event on June 5th! These are incredible community-driven events that should not be missed.
The many franchisors and franchisees we've contacted in the last month. You have provided us with amazing insights into the benefits and potential pitfalls of franchise acquisition.
The Colorado business broker community for allowing us to buy you a coffee or a beer and meet face-to-face with the BPH team. This is a relationship business more than anything, and we strive to build our reputation as reliable, dependable, and communicative partners for decades to come.
Wins & Losses
Win: Cleaned up outstanding admin tasks → As Josh and his wife spent the first half of April in Costa Rica, Duncan tackled the many items on a growing checklist of admin work to help solidify the searching business that is BPH. This included the legal entity formation, updating our investment memo and executive summaries, updating our shallow-dive diligence processes, and keeping the deal flow coming into the top of the funnel.
Win: Sharpened our search criteria and team value proposition → After evaluating deals based on a specific size requirement for a quarter, we realized that we were getting distracted by various industries and business models that didn't align with our core values and competencies. By expanding our size criteria, we have now honed in on the specific types of companies and business models that align best with our expertise, allowing us to focus our search with precision and move away from a scattered approach.
Loss: This was a lesson that had to be learned ourselves, despite the numerous mentors and advisors trying their best to lead us, but we spent too much time on a few business opportunities that didn't align with our unique value props. Another lesson learned the hard way, but we are re-focused and totally energized on this path forward!
Activity by the Numbers: March
7 = In-person meetings with CO business brokers
37% = Average open rate for our monthly newsletter
22 = Deals evaluated
15 = Deals passed
1 = LOI submitted
Subject Deep Dive:
Smaller Acquisitions Vs De Novo Franchises
The first quarter of the year offered us deal experience that sharpened our understanding of what is attractive for us in an SMB acquisition. This discernment process revealed a preference for businesses with elements of recurring revenue because of the potential for scalability and sustainability in the business. Drawing parallels to Warren Buffett's cautious entry into the tech market, our approach remains conservative - we opt for businesses whose models we grasp fully despite the allure of potentially lucrative exit scenarios. This strategic clarity led us to look at smaller deals in April that fit our strategic acquisition targets.
Characteristics of Smaller Businesses
Looking at some of these deals, we noticed that smaller businesses typically feature less sophisticated assets that require significant capital expenditures to modernize and scale. Additionally, the operational stability and team dynamics in these smaller entities present both a challenge and an opportunity. The question then becomes whether the potential return justifies the effort and investment needed to stabilize and grow these operations.
Predictability of Growth
Contrastingly, franchises offer a structured path to profitability. Prospective franchisees are equipped with a Franchise Disclosure Document (FDD) that lays out a clear operational blueprint backed by historical data and success stories from existing franchisees. This framework reduces the uncertainty around capital investments and scalability, allowing franchisees to leverage the franchisor's established infrastructure effectively.
Programmatic Acquisitions within Franchises
One thing we did not consider until reading Exploring Franchisees as a Post-MBA Entrepreneurial Path by AJ Wasserstein is the opportunity for programmatic acquisitions within the franchise network. Wasserstein writes, "If a franchisor identifies a search fund entrepreneur as a preferred franchisee – and we think they will – the ETA CEO will have access to superior acquisition opportunities, additional geographical regions, and the ability to provide meaningful operating feedback to the franchisor. This first right of refusal for existing franchisees not only facilitates expansion but also fosters a more profound operational synergy with the franchisor, enhancing the overall value proposition of franchise investments.” This podcast shows examples of how acquisition entrepreneurs like Peter Mistretta and Michael Horowitz have built portfolios and exited franchise acquisitions.
Conclusion
While purchasing a franchise may carry a certain social stigma, often seen as less glamorous than other business endeavors, a comparison between acquiring a business with less than $350k EBITDA and starting a franchise reveals undeniable benefits. A franchise offers a proven business model and market penetration strategy that can be more efficient and less risky than nurturing a small, unstable business to profitability. As we continue to navigate the complexities of small business acquisitions, the comparative advantages of franchising become increasingly apparent.
Asks from our Community
Let us know what interests you in these updates! We want to produce content that is engaging and informative, so let us know how we can improve.
We are always looking for connections to local brokers, business owners, M&A attorneys, and local wealth managers.
Final Thoughts
Duncan here - As I reflect on Brandt Point Holdings' trajectory, my optimism is not just steadfast, it's soaring. The small business asset class is maturing, but it's far from reaching its zenith. This untapped potential is exciting and electrifying as we position ourselves within this evolving market landscape.
However, this journey does have challenges. The emotional rollercoaster of submitting offers in our owner/operator model is palpable. Each potential acquisition prompts a critical question: Are we prepared to steward this business for the next decade? It can be a daunting consideration, intensified by the occasional whispers of self-doubt and imposter syndrome accompanying any path carved in uncharted territory.
In these moments of uncertainty, I find strength in a holistic approach to resilience—staying mentally, physically, and spiritually grounded. These emotions will come, but the key is processing them, acknowledging them, and carrying on. Oh, and having a great partner helps.
Your support fuels our journey forward, and we are immensely grateful.