Jeremy Harbour
When people are thinking about coming on the Harbour Club to learn how to buy and sell businesses, actually the biggest question that always comes up is around sourcing. How do I find a consistent flow of deals? And this is something we’ve been able to do quite successfully over the years, but we’ve learned it kind of organically and as we’ve gone. We’ve had many, many people come and do the Harbour Club, so each time we have new people we learn new things.
Jeremy Harbour
I guess one of the first things to remember is that this is a selling process rather than a purchasing process. I’ve used this expression before, buying is selling. If it’s a sales process, then I think a good way to look at sourcing is marketing. We’re effectively looking for leads. We’re looking for opportunities to pitch, to see if we can buy their business. And the particular aspect of sourcing I want to talk about now is a tactic I discovered many, many years ago now. It was probably one of the first methodologies that we used, but it’s still incredibly powerful, and it’s been very, very successful.
Jeremy Harbour
It’s really about how you get a communication line open with a potential target. Let’s say you have a lead from somebody like a bad payer. I’ve talked on one of the other videos about finding the bad payers within a company’s debtors ledger, so people that are on their crappy list of bad payers. Let’s say you have ABC Limited, and you want to reach out and get in touch with ABC Limited. Now typically, if you ring up an entrepreneur and ask them how’s business, it’s always their best month ever, isn’t it? You never find an entrepreneur having a bad month anyway.
Jeremy Harbour
So how do you create that honest conversation, and how do you reach out and make contact with them? The method we use, and I discovered this many years ago … When I had my telecoms company, we had this credit-checking software. At the time it was called Risk Disk. It’s now called Experian Business Builder. There are lots of different products on the market. There’s one called Creditsafe. There’s a few others. Which one you use is less important. But effectively what you can do is, in our telecoms company anyway, we used to look up companies and basically credit check them. Did they have a red, green, or amber credit rating? What was their balance sheet? What was their profit and loss? All of that kind of stuff.
Jeremy Harbour
One of the other happy sort of side effects of using this software is that you also get a list of who the directors are, and also you get a director’s service address, which in quite a lot of instances is actually the director’s home address. You can opt to not disclose your address, but most people don’t, so you get a pretty good list of addresses there. So what we actually do is we write them a really short, really ambiguous letter, which is just from me personally to them personally. No corporate identity. You’re not hiding behind anything, and pretty much you’re just saying, “Hey look, let’s have a conversation. We’re interested in your industry.” So let’s say it’s the cleaning industry. “We’re interested in cleaning companies, and we would like to have a conversation around either investing, joint venturing, merging, or acquiring your business.”
Jeremy Harbour
And you literally send that letter out. But instead of sending it to the company, you send it to each of the directors individually. What you have is that different directors have different motivations. If you sent it to the company, one of them might read it and throw it straight in the bin. When you send it to their home addresses, you might find the one that really does have the itchy feet or sees that there’s some problem ahead that needs to be solved, or that potentially you can just work with a bit better.
Jeremy Harbour
You’ll also get this much better environment to receive a letter in. I don’t know what it was like for any of you guys, but when I was running the telecoms company I used to get about a foot of mail in the morning. I would normally sort of triage this into stuff that went into accounts, stuff that went into the bin, and stuff that was quite interesting. My quite interesting pile, when that got to about a foot thick, that would normally find its way into a bin when I had one my Saturday morning catch-up sessions in the office.
Jeremy Harbour
So this letter probably would have found its way into the quite interesting tray and then onwards into the bin. When it arrives at home, in the ’80s and ’90s your mailbox was stuffed with junk mail. But since we’ve had email, the amount of snail mail you receive has really come down to a minimum. I probably get one or two letters a week, rather than the usual 10 or 20 a day that I used to get. So this letter will stand out. It will be unusual to receive something through the post.
Jeremy Harbour
And then the fact that we deliberately don’t give them much information in the letter is actually a call to action in its own right. There’s something in neuro-linguistic programming, in NLP, called an Ericksonian loop, which is where you open an idea but you don’t close it. You don’t complete the circle, and that non-completion drives people’s subconscious a little bit crazy, so they feel they have to take some action. And that could be to email you, to call you. Sometimes they just call up and say, “What’s this all about?” or “Why have you written to me at my home address?” or these kinds of responses. But it engages you in a conversation where you can take it further.
Jeremy Harbour
And to give you an idea, when I very first discovered this, we’d just had this Risk Disk put into our office, so I was busy credit-checking all of my customers and friends and colleagues and anyone else I could find. I was in the process of trying to make contact with another telecoms company at the time, who were down in Kent in the UK. I thought, “Okay, maybe I’ll try writing to their home addresses.” I looked up all the home addresses, wrote these letters. I stuck them on my computer, and it got to about quarter to seven. It was a Friday evening. It got to about quarter to seven, and I thought, “Well, the post office shuts at 7:00, the sorting office down the road shuts about 7:00. I’ll run down quickly, post these letters, and then go and meet the rest of the staff members in the pub.”
Jeremy Harbour
I dropped these letters off, went to the pub. I had a few gin and tonics and don’t really remember going home. But about 8:00 in the morning, my phone is ringing, and I sort of reach across the bed and grab this phone, thinking who the hell is ringing me at this time in the morning? And the person says, “I’ve just got your letter.” It was like instant gratification. So this really can be quite a powerful tool.
Jeremy Harbour
We’ve also had the spousal pressure, which is where the husband or wife can see that their partner is under pressure and having trouble at work, and then all of a sudden this letter arrives, which seems to have a potential solution to the problem. You sometimes get the call, which is, “Hi, I’m calling you because my wife told me to,” or words to that effect. It’s really quite powerful on lots of different levels.
Jeremy Harbour
And I’d just like to compare it for a second with the kind of corporate finance or investment banking alternative. If you went to a corporate finance boutique or a buy-side representative that helps you find an acquisition, they will normally write to all of the acquisition targets blind. They will write as themselves. So if you went to KPMG, the letter will come from KPMG, and it will be a very arrogant kind of positioned letter. It will be something like, “Our client has been going for 20 years. They’ve got 200 staff. They’re turning over this money. They’ve won all these awards. They’re really awesome. We decided the time is right to engage in an acquisition strategy, and we decided we’d write to you to see if we could acquire you.”
Jeremy Harbour
There’s really this slightly arrogant positioning, which doesn’t actually resonate terribly well with entrepreneurs or owner-managers of businesses. The only reply that they will get is from the people that open the letter and go, “Bloody hell, KMPG, they’ve got a lot of money. I better ring them and see what I can get out of it.” So it doesn’t create the right kind of conversation. Whereas our deliberately vague short letter, but personally addressed to these people from a person, is a much more powerful way to do it.
Jeremy Harbour
One little word of warning is when you go onto something like Experian Business Builder, it gives you the opportunity to search for businesses that are distressed. You could search for, let’s say, all the cleaning companies that have a bad balance sheet in Kent, and you could just write to those. In our experience, you get a terrible response from that, and there’s a number of reasons for it. One of them is, everybody’s writing to them. The other one is that it only uses the SIC Code, which is the code you register your profession or trade with when you register the business, and these SIC Codes are notoriously wrong.
Jeremy Harbour
A really good example, if you went onto something like Yell.com and you looked for all the cleaning companies in a particular area, and then you looked on Experian Business Builder, there’d be a complete disparity between those two lists. So don’t use Experian Business Builder as a search tool, use it just as the tool to get the home addresses to write to the directors. And remember to write to all of the directors, because they all might have different agendas and different things that they’re looking to achieve.
Jeremy Harbour
So that’s it. It’s a sourcing technique we’ve been using for probably 15 years now. It’s still working as well as it ever did. Thank you very much.
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