Joe Fuller: Hi, this is Joe Fuller, co-chair of the Harvard Business School's Project on Managing the Future of Work and co-host of the Managing the Future of Work podcast. I'm pleased to recommend to you Harvard Business School's latest podcast, Think Big, Buy Small, hosted by my faculty colleagues, professors Rick Ruback and Royce Yudkoff. You can find it at www.hbs.edu/news/podcast/think-big-buy-small. It's also available via Apple, Spotify, Amazon, and other podcast platforms. The show is based on Rick and Royce's very popular HBS course, Entrepreneurship through Acquisition, which introduces students to a business development strategy that starts with acquiring an existing successful small firm and then growing it. The podcast combines personal stories from acquisition entrepreneurs and other key players in the system who will provide expert perspective and advice. Rick and Royce are co-authors of the Harvard Business Review Guide to Buying a Small Business. Rick, who's Professor Emeritus of Corporate Finance at HBS, joins me to discuss the new show. Welcome, Rick.

Rick Ruback: Good to be with you, Joe.

Fuller: Rick, the startup narrative is probably the dominant one in our culture, but an acquisition strategy has its advantages. What are they?

Ruback: The biggest is that the risk-return is really in the entrepreneur's favor. As you know in startups, it's really hard to figure out what a good idea is, and then whether that good idea in fact has a market, whether people are willing to pay for that good idea, and then whether you can actually scale up that idea to become a viable business model. When you buy a small business that's been run with a history of success, say for a decade or two, what you know is that the business model works. You're going to run the business differently, you're going to bring energy to it, you're going to bring insight to it, you're going to bring creativity, you're going to find new ways to grow, you're going to bring it into the modern era. But the fundamental business model is solid. So buying a business is an entrepreneurial activity, which we think has a much better risk-return ratio for most entrepreneurs.

Fuller: Now, Rick, you and Royce have run the Entrepreneurship through Acquisition course, which is hugely popular at HBS, for many years now. What motivated you to decide to launch a podcast in 2024 to popularize the content of that course and the entrepreneurship through acquisition theme?

Ruback: Well, Joe, Royce and I have been on a journey around small business. Royce, as you might know, comes from a very successful career in private equity, where he ran Abry [Partners] for—a very successful Boston-based private equity firm—for over 25 years. And I was a kind of typical academic. Got my PhD at 25, went to MIT, taught there for a bunch of years, and since then have been at the Harvard Business School. I had always studied big corporate finance and was interested in studying something different. And so we wanted to find a field that would allow us to apply our skills, but be pretty new for us. And then since then, we developed the courses and we were really surprised and delighted at the popularity of the courses. Before we knew it, we had 300 students in our classes. Because of that popularity and the limited reach in the classroom, we said, "Well, let's write this book." So we wrote a book that came out several years ago, and from Harvard Business Review Press. It encapsulates the idea of how you go from beginning your journey of search, all the way through closing your deal. The reason we wanted to do the podcast is we wanted to build on the popularity of our course and our book. That is to say we wanted to be able to expand the reach, to have people who don't know about this career path, to get a chance to explore it.

Fuller: Rick, when you and Royce are planning the podcast over time, what are the types of issues you're going to be exposing the audience to? How are you going to take those people who have just a passing familiarity with the idea, and really make come alive for them?

Ruback: Well, our first season combines two kinds of episodes. One kind of episode is experiential. We interview people who have done this successfully and trace through their journey and what went well, what went poorly, what they learned, how they're experiencing it, do they enjoy it, what's its impact on its family, that kind of thing. And then the second, I would say, is we're exploring pieces of the journey. One episode is two people who are considering startups versus entrepreneurship through acquisition. And the other episode are two people who are considering more traditional jobs versus entrepreneurship through acquisition. Also, we have one episode where we talk about SBA [Small Business Administration] loans and SBA opportunities, because that's a key feature of this marketplace, and gives some people the idea. So there are some how-to pieces to it and some success stories, and some decisions along the way.

Fuller: Rick, you used the term ‘search’, which is a very common one word way to describe entrepreneurship through acquisition. Could you just very briefly describe that term, and why it's so commonly used as shorthand for this process?

Ruback: Sure. So the way people use the term ‘search’, it's to capture this idea that you're going to, as a full-time job, focus on finding a business to buy and run.

Fuller: So you're basically going to start searching for companies with certain financial attributes? Or is it by industry or by location? How do people organize a search?

Ruback: Well, they do it both ways, and sometimes unrestricted in either dimension. So there are geographic based searches, where particularly people who are in dual career families, say, "I'm going to take where my spouse works and I'm going to draw a circle around an hour drive, and that's where I'm going to begin searching. And that works, if the geography is big enough and dense enough, and there are enough small businesses in that geography. Oftentimes it's much better if that is a region. Sometimes people come in with a particular industry thesis. I am really interested in healthcare, I want to buy something in healthcare, be it an autism clinic or a dialysis clinic, or some kind of professional medical practice. And then sometimes there are, we're going to boil the ocean. We're going to look at the entire United States and find all kinds of businesses that might be interesting to buy, without any care about what industry it's in or where it's located. That's a lot of work.

Fuller: What are the most important widespread misconceptions about search?

Ruback: The interesting thing about search, Joe, is people do it in a very personal way. People build their search structure to fit them. Some people do it in a very industrial process with an army of interns. Some people do it, particularly those who are in narrow geographies, by meeting everybody in their local geography. So I think one of the misconceptions is that there's only one way to do it. Because that's just not the case. Another misconception is you can do it part time. But search is really a full-time activity. Most people who search full-time take a year and a half to two plus years to find and close their deal. And if you try to do it part time, that can take so, so much longer. A third misconception is that you have to fund it in a particular way. At the Harvard Business School, for example, over half our searchers end up self-funding their search and getting money from investors only at the time of acquisition. That's called a self-funded search. Nationally, the more typical search is an investor-funded search where people try to raise money to fund that first two years of activity. So one misconception is the only ones that work are the investor-funded searches. And we find that not to be true, and we think the better buys are in the smaller space when you're buying a smaller company. And that happens to be what most self-funded searchers end up with.

Fuller: Well, it sounds like there's a lot to learn about entrepreneurship through acquisition. The show is called Think Big, Buy Small. Look for it at www.hbs.edu/news/podcast/think-big-buy-small. And you can find it on Apple Podcasts, Spotify, and on other platforms as well. Rick, thanks for joining us. Looking forward to listening to the show.

Ruback: Thank you so much, Joe. I really appreciate this opportunity to talk about it.