Why The Best Deals May Be Off-Market

If you’re looking to buy a business, there is value in looking beyond the listings. These opportunities are what Ronald Skelton, an entrepreneur in California and host of the How2Exit podcast, calls “diamonds in the rough.” 

“Just expect it’s a little messy,” he says. Small business sellers who go through brokers usually have financial statements, etc. very well put together and are educated on the sales process. But when you’re searching off market, the business owner may not even be thinking about selling, let alone be prepared for it. 

Skelton has ventured into this territory before. He says these deals tend to present a few advantages for both buyers and sellers. On top of avoiding commissions, the parties have greater leverage to creatively structure a deal, sellers avoid the often-arduous process of reworking their operations or accounting, and there are tax benefits. These off-market deals are also a way to acquire market share, which is the most reliable path to growth in some competitive industries.

In his recent talk during BuyAndSellABusiness.com’s inaugural #BossUp conference, Skelton shared a few best practices if you’re going off-market as a buyer.

Know What You’re Looking For

A lot of buyers who have a hard time sourcing deals are “industry agnostic”. “It’s hard to have a path to success if you don’t know what the destination is,” Skelton says. He suggests picking one or two industries and as you learn more about them, refine your criteria based on the nature of the business and your own personal needs. That doesn’t mean you have to stick to those industries, necessarily. 

This is also important because your search needs to take place where “your people hang out” — chambers of commerce, trade shows, professional associations, even in digital spheres (should you be starting with LinkedIn or Google Maps?). You can’t do that effectively unless you know who you’re looking for.

Gauge The (Potential) Seller’s Motivation

When Skelton approaches a business owner, he makes a point of measuring their motivation on a 10-point scale. You want to avoid the ends of that scale, Skelton advises. One’s are what he calls “tire-kickers” — they may talk to you but they’re not interested in selling unless you’re going to offer them 10 times what their company is worth. A nine or a 10 is ready to get out tomorrow, which may be a red flag. When Skelton is buying, he’s looking for the sixes and sevens.

“You Are Who Google Says You Are”

When potential sellers are even the slightest bit interested in talking to you, they’re going to Google you first. If you’re a ghost, that can work against you, Skelton says, just as unprofessional social media photos would. Make sure you have a professional LinkedIn presence. If you’re the head of your own business, make sure it looks like a business. 

It May Get Awkward

“You’re going to get some GFYs,” Skelton says, an acronym for “Go F**** Yourself.” There are some things you can do to manage this, but it’s an imperfect art. For example, when possible, Skelton (apologetically) sends snail mail to the business owner’s home rather than office expressing his interest. He reasons that it’s better to do this than have someone, like a secretary, at the office see the correspondence and be panicked by the fact that the owner might be selling (even if they aren’t). The owner may then direct that frustration back at you. “You have to have a thick skin,” Skelton advises.

It’s Going To Take Time — Probably A lot

Skelton estimates that the average off-market search for the first-time buyer takes between 18 months and three years. In that time, you’re going to talk to hundreds of businesses, and your expected response rate should be about 2%. Skelton advises tracking your progress and setting and updating goals related to outreach and response (e.g. send 250 letters a month, get two to four conversations out of that, etc.) and retool those goals as your search progresses.

Narrow Your Search

One way to improve your response rate is to tailor your search criteria. For example, there might be thousands of roofing companies in the GTA, but if you target, say, those who have been in business for 15 years or longer, you’re more likely to find owners who are closer to retirement and may be more willing to sell. Even when he gets a “no”, Skelton makes a point of staying in touch with promising leads — Christmas cards, a six-month call, just so when they do retire, he’s still in the back of their mind.

Talk to People Like People

In all his communications, both email and snail mail, Skelton makes a point of being honest and simple. When he first reaches out to business owners, he covers who he is, why they should care, what problem he’s looking to solve, when he’s ready to act, and how they can get in touch. Once he’s established contact, he’s professional, responds promptly, and makes a point listening actively to their situation and concerns. Because “once you’ve lost trust, it’s really hard to get it back,” he says.

Watch Ron's session from #BossUp 2023 here. 

Opinions expressed here by contributors are their own.

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