For this blog post, we interviewed Operator-in-Residence Tom Fernan. Tom is one of three Operators-in-Residence at Generational Transfer Entrepreneurs (GTE) and has a long history with the search fund model and as an entrepreneur. In this interview, we discuss his experiences both past and present and his thoughts on the future of GTE.
Q: What was your background before searching?
A: Prior to graduating from the Tepper MBA program, I worked for IBM as an engineer on product development teams as well as a project manager on several projects.
Q: What initially drew you to entrepreneurship and the search fund model?
A: I entered the MBA program with the intention of becoming a startup entrepreneur. Later in my first year I met two Tepper graduates who were raising their own search funds, Ned Collins and David Harel. They opened my mind to a world I never knew existed, entrepreneurship through acquisition. I was immediately convinced of the advantages such as already beginning with a product or service, customers and a positive cash flow. Entrepreneurship through acquisition seemed like getting at least a five year head start while at the same time removing the startup risk. The probability of finding success as an entrepreneur through acquisition was too compelling compared to that of a startup.
Q: What has your experience been like within the companies you have acquired?
A: I could not imagine another career path post-MBA. I use nearly every aspect of my MBA on a weekly basis. One morning I negotiate and close a major deal with a new customer, and in the afternoon I recruit new talent to join our team. The next morning I put together the financial projections for next year and in the afternoon I refine our marketing strategy. The next day I step outside of the company for a day to dive deep into the strategy. The following day I then pitch the quarterly results to the investor group and finalize the new strategy. I wear a lot of hats throughout the day, which keeps most days interesting.
Q: When you started to look for another search, what did GTE offer to you that other funds could not?
A: GTE offered the opportunity to search as a solo searcher, yet have the day-to-day support and comradery of two other searchers and nearly 20 interns. GTE also has a highly engaged investor group guiding our search process. Searching as a solo searcher allows more flexibility in the size and type of deal to close, but a solo search can be mentally, physically and emotionally exhausting. GTE overcomes the drawbacks of a solo search by having two other searchers to act as a sounding board, challenge each other’s assumptions, share a large network, enable quick decisions, raise each other’s competitive spirits, and help bounce back after a deal falls apart. GTE’s investors provide immediate and insightful feedback while our interns provide operational support to ensure we have a constant flow of deals. All this helps increase the likelihood of finding a company that fits our criteria without compromising our standards.
Q: What makes search funds appealing for both investors and business owners?
A: For business owners, search funds are appealing because the searcher is a direct line of continuity for the legacy of the founder. The solid foundation and vision of the founder continues to grow as the searcher, investors and advisors pour their energy into the company. For investors, search funds as an asset class provide superior returns compared to traditional private equity. By providing mentoring and corporate oversight for the highly energetic searcher, investors have a more direct influence on the outcome of their investments compared to investing in other funds or in public markets.
Q: After a month working with GTE, how does it stack up to your prior fund?
A: GTE has gained tremendous momentum in a very short period. Gabe and Brenden put a lot of effort into planning the launch of the fund over the past year. The acceleration of the implementation of their vision has surprised me. I have been pleasantly surprised by the quality and quantity of deal flow that all three searchers and their teams have already generated. With the first few weeks dedicated to fine tuning our processes and building our IT infrastructure, such as the CRM, I would never have imagined that we would already be this far into the process.
Q: What is the culture like within GTE?
A: I think the culture strikes a great balance. The group is first and foremost professional. We set high expectations for the team and the team has responded positively to any challenge. The culture is open where everyone is encouraged to share their thoughts, ideas and concerns. We also find ways throughout the day to lighten the atmosphere so that we don’t get too stressed out by the high expectations we set.
Q: What is the plan for GTE long term?
A: In the long term, GTE will place three to five entrepreneurial operators-in-residence inside companies each year. We want to have an evergreen fund where former searchers become investors and mentors to new searchers.
Q: What type of businesses are you personally looking to acquire?
A: The type of business that I personally want to acquire has strong repeat or recurring revenue model. I would also prefer a company with an inherent advantage, more specifically, a technology or product design advantage. As a result, I am looking for companies ranging from IT enabled services, such as online retail, to software-as-a-service as well as from light manufacturing to automation. Lastly, I am also interested in established franchises or franchisor opportunities.