How I Nearly Blew My Very FIrst Deal
In the twenty years since founding Alpine, I’ve experienced my fair share of ups and downs. But Alpine nearly died before it began. This is the story of my first deal.
In December 1997, I was driving down Highway 65 from my hometown in Perrysburg, Ohio, to Fort Wayne, Indiana, “the magnetic wire capital of the world.” I had made a wrong turn on the drive, and I was late. Really late. I was late to what was the most important meeting at this point in my young career. I was going to try to buy my first company.
At this point in my life, I had completed three years on Wall Street and was part of the way through my first year at Stanford Business School. I was 25 years old and looked like I was about 16. So on this trip, I brought my stepfather, an insurance salesman, who for this meeting played the role of my partner. And because we had different last names, nobody asked.
We finally pulled up to a small industrial complex and parked outside the nondescript building, 45 minutes late. As we walked in, I could smell the strong scent of ink. The company we were visiting printed labels for industrial products—from lawnmowers to electronic parts—for General Motors.
As we made our way to the conference room, we apologized for being late. There was tension, and the faces of the owner and the broker could not hide their obvious frustration with us. I glanced up at the clock. And my heart nearly stopped. We weren’t 45 minutes late. We were an hour and 45 minutes late! I would later learn that Fort Wayne, Indiana, was one of the few towns in the U.S. that didn’t recognize daylight saving time—a massive miscalculation on my part. The meeting was scheduled for three hours, and the owner needed to leave for the airport in just over an hour. I excused myself, went to the restroom, looked in the mirror, and tried to regain my composure. I took a few deep breaths. I had 75 minutes to try to get my new venture off the ground. Now wasn’t the time to beat myself up nor to make excuses. Now was the time to make this deal happen. I had spent nearly 50 hours practicing for this meeting. I’d done my research, planned my script, anticipated his questions and my answers. Now I needed to perform.
Since then, I’ve sat in roughly 500 management meetings. But none will ever be more memorable, or as important.
The Typical Management Meeting
When I worked in private equity on Wall Street in the mid 90s, private equity managers would treat management meetings like depositions, asking questions like, “Why was your gross profit margin 33.7% last year and only 33.2% in the same quarter this year? Can you explain the discrepancy in SG&A expenses versus budget? Why was revenue from the Southwest division down versus last year?” These meetings would leave the owners exhausted at best, and deflated or irritated at worst.
I have never found much use for those questions in a meeting with an owner. You can always get those answers later in the course of diligence. My goal in this meeting was to connect with the owner and understand him as a person. I wanted to hear his story of starting the company, what had worked, and what hadn’t worked. I love hearing early stories of setbacks and triumphs. I wanted to give him space to talk about his team and customers. And I wanted to know his plans for the future and where the company could go. This gave me a better sense of the business and also allowed the owner and me to connect as he talked about things for which he had passion.
Active Listening
As I walked back into the conference room. I apologized again. I explained the miss on the time change, and said that I was committed to making the most of the time we had left. Given my young age, younger appearance, the fact that I had never closed a deal on my own and didn’t have any money to buy this owner’s company (which I would need to raise subsequently), and that my stepfather wasn’t in finance, I let the owner do most of the talking!
This approach worked even better than I knew at the time. I would later learn that the other buyers had spent the majority of the meeting talking about how big and great they were. One of the prospective buyers talked for 90 minutes uninterrupted, sharing his net worth and standardized test scores. Not surprisingly, this was a big turn-off to the founder. Over the years I’ve learned that one of the best ways to build trust is to demonstrate genuine interest in and appreciation for someone else’s journey.
A few things stood out for me in that meeting. First, the owner really cared for his customers and his people. He spent most of the meeting talking about how well he treated both and made sure I was going to continue the culture. I really appreciated the intensity with which he cared for the customers and his team. Over his lifetime, he’d really built a nice company. Second, he had a clear price which was his walk away number and shared that number with me. He wanted to hit that number, sell, and retire—no games. And finally, as the owner described his purchases of the latest printing presses and the building, I did some calculations in my head in real time. I realized the value of these assets and real estate were nearly equal to the price he wanted for the entire company, which meant I could likely finance most of the purchase price with asset-backed loans.
With about ten minutes to go, I told him I wanted to buy the company. I presented him with a three page letter of intent I had written in advance and walked through every paragraph. Since he was only going to sell his business once, I wanted to make sure he understood all the terms and that he heard them from me first. I had left three things in the letter blank: the cash paid at closing, the amount he would finance in a seller note, and the total value. I hand wrote the total purchase price he had thrown out right then and there. Then I asked how much he needed to have at close and explained that any amount he left in the company would earn interest pre-tax, which he understood and appreciated. He said he needed 60% in cash and would take 40% in a note. So I filled out those two blanks in my letter and initialed the changes. I said that he should discuss this with his attorney and he could call me with any questions. I left the letter with him and we shook hands.
Two days after leaving Fort Wayne, the owner sent back the signed letter with only a few minor changes which he wrote in pencil and initialed.
And with that, my new venture Alpine Investors was officially in business!!
In addition to the fact that Fort Wayne, Indiana, doesn’t recognize daylight saving time, I learned several important lessons during that first deal process. One lesson is that time kills deals. People often think it’s important to play their cards close to their vest, suspecting any enthusiasm will hurt their negotiating position. I’ve found the opposite to be true. By leaning in and showing your genuine enthusiasm, you can build trust and increase your chances of getting a deal done.
Another lesson is that we are all humans. Founders typically have a long and storied journey in building their business. I love investing the time to understand this journey, to connect with the founders, and to give them the respect of my interest and attention. There is a lot to learn from a founder who has spent a lifetime building a company.
“There is a lot to learn from a founder who has spent a lifetime building a company. ”
And the final lesson is to just take the leap. It is tempting to wait to start your venture until you have the perfect opportunity, have gained all the requisite experience, or have a flawless business plan. But I think it’s often most important to just get in the game. That first label deal in Fort Wayne turned out to not be a great investment for me, and I could fill three more blog posts with all the things I did wrong after buying my first several companies. But I got started, and in doing so, I set out on the incredible journey of building Alpine. It’s been the greatest professional journey of my life and one I’ve been on for over 20 years. I’ve never looked back.