Having young kids is a constant (and very humbling) reminder of how complicated the world is and how little we (“I”) understand it. Not only are the questions difficult, but the “whys” afterward can break you. Take a recent weekend example where I was asked to explain how an airplane flies. Keep in mind that my father-in-law is a retired Delta captain and you would think I’d have picked up on something from him over the last 10 years of family dinners. “It uses thrusts from the engines and then air pressure to fly” was my simple answer. “But….why?”
As Donald Rumsfeld famously said: “there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.”1 But that answer won’t fly (pun) with a six year old, so thank God for YouTube.
At RKCA, we support business owners in the lower middle market, the backbone of the American economy. On a daily basis we get asked by clients, investors, and prospective clients a set of general questions: “Where do you see rates going?” “How are rates affecting valuation?” “What is deal flow like?” “When is the best time to hit the market?” Thankfully, no one has asked yet, “How does an airplane fly?”.
For those above questions we have the ability to answer most of them directly. Market timing is tricky as you cannot predict the market nor the conversations happening in boardrooms of potential buyers. The ability to answer these questions comes from growing our skills, knowledge, and relationships in the industry through experience. While we are proud of the licenses each one of us holds through examinations and continuing education, the experience is what provides us the ability to answer those questions. Experience comes from living inside deals that close, deals that do not, and living inside businesses across the US daily on their transaction and pre-transaction journey. And “journey” to be clear is the operative word.
I’m also asked by friends who are looking to sell their business which firm they should go with. I am obviously biased, but we at RKCA also recognize that we may not be the right fit for an owner. In fact, it’s why we advocate that just as we want to run a broad and competitive process for our clients, they should do the same when interviewing investment bankers.
It is my opinion that there are broadly three types of investment bankers:
- The Sherpa – The Sherpa has:
- Guided multiple groups up and down the mountain before
- Trained underneath successful and wise Sherpas that came before them
- Managed through an avalanche
- Avoided causing an avalanche
- Carried more than his/her weight many times
- Gone up the mountain fast sometimes, slow others
- Knowledge of the terrain and what can be expected as you climb
- Knowledge of when to pick an alternative route
- The experience to guide you AND the self-awareness to know when he/she can’t and when to get outside support
- The Interposer – The Interposer is:
- In it for themselves
- Wanting to get the transaction done as quickly as possible and as painlessly for themselves
- Efficient (see point above)
- A prognosticator and talks a lot in the belief that with great volume of communication something he or she says will be accurate
- The Extra – The Extra is:
- The guy/girl from that one movie who you see in another movie and can’t recall his/her role or what you actually saw them in
- Comfortable in the background
- Good at booking meetings and helping with calendars
- Able to “Get out of the way” at various times; sometimes when you need them most
Again, like all the RKCA insight articles, this is my opinion. And as noted, there may be times when a Sherpa isn’t what you need. You may want to get a deal done as soon as possible to a small group of buyers and an Interposer may be the answer. If you want to drive the deal more than a banker and need someone to help as-needed, the Extra may be for you.
For those, like me, who can’t answer my six year old’s question, here is that YouTube video.
- February 12, 2002, US Secretary of Defense Donald Rumsfeld news briefing.
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