Hi {{first_name}},

Last week I gave the keynote at the annual ETA Summit at Washington University’s Olin Business School. Before I started, I looked out at the largest auditorium there and counted the sellers in the crowd.

I got to five.

That room would have been hard to picture a few years ago. ETA, short for entrepreneurship through acquisition, is the path of buying an established company and growing it. When my book Buy Then Build came out in 2018, the idea was still a well-kept secret. Olin didn’t have a class on it until I launched one in 2020.

This year, the summit filled that auditorium. More than 70 MBA students sat at the center of the room, surrounded by alumni, the wider WashU network, select business owners, and those five sellers.

My message to the students was this. Right now, while they’re searching for a company to buy, they’re allocators. They compare opportunities and decide where their time and money should go. The day they close, they become operators, running one business with all their energy. From then on, their job is to build that company until it runs without them, so they can become allocators again.

I call it the Operator’s Dilemma.

I bought my first company in 2006 and ran it for seven years. Then a liquidity event let me start diversifying, into a portfolio of companies I acquired and into other entrepreneurs’ businesses. Buy Then Build covers the first half of that cycle, buying and running a company. Build Wealth exists for the subsequent act, putting what the company earns to work.

Getting out of the operator chair is tough. A 2024 paper from researchers at Yale and Chicago Booth surveyed search fund CEOs who had sold their companies. A majority of them reported staying on to work for the new owner.

They sold the company but kept the job.

Whether you own a company today, have already sold one, or invest in those who run one, you’re playing in the private capital markets. And that is the right place to be. From here, we optimize. 

This week:

— Walker Deibel
WSJ & USA Today Bestselling Author of Buy Then Build
Founder, Build Wealth

A new owner typically drives business value by how much they do. They take the calls, close the customers, deal with issues. They may even get to make some hard decisions. At the beginning, this is required. You haven’t earned the right to work “on the business” if you’re still needed “in the business.”

Years later, the same habits erode the very value you’ve built. A buyer pays less for a company that needs its owner, and an owner can only earn as much as their hours allow.

The best operators see this coming. They spend their ownership years building their way out of the job, so they can go back to deciding where their money goes. That round trip has four stages:

Acquirers often start as allocators, become operators on close, and then spend too much time working their way back to allocation.  

The Searcher Works Like a Fund Manager

Stage one is the search. A searcher does the same work as a fund manager. They screen hundreds of companies, model the cash flows, test each seller’s story against the numbers, and pass on nearly every deal.

Stanford’s 2026 Search Fund Study puts the typical time to acquire a company at around 20 months. For that whole stretch, the searcher’s time and capital stay uncommitted, and every decision is a comparison across opportunities.

It doesn’t end until the day the buyer signs.

Closing Day Puts Everything in One Company

Stage two is concentration, and it starts overnight. The person who spent maybe two years comparing companies now actually owns one. Their hours, most of their savings, and all of their income sit inside it. Wealth gets built in stage two.

Here’s what a main street acquisition looks like in loose math. A buyer puts $65,000 down, and an SBA loan covers the other 90%, so the company costs $650,000. A company that size commonly sells for around three times adjusted earnings, so it produces about $216,000 a year.

That $216,000 now has to cover three things:

The loan comes with a catch. SBA rules generally require anyone who owns at least 20% of the business to personally guarantee it. If the company can’t pay back the $585,000, the lender can come after the owner personally for what’s left. One bad year can now hit the owner’s paycheck, savings and personal credit at the same time.

Even so, this is the stage to go all in. A new owner’s biggest edge is their own effort on one company. They know the customers, they’re in every decision, and every hour they put in shows up in the company’s value. Splitting that attention across side projects or other investments weakens the edge when it counts.

It’s also the most fragile position they’ll ever hold. An employee who loses their job loses a paycheck. An owner who loses this business can lose the paycheck and the savings, and still owe the bank. The upside is bigger, too. The same company that could wipe them out is the one building their wealth.

The Owner Is Part of the Price

Stage three is transferability. Picture the same company going back to market years later with the same $216,000 in earnings.

Value Builder, the exit-planning firm founded by John Warrillow, analyzed data from more than 80,000 companies. Owner-dependent businesses sold for about 2.9 times earnings. Companies that could run without their founder sold for closer to 3.9 times, about 35% more.

If the owner still holds every key relationship and makes every major decision, 2.9 times earnings puts the company at around $626,400, a little less than the owner paid for it. If the business runs without them, 3.9 times puts it at around $842,400. 

In other words, a buyer will pay about one extra year of earnings for a company whose owner has made themselves unnecessary.

The same discount shows up when you buy. If the seller still holds the key relationships and decisions, the company gets priced like the owner-dependent businesses in Value Builder’s data, and the new owner inherits that discount on day one.

That discount is the new owner’s opportunity. Each relationship, decision, and process that moves off the owner’s desk turns part of it into value they keep.

Hours Stop Capping the Return

Stage four is the return to allocating. An operator’s results are paid for in hours, and an owner only has so many of them. Once the business runs without its owner, time stops capping the return.

Concentration falls as the business becomes the income layer of a larger stack, feeding capital into assets that compound without the owner in the room. In our Capital Velocity Stack issue, we covered how the company moves from being the whole portfolio to being its source. That cash is what makes a vintage ladder possible, with new private positions added year after year until the portfolio starts funding itself.

A good operator will push back here, and for good reason. If the business earns 40% on the capital in it, why move a dollar anywhere else?

The 40% holds for the dollars the business can absorb. A company can only put so much capital to productive use, whether that’s a new truck or a second location, and each investment pays only until demand runs out. Past that line, profit piles up as cash. The decision about where it goes is already being made, usually by default, in an operating account.

That 40% is also paid for in the owner’s hours. A strong business with an indispensable owner is a high-yield asset with a single point of failure.

Some owners love operating and plan to keep buying companies. Why build their way out of a job they love to do? A holding company that installs CEOs to run its businesses is allocating across companies. The owner who keeps every company tied to their own calendar never gets there.

The Founder of the Search Fund Made the Trip Back First

The search fund was designed by someone who had already made the second half of the trip, from operator back to allocator.

Irv Grousbeck co-founded Continental Cablevision with Amos Hostetter and served as its president from 1964 to 1980. After sixteen years as president, he turned to backing and teaching other entrepreneurs. In 1984 he conceived the search fund, where a group of investors funds a young operator’s hunt for a company to buy and run.

Grousbeck spent the next four decades in the allocator’s seat. He taught at Stanford, backed searchers, and served as a lead board member and investor in Asurion. On the search funds page of Stanford GSB’s Center for Entrepreneurial Studies, he describes the goal as a model that supports itself, “as one wave helps the wave behind it.”

That’s the cycle working as designed. Every investor writing a check to a searcher today is in stage four, funding someone in stage one. The searchers who succeed will spend years in stages two and three, and the best of them will come back around to write checks of their own.

The goal of operating is to earn your way back to allocating.

The CEO Who Sold and Stayed

What 57 search fund CEOs reported after the sale

Ask anyone in the search fund world for the model’s greatest success, and you’ll hear one name.

In July 1995, Kevin Taweel and Jim Ellis used a search fund to buy Road Rescue, an $8.5 million roadside-assistance company. Over the next three decades it became Asurion. According to Stanford GSB’s case on the company, it compounded at more than 61% a year and returned more than 5,275 times the original investment. Taweel remains Asurion’s executive chairman.

Asurion sits at the far edge of what the model can produce. For anyone in the cycle, the more useful question is what happens to an ordinary search fund CEO when the investors decide it’s time to sell.

Keith Burns of Chicago Booth and A.J. Wasserstein of the Yale School of Management took on that question in a December 2024 paper. They surveyed 151 search fund CEOs who had sold their companies and received 57 valid responses. That’s about 35% of all search fund exits recorded in Stanford’s 2024 Search Fund Study.

Stanford’s study found that companies exiting between 2018 and 2021 had a mean holding period of 5.9 years. That number measures how long the investors stay. The authors found the CEO’s clock often keeps running well past it. As they put it, the CEO “rarely actually gets to exit.”

Exit Day, by the Numbers

The authors show what a roll looks like in dollars. A CEO whose stake is worth $5 million at closing rolls $1.5 million into the new deal. They leave with $3.5 million in cash and keep $1.5 million at risk alongside the new owner. After years of building toward a payday, the operator walks away from the closing table with part of the money and the same job.

The CEO Comes With the Company

CEOs described the post-sale role as an effective demotion to chief operating officer. The new owner arrives with its own capital structure, its own model and its own strategic plan, and the CEO’s work becomes hitting the numbers.

One respondent compared search fund investors to a high school basketball coach who asks about your grades and your home life. The new PE owners were more like a top Division I coach focused only on the scoreboard. Of the CEOs surveyed, 58% said the relationship with their new owners got worse over time.

The ownership shrinks, too. In the original search fund deal, the CEO’s equity opportunity typically runs 25% to 30%. After the sale, the median CEO received about 2.3 points of equity in the recapitalized company, and 39% of CEOs who stayed on as executives received no new equity at all.

Financial buyers want a capable CEO in place at closing, so the sitting CEO becomes part of what they’re buying. That leaves the market two ways of handling an indispensable owner. Buyers pay less for a company that depends on its owner, or they buy the owner along with it.

The Way Out Starts Years Before the Sale

Burns and Wasserstein’s main advice is the work of stage three. They tell CEOs to make themselves unnecessary to the buyer before the sale. One way is to prepare another executive to step into the top job. The other is to move out of daily operations into an executive chair or board role ahead of time.

They’re candid about the cost. It takes planning, an investment in people, and higher personnel costs that can lower earnings in the near term. 

Their advice was written for search fund CEOs, and it applies to any owner who wants the option to leave on their own terms.

Three tests will show you where you sit in the allocation cycle and what your year-end cash should do, and you can run all three pretty easily. And Q4 is the best time to run them. 

Year-end distributions are an allocation decision whether or not anyone treats them as one.

Test 1: Your Concentration Ratio Shows Your Stage

Divide your equity in the business, after its debt, by your total net worth. Then divide the income the business pays you by your household income. Use the higher of the two numbers.

Example: An owner has $3 million in equity and $1 million in other assets, so the business is 75% of their net worth. It pays them $400,000 of a $450,000 household income, or 89%. That 89% puts them in stage two.

Test 2: Your Key-Person List Shows What Still Depends on You

List every decision, relationship and knowledge base that is exclusive to you. Then answer one question. If you were unreachable starting tomorrow, how long would the company run before revenue or decisions stalled?

Strategy is usually the last item to move. In the McFarland Group’s 2026 Transferable Value Index, 18 of the 30 highest-scoring businesses still relied on the owner alone to decide what to pursue next. A good test is whether your team can propose and defend next year’s plan without you in the room.

Your move: Move one item off the list each quarter. Expect it to cost money in salaries first, and to pay off when you sell.

Test 3: Your Reinvestment List Shows How Much Cash Is Free to Invest

List the projects that could put capital to work inside the business over the next twelve months at its current return. Count only the ones you can name today, like a specific piece of equipment, a hire with a written job description, or an acquisition target already in conversation.

Example: The company produces $300,000 in free cash flow after your salary and debt service. You can name $80,000 of projects. The other $220,000 is cash the business can’t put to good use, which makes it allocation capital. Without a plan, it sits in the operating account, earning little and raising your Test 1 number.

Even great businesses hit this limit. See’s Candies, the California chocolate maker Buffett bought in 1972, produced $1.35 billion in pre-tax earnings over the next 35 years while needing only $32 million of reinvestment, according to Morningstar. Buffett sent the rest to Berkshire to invest elsewhere.

Your move: Put your allocation capital into the Capital Velocity Stack, toward assets whose returns don’t depend on your hours or your industry. Run this test again every year.

If You Already Back Searchers

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“What got you here won’t get you there.” — Marshall Goldsmith

An old Buddhist parable tells of a traveler who reaches a river with no bridge. He lashes branches into a raft and paddles across. On the far bank he wonders whether to carry the raft with him, since it saved his life.

The right answer is to set it down. The raft did its job at the river.

Every owner builds a raft. Answering every call, closing every customer and making every decision is how the company gets across its first years. The owners who make it to the other side learn when to set the raft down and become allocators again.

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This is not financial advice. Illustrative output of a reasoned thought experiment. Not a backtest, guarantee, or prospectus. Actual results vary based on market conditions, fund selection, timing, fees, taxes, and factors not modeled. Private credit, CRE, and leveraged strategies involve significant risk including loss of principal. Consult a qualified financial advisor.