Don’t Constrict Your Pipeline

Last week I had a referral source ask for a meeting. He wanted to give me some friendly advice: “Don’t constrict your pipeline.” He thought I might be nickel and dime-ing him on a potential referral fee. And, being a good friend, also wanted to give me some advice about how that might slow future deal flow.

Like most business owners the whole concept of a referral fee is kind of irritating; and I listened and asked some questions as best I could. Sure, I was coming back to him regarding the fee. I will admit that. But, the terms of the referral were that we would pay “if a deal closed.” Both of us assumed “a deal” meant “acquisition of the target company by LEV.” This was not happening and I wanted to let him know. I also wanted to let him know that “a deal” might be happening but it wasn’t an acquisition. What should we do about it?

Would it be better for me to say, “no acquisition” and just leave him high and dry? I didn’t feel right about that.

Since launch I’ve been squeezing out friction costs from our transactions. Mikel and I have been trying to build repeatable systems that help lots of small business owners get what they want… a fair price, closed with people they can trust.

Little Engine Ventures is typically not successful when trying to buy through an intermediary. It’s not that I dislike brokers or M&A professionals as people or the service they provide to the marketplace. In fact, they can bring a lot of value to the table. However, we are really unique in the marketplace, and especially so in our geography. I want sellers to have a great experience and tell their friends so we can get direct access to the owners of other companies. An intermediary breaks down our ideal rhythm, and generally signals to me, that the seller’s primary concern is maximizing the exit price.

Around our office, I use the phrase, “right kind of stink.” I want to chase off certain types of sellers and attract others. A cowpie accomplishes this. So, we’re like a cowpie.

If a bad fit never calls me, that’s great. We’ve saved each other time. If an ideal partner wants to work directly with me. Call. If an intro needs to be made to get that warm lead, we pay a referral fee for as little (and no more) than an email intro. If “the deal” changes, I’ll contact you and let you know.

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