Kuba Soltysiak And The World Of Entrepeneurship through Acquisition

WBR: Could you walk us through your story, and the background behind Red Oak?

Growing up I had several entrepreneurs in the family, and I was always a technical, geeky kind of guy. I enjoyed building remote control cars, boats, and things like that. Ultimately though, I wanted to be an entrepreneur. Coming out of business school at Schulich, I wanted to launch business, but at the same time I saw the opportunity students have when they’re finishing undergrad to get these high profile professional jobs like consulting and investment banking.

After seeing how interesting consulting could be, I started working with a consulting firm called Satov, and worked with them for four years. I would argue consulting is the best possible job you can have coming out of undergrad, because you’re spending a few months at a time working with different companies. All the while, I was exploring ideas about things I could launch on my own. After pitching a start-up idea to some guys at Satov, they instead suggested that I could buy an existing business and fix it up. Since I’d worked there for a few years, I realized that was a skillset I had already developed. As I met more people that had done that, I realized: (1) it’s doable, and (2) it’s a lower risk and higher reward approach to entrepreneurship. You can find a developed business model that already has a product market fit, and that has found its first clients. If you see that it’s a good business, then you can buy it and expand it.

So, in my mid-20s, I decided that was a great path to take, but I didn’t really have the credibility to raise ten or twenty million dollars, which is what you need to buy a business. So, I ended up going to Imperial Capital, a Toronto-based private equity firm with about $1B AUM. I did M&A with them, interventions portfolio companies with them, and some in-house consulting. The opportunities you get with private equity firms give you great high-level exposure to the specifics of which companies invest in, which CEO is and isn’t performing, and what you need to do to change a team. More importantly though, I was exposed to a lot of CEOs who were running our portfolio companies. However, in most cases, these weren’t the original founders. Instead, they saw an opportunity to grow a smaller business organically or saw an opportunity to consolidate an industry. Thinking further, it was clear that these guys were having the most fun, as they were building out these niche companies, and taking on the coolest projects. For me, that’s how I confirmed it was what I wanted to do.

Shortly after my experience at Imperial, I completed a one-year MBA at INSEAD. Afterwards, I launched Red Oak Succession Capital, gathered a group of twenty investors, and now we have up to $20M in equity capital to deploy.

WBR: Throughout university you operated a small business, whereas students around you were taking on more conventional roles at corporations. In your opinion, how do you believe this contributed to your skillset and set you apart from others in your undergraduate class?

I think the most important skill I learned from running a business is managing people. In one project, I scored work to do somebody’s website. At the time Flash was the hot technology. However, because I didn’t know how to do it myself, so I had to find someone that knew how to use it. Getting them to consistently deliver on time though was a challenge. For example, one time I hired somebody to do some flash development, but he wouldn’t come through on time. The problem is the project depended on him, and I couldn’t submit it to my client without getting it done. Management ability is key.

The ability to sell is another skill that I learned that contributed to roles in consulting and private equity. At the end of the day, all of these roles are sales roles. That is, you’re selling consulting services, you’re convincing a CEO to sell you his company, or convincing him to follow the strategy that you’re recommending.

Analytical skills are also very important. The ability to understand financial statements and concepts like supply curves from economics all come into play at some point too. The nice thing about entrepreneurship is that you end up using every class you take in undergrad in some way.

WBR: Later into your undergrad, you pursued a role in consulting. Could you speak to your decision to pursue this pathway over others, as well as some of the skills you built with this role?

The last summer of my undergrad, I did an internship in finance doing foreign exchange trading and derivatives. At the time, I thought I was a very analytical person, as I liked finance theoretically. However, when I spent the summer with them, I saw what daily life looked like: sitting in an office tower on the phone, modelling payouts for option strategies. Ultimately, I realized what I really wanted to do was manage businesses, and lead organizations, and this was far removed from that.

Finishing up the summer before my last year, I researched the options, and consulting very much appealed to me. The opportunity to see businesses from the inside, to work with CEOs and senior management teams on tricky situations really drew me in. So, I put all of my efforts into consulting. It’s amazing to be just out of school at 22, and be helping implement meaningful changes in organizations. Something more is that you get to work with and learn from incredibly smart and experienced professionals.

I learned tonnes, from what it’s like to meet with senior people, to how to work an initiative through the bureaucracy of a big bank, or how to go into a $100M revenue manufacturer and get things done.

I also learned several technical skills, from how to optimize operations, to thinking about business economics, to how to grow into new markets.

Running Red Oak right now, I’m sometimes asked by CEOs, “What do you know about my industry?” Since I spent four years in consulting, going to a new company every two to three months, I can always find relevant experience to point to. Healthcare? Oh, I’ve worked with dental facilities, and laboratories. Suddenly it really adds up over a few years. That plus the ability to speak with senior people has been huge.

WBR: You eventually pursued an MBA internationally at INSEAD after Imperial Capital. What role do you think this experience played in your life?

Most people pursue an MBA three to five years into their working life. I did mine basically eight years into work, so I did mine fairly late. Consulting and private equity are very intense roles – you’re working late, almost every weekend, and some stress is involved. I thought it would be good to have some time off, go to Singapore and France, spend half a year in both places, meet other ambitious people from all over the world, and have fun with it. My number one goal was to have fun for sure.

My second motivation was that I always liked education, and always found it valuable. Having a master’s degree of some sort was also one of these things that I wanted to do for personal reasons. It was a great investment, but also partly for the ability it offered to take on new experiences.

Afterwards, I found that it does add some credibility. When speaking with business owners, and with investors, they see it as the basic business education. While the textbooks are the same as undergrad, I got a lot more traction from investors because of it, and certainly have more reputation with the business owners I reach out to.

WBR: Could you briefly explain what entrepreneurship through acquisition is and how it differs from the conventional start-up model?

Like doing a start-up, entrepreneurship through acquisition is a path to owning and running a business, but instead you’re acquiring an existing company. There are a few ways to buy a business. For example, by $5MM in pre-tax profits, there are a lot of private equity type buyers out there for them. Financial buyers can buy those businesses because at a size like $5MM in EBITDA, you have a proper management team, including a CEO who is a hired professional with a stock option package. So, somebody with a cheque like a private equity firm could buy it, and the whole firm could keep running just like it did.

However, when you get to smaller businesses, the problem with selling them very often is that the entrepreneur is tied to running the company. Often, the owner is the president, and is critical to all the relationships with key clients and employees. There also often isn’t much of a management team that’s built out. In other words, it’s much harder for private equity investors to buy them. That’s what creates the opportunity in the market for search funds, as they are buyers with both the money to purchase those businesses, but also the capacity to step in and manage the company day-to-day.

As a result, there are actually quite a lot of investors that are willing to back acquisitions by young entrepreneurs. You put together a bunch of investors who will provide together up to $20MM to buy a company that I will run. They see it as a great way to get an ambitious, talented person with a good professional track record, and they’ll get strong returns because of backing somebody like that.

They also get the opportunity to invest in an established business. In most search fund acquisitions, they aren’t growth companies in the traditional start-up company sense, where for example you might expect to get 10X the business in a few years. They tend to be in more under the radar traditional industry niches, but are profitable, steady, and recurring. For example, I’m looking at a company that outsources internal accounting functions. Very often, they’re run by entrepreneurs that may not be educated in business school. So, search fund entrepreneurs can step in and consolidate an industry, or take a smaller player in it and accelerate its growth.

WBR: What advice do you have for entrepreneurial students and individuals who are interested in starting something for themself, but may not have the technical background to build a product like an app on their own?

Often, people think of entrepreneurship as one big category. However, there are actually three types.

The first type of entrepreneur builds a business from the ground-up. This is the venture capital route to entrepreneurship. With this path, people aim to build companies that may be a unicorn, or worth hundreds of millions. We’re going to put together a strong team, invest hard, and don’t need to make money in the beginning since they’re aiming for high growth. They’re deliberately building with intentions to go big.

There’s a second type of entrepreneur that builds a business to generate cash flow, run a bit as lifestyle business. They have some ambitions in their mind, but they may not have the funding, or ability to turn that ambition into a concrete plan of how to expand it. You have tonnes of those entrepreneurs. For example, you can look all around you with people running a cleaning company, or an auto repair shop. They’re far from being a Mark Zuckerberg of course, but they’re certainly all entrepreneurs. There’s a conscious decision between the two.

The third type of entrepreneur is the one that buys a company. The search fund is one way to do that. Other ways include self-financing or working with a private equity firm to step into one of their businesses. The approach you want to take ultimately depends on your personality, the industries you like, the type of business you want to be involved in, the lifestyle that you want.

How has your definition of success changed over time?

I’ve always liked carving my own path and considered my career as an adventure. I enjoy taking on outside the box projects and ideas. I noticed a pattern of that now, both in personal life and in the professional life as well. I think it’s mostly about enjoying your life and having fun. As you get a little bit older, success changes depending on how it fits into your overall family life as well. The good thing about careers in business is that you’ll make a decent living with any path, so you’ll never have to worry about having to pay the bills. It’s mostly a question of what you want to do all day, what makes you feel fulfilled.

Fall 2020 Internship Opportunities

Red Oak Succession Capital is looking for sharp, entrepreneurial, and hard-working individuals to join our team to help us find and acquire a business to operate. This is a great opportunity to learn how to identify and analyse private company investment opportunities, approach owners and shareholders, and negotiate transactions. You will develop the skills for a future career in entrepreneurship, private equity, investment banking, or consulting. You will also learn how to go about raising capital and acquiring a business yourself in the future. For more information, please visit http://redoaksuccession.com/careers/