My title is slightly incorrect, searching is like playing a double-blind version of Catan with the resources and numbers both covered.
If you’ve never played Catan, I highly suggest buying a copy and playing with your friends and family. Monopoly used to be my favorite game, but Catan took that spot by storm. In Catan you start by placing settlements and roads next to resources and expand out from there. Each resource is given a number which, when rolled, grants any player with a settlement on that resource a card of that resource.
When you start off a double-blind version of Catan with the resources and numbers covered, you are placing permanent beachheads next to unknown resources with unknown expected incomes. That sounds a lot like running a search fund to me. After all how much can we truly know about a business before becoming the full time owner and operator?
Catan is my favorite game because it forces you to do three things. First, allocate resources effectively within the constraints of your competitive position and capacity. Second, plan ahead. To build a new settlement and city, you first need to build roads to that location before other players do. Third, you need to negotiate win-win trades with other players for resources you both need. You’ll rarely end up with a starting position granting access to all resources and you’ll inevitably be offered trades by other players. Getting along with others is crucial.
Sounds like a search to me! Searchers need to allocate time and energy to prospective acquisitions and allocate resources within the company they acquire. A searcher must also plan ahead to what type of company would fit them best and where they’d want to live. Finally, an acquisition is the ultimate trade. An owner wants a fair exit of their life’s work and a searcher offers capital for the opportunity to carry it on. It can be a win-win trade and getting along helps a great deal.
But searching is very unlike Catan in one major way. You typically only search once. Catan can be played endlessly, everyday if you wanted! You can become a better Catan player very quickly with repetitions. I’m not sure the same can be said for searching, although one spends much more time searching than they do playing a round of Catan. So what activities within search function as “reps”?
Talking with current searchers is a good one, as is reading surveys and case studies of searchers. Listening to podcasts with searchers, reading the books and primers on searching, and attending relevant conferences are helpful as well. But these don’t completely function as repetitions since you aren’t performing a search by studying other searchers. Interning with a search fund is closer to a true repetition, but you generally only intern with one searcher over the course of a few months or year. That’s a deeper set of experience, but very narrow within a single searcher’s path.
Perhaps you could become a search fund investor and accumulate repetitions through the experiences of searchers you invest in? You’d get deeper knowledge on each searcher than you would just through conversations over a few months. There would be natural incentives to learn since your personal capital is at stake. But I haven’t heard of any investor becoming a searcher since most investors were able to become investors by first running a search and operating a company. Not the other way around.
There doesn’t seem to be a good way to “test drive” being a searcher and if you want to do it, just start. You’ll never be fully prepared or informed. There’s never the perfect time. The only way to prepare is to start.
An even better title for this article might be, “Searching is like playing double-blind Catan and learning the rules for the very first time.”
Think Like an Owner Sponsors
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- If you don’t follow Nick Haschka on Twitter yet, I highly recommend doing so. He’s been busting some ETA myths among other tweets and has been very interesting to follow as of late. On Friday he posted this visual timeline of different search models that I enjoyed.
- Lewis Wang from the University of South Carolina wrote a great paper (so far, truth be told I haven’t finished it yet) on how using permanent equity to buy small private companies can produce superior returns.
- Space junk fascinates me for some reason and this was a great article explaining some of the work needed to avoid it and research on removing it over time.
If you found an interesting article, podcast, or interview that I missed, please let me know, I’m always looking for interesting stuff.