4 Steps to Successful Succession Entrepreneurship

Posted on 2019-10-26


4 Steps to Successful Succession Entrepreneurship

Karim Abouzeid is the CEO of Magnor, a water treatment equipment business for municipalities and industrial industries. “We serve all the ‘Saint’s’ in Québec,” Abouzeid laughs. “The smaller,rural towns in Québec that all start with “Saint” or “Sainte.”

Currently, Magnor is mostly present in Quebec, from the most northern mines at the tip or northern Quebec to municipalities close to the US border like The Beauce, which has some contaminants in their water that they treat highly effectively. Abouzeid discusses his journey to becoming an entrepreneur.

Currently, Magnor is mostly present in Quebec, from the most northern mines at the tip or northern Quebec to municipalities close to the US border like The Beauce, which has some contaminants in their water that they treat highly effectively. Abouzeid discusses his journey to becoming an entrepreneur.

Slow and Steady Wins The Race

Abouzeid’s approach was unconventional for most accountants, who by his accounts prep exhaustively, watch, gather information and proceed only when they have all their paperwork in place. He spoke closely with the CEO Demelec, and learned not just the art of the deal, but the art of maintaining it.

“The CEO and owner of Demilec really took me under his arm and taught me the business. I helped him to actually sell the business, that was his objective by hiring me. It was a very profitable company, but I told him at that time I’m going to go in your business but when you sell, I’m most likely going to leave and try to find a business for myself. That was the deal with him. He agreed. So when the deal was done, I told him let’s advise the buyer, tell him that I’m going to leave. We told him, it was very transparent. And then I gave myself 2 years to find a business without any work. I totally completely left my job.”

Like any good former CPA, he weighed the pro’s and the con’s. He studied his options carefully, and discussed the option of entrepreneurship with his wife. The question was: Should he stay where he was, or take the leap of faith?

“Well, I’ve been mentally prepared for that for four years, that’s what I as aiming at. So I got prepared financially, I have an amazing wife who also has a good job, we could live with only one salary for two years. But what we agreed is that we had a deadline: two years.

I told myself that no matter what happens, I’ll know I did good work, I had good references. Worst thing that could happen is I lost two years. I’ll never regret that I didn’t try. That’s what I didn’t want to have – the regret of not trying.

We’ve been together for 11 years. At that time, she was like, “So you’re crazy but I support you,” which is something great. In two years I looked at 81 companies, made five different offers to five different companies. Four didn’t work and Magnor worked. Magnor was actually number 64 of 81 so I continued to look at businesses when I started the deal and funny enough I actually closed the deal exactly two years after I started. So I started July 1st in 2013 and I bought the business July 1st 2015.”

Set A Timeline and Stick To It

The two year deadline was “crucial” according to Abouzeid. “First of all, it gives you a kick in the butt to do stuff. Also, it was security for my wife-to-be at that time. If the Magnor deal is not going to work, we’ll decide at that time if we’re going to push the deadline, if it’s worth it, we’re going to do it, if we can permit ourselves to do it, we’ll do it.”

Abouzeid spread his feelers out far and wide, and it was a close friend who found the company that would later become his destiny. Simon was both a friend and investor, and recommended Magnus, and its equipment division, Magnor.

“The equipment business was not core to Magnus, it’s a business that is totally different in terms of operation, go-to market strategy, end market, financing, everything is different. Denis Pichet, who is the CEO of Magnus, took the decision around 2014 to sell Magnor because he thought it wasn’t core to his business, he wanted to focus on his core business, and that’s where I got in.”

Be A Full-Throttle Entrepreneur

His recommendation for success isn’t just about making sure that your investors know what you’re interested in, or even researching the companies as exhaustively as he did. His advice is to jump in with both feet – don’t start entrepreneuring while you’re working a full time job.

First of all, the most important thing – and it’s something I would recommend for people who are looking for a business to buy – leave your job. This way, there are no distractions. That’s a big factor because it’s really hard to look for a business on your time after you’ve done 50 hours of work: you can’t be entrepreneurs at 7pm.

“I was hunting for the perfect company – that’s the first thing that kept me going because I had nothing else to do. I couldn’t just stay at home and not do anything. I also had to justify to my wife-to-be that I was actually doing something. I needed to tell my wife my daily progress, I needed her to be proud of my saying hey I met this businessman, I’m starting to meet companies, I got the financing, I got people around me, I got 11 backers that are ready to put money in my project if I find a good business and then I met these guys and these guys…”

Keeping himself motivated by using his wife as a sounding board was one way to ensure he was meeting his daily objectives towards his two year goal. He never let a day go by within his two year time frame without meeting someone who had a business to sell.

“I never felt like I was stalling. I was always meeting new entrepreneurs, meeting new brokers, getting new opportunities so it was going well. I guess maybe after 2 years, maybe I would’ve felt depressed, that it was like, ‘it’s always the same: I find a business, it doesn’t work. I find another business, it doesn’t work.’ That might have been at some point depressing but I never got to that. I made offers.”

Cautious is Good, Confident Is Better

Despite Abouzeid’s rigourous schedule and diligent method of researching companies, his bidding technique didn’t come naturally. “The first offer I made was badly presented I guess, and I wasn’t super prepared. But the second offer I made, it was better, so I was better prepared. I always felt like I was advancing.”

Abouzeid’s advice for anyone coming into a negotiation to be is similar to the Boy Scott motto: “Be super prepared. Know the person you’re talking to, prepare your meetings, prepare your templates so that you can be ready to react when something comes up.”

“For example when you’re presenting a business, sometimes they want an answer right away, like, you want to bid, are you into it? At first, I felt that I was super slow and some entrepreneurs and brokers called me on it. ‘You’re thinking too much, you’re a real CPA, I don’t think you’d fit with us, you’re too slow to act, you’re too slow to react, you’re asking too many questions.’

He has no regrets about his slow-but-sure attitude, but admits his investigative approach may have been seen as doubtful or unready to lead.

“Maybe it was my professional training as a CPA. CPA’s are super structured. It scared the business owners. I was too structured, too questiony.” Abouzeid laughs at his early foibles, and reflects, “The more I grew in to the process, I got very prepared, and less ‘questiony’. Since I was prepared, I didn’t have to ask as many questions, so I didn’t look like I was flying by the seat of my pants as much.”

Trouble Ahead: When Due Diligence Is Interpreted as Indecision

Abouzeid said that his CPA training in looking over every ledger, every number and keeping a keen eye for detail is what gave him his edge. He doesn’t regret asking too many questions or coming into the meeting with sheafs of numbered pages of questions.

However, an entrepreneur’s misgivings led to an insight: A businessman observed, “When this guy is going to be in the business, is it going to take him five weeks to make a decision when he has to make one on the spot?” Abouzeid realized he was perceived not as a cautious businessman, but as a hesitant, indecisive man. He realized he had to change his approach.

“I’d say prepare yourself with a structure, like make note of a couple of immediate questions you need answered, and just be super cool with them. ‘I like your business, I’d like to know a little bit more about this,’ but not like, ‘I have 8 pages of questions.’ I learned that during my 2 years, be prepared but don’t show that you’re too structured, that’s going to scare them.”

Abouzeid believes that there are four qualities to successful succession entrepreneurship. He shares his Four Principles of Successful Entrepreneurship with Entrepreneurs’ Organization:

1. No Guts, No Glory

First of all – and no one can help you with this – you can’t have people around you to support you – you have to have guts.

That’s it.

You have to leave your job. Say to yourself, “I’m going there!” No doing it halfway. “I’m doing it full throttle.” I think having guts is one of the common factors that I’ve seen in entrepreneurs and you can’t borrow this from anyone.

2. Be Ready To Take The Reigns Immediately

You have to be ready to replace the entrepreneur now. So if you try to enter a business and tell them “I’m going to stay 5 years, I’m going to buy you out over time…” that won’t win the business owner over. The entrepreneur generally has already made his decision, and he wants to leave now. Some might say, give me your transition of 1 or 2 years, maybe let me slow down, but he’s generally ready to go. “I’d say in the 80 businesses that I’ve seen, maybe 5 of them were not ready to leave immediately or even within the next 2 years. All of them wanted to leave now.”

Abouzeid concedes that if a new entrepreneur needs support, or wants to have a transition management to ease the change, there are ways to compromise.

“For example, ask the entrepreneur to stay a little bit during the early transition. Buy him off 100% or 90% or 70%, but buy him off, buy the majority and ask him to stay. You can have coaches if you think you feel that you’re not ready to fully replace that person. You can have people, key employees that can support you internally.”

3. Know the Business Environment Before You Go In

“The third quality for a good entrepreneur is competency. you must be competent to finance the deal, to make the deal and also own the management competencies to actually run the business. But again, if you don’t have all the competencies to do that, you can surround with people to help you with financing, to help you with making a deal and to help you manage the business. that will cost more money in the long run, but it’s worth it.”

4. Put Your Money Where Your Mouth Is

“The last quality an entrepreneur needs is money. You need money to make a deal, but again you can have people help you with that. Because I was a little scared about money (I didn’t have all the money to buy a business of the size I wanted) I thought of a threshold, I thought of businesses that had 3-5 million dollars in sales. I thought to myself, ‘I can find money from those around me to help me. I can find banking money, I can find private investors to help me with a business of that size.”

Abouzeid speaks of having people around to support and educate him; we asked him what kind of people he turned to when he needed advice, training, or just an objective ear to hear out where he was in his entrepreneurial journey.

“I’ve been an EO member since July 2016. I’d say unfortunately, I wasn’t an EO member back when I was looking into buying a business because I didn’t qualify at that time. However, I went into event, I tried to join groups like YCIF, which is Young Canadians In Finance so I had a lot of friends there, I had people who could help me with financing issues and banking questions. Having organizations around you who can connect with entrepreneurs, who can connect you with financing, who can help you actually bridge the gaps of the qualities you feel you don’t have for succession, that can be tremendous.”

Abouzeid adds that joining a professional community is about more than hobnobbing or networking; it’s a learning opportunity.

“Often, I feel that having a community that can get together, like a successor’s community like the Entrepreneurs’ Organization (EO) for successions for example, EO for entrepreneurs trying to find a business, I think that would be a tremendous help for people who want to do external or even internal successions. And funny there’s a new group in EO Montreal, a small group, it’s called EO Reboot and it’s for exactly this.

“It’s for entrepreneurs who actually qualify for EO because that’s one of the requirements. I know the EO requirements for people who sold their business have changed and they’re more convenient these days, but it’s an excellent initiative. You have a bunch of people who want to make acquisitions that talk together about how to do it and I’m actually going to the first meeting next week. It’s very good, because even if you have a business and you have money, it’s still hard to find another business to buy and to operate. It could be two years. It’s a journey.”