A.J. Wasserstein – Practitioner & Eugene F. Williams, Jr. Lecturer in the Practice of Management at Yale

Gustaf: A.J., I have long enjoyed your research from afar. It is a privilege to pick your brain today and relieve my own curiosity under the guise of my readers'.  

You have successfully completed countless acquisitions. First as the founder and CEO of ArchivesOne and later as the CEO of Onesource Water. And you have also invested privately in many SME firms.

You bootstrapped ArchivesOne in 1991, venturing into the physical records storage industry. And you completed some 40 acquisitions before selling the group in 2007. You then went on to make an acquisitive journey at Onesource Water which was sold in 2016.

At the Yale School of Management, you currently teach courses that include Rollups, Consolidations and Programmatic Acquisitions and Entrepreneurship Through Acquisition. And I can only agree with the description of you as "an entire research center on his own" (Jan Simon, Search Funds & Entrepreneurial Acquisitions).

But let us start from the beginning. Why did you start a records management business?

A.J. Wasserstein: I always knew I wanted to be an entrepreneur or at least my own boss. I wanted to have control and autonomy and to build a business that reflected my personal vision and values. I was willing to work very hard but not for someone else.

When I was in business school, I knew I wanted to wind up doing something entrepreneurial. The best thing I learned in business school was Michael Porter’s Five Forces model, which underscores that some industries have tailwinds and some industries have headwinds. I wanted to be in an industry with tailwinds where everybody could be a winner.

The Five Forces model also made me focus on industry and economic characteristics compared to a business’s glamour. Records management was certainly not glamorous. So, I tripped on this industry and thought it had many of the right checkmarks using Porter’s framework, but it was much better than I could have ever imagined.

One of the best things about the records management business at that time was that the model was proven but the industry was not yet professionalized, institutionalized, or saturated with investment dollars.

So luckily, I got involved in the second or third inning of a burgeoning industry – that is an awesome time to join an industry.

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Gustaf: What prompted your first acquisition, American Archives, in 1993?

A.J.: We had grown organically, and I wanted to test out the concept of growing through acquisition. American Archives was an in-market competitor, so it was geographically appealing and presented somewhat low integration risk due to proximity. The deal gave us an opportunity to double in size (we were both small) but added some management capacity.

The owner of American Archives joined the team and became a key partner economically and in management. What worked out so well was that the American Archives owner was excellent at operations and wanted to own that function, which resulted in me being able to devote more time and energy to organic sales and thinking about growth. It was a really good match.

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Gustaf: How did you assure that this initial acquisition became successful? Would you have done anything differently today?

A.J.: I was so naïve about integration at that point. The business was working well, and we learned from them, and they learned from us. So, it was a pretty slow, systematic approach to making it work. There were not a lot of changes, and it was much more of a learning and collaboration process. I am not sure I would do anything differently given where we were in our development – very early stages.

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Gustaf: Why did you onboard Housatonic as a private equity partner in 1998?

A.J.: I had reached a point in my company’s journey that was fantastic, but I also wanted more intellectually and emotionally. By 1998, I had started and built a single market business that was working pretty well. We probably had about $1 million in EBITDA, and we had a nice, tight business. But I was just over 30 years old, and I wanted more.

I wanted to see if we could scale from a single market business to a more regional enterprise. Part of that desire was financial, but a bigger part was intellectual and emotional. I wanted to see if I could build and lead a larger and more sophisticated organization.

Housatonic provided us with some of the needed capital to grow and expand. More importantly, they provided me with the emotional support and confidence to try to accelerate. They helped catalyze us to the next chapter of growth and professionalization. Housatonic was a great partner, and our partnership empowered us to carry out our game plan and make our vision a reality.

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Gustaf: In 2000, you hired senior managers to prepare for higher growth. What decisions during this later phase are you satisfied with, looking back?  

A.J.: The year 2000 was a turning point for us where we set up to grow and professionalize in a bigger way. Fortunately, we got some things right – I also got a lot of things wrong.

Before moving forward, I should clarify that we were a leadership team. I had amazing partners who added a ton of value to our business, so it would be disingenuous of me to pretend I did everything alone – I did not.

We focused a lot on culture. And delivering superior customer service was at the center of our culture. We believed operational excellence drives superior customer service, and that drives profitability. We were all about systems and processes that delivered customer service correctly the first time. This also avoided rework and drove profitability.

We talked about culture and our values relentlessly, and this was hugely important as we grew through programmatic acquisitions because we were constantly adding teams of new people who had to get on our bus.

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Part of our culture was running an open-book management system where we shared all sorts of operating and financial data with our team.

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We thought this empowered our people to make better decisions and understand how we were thinking and why we made the decisions we did. This seemed – and still seems – better than allowing team members to make wild assumptions about the business. We let them know what was going on and just told them the truth.

We built systems and processes ahead of the curve, which is hard to do and expensive, but it allows you to grow a bit more gracefully. I felt more comfortable with this approach than a “get big, fix it later” style. Our approach made it easier to deliver on the customer-service promise.

We fundamentally saw ourselves as an operating company. That is, we cared a lot about running the business day to day. We did not see ourselves as financial engineers. We saw the balance sheet as a way to turbocharge the P&L performance.

We cared a lot about the balance sheet and worked hard to drive down the cost of capital and avoid any incremental equity, but we were fundamentally about the operations of the business driving customer service – and that really defined our culture.

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‍Gustaf: Was there anything you could have handled better?

A.J.: Well, there are lots of things I could have done better. I attribute our success to our team, but I’ll take the hits for things I could have done better.

I should have relinquished more operating responsibility to our COO so I could focus more or exclusively on acquisition sourcing.

We created a lot of economic value from our programmatic acquisitions, and I could have spent even more time on that function since that was a high-leverage and high-impact activity.

I was a young CEO and had no prior CEO experience, so at times I was raw, selfish, and immature. A CEO’s words and actions reverberate, and I did not always understand how my words and actions were being interpreted as signals. I think I got better at that, but it took time and self-reflection.

For example, I could be demanding and impatient with others. I sometimes could not understand why people did not want to grow and build a business as much as I did. I didn't realize that they had very different motivations and that I was being unrealistic.

We probably missed some acquisition opportunities. We were overly conservative, and I wanted everything to work perfectly. This prevented us from taking on some opportunities that would have worked well for us.

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Gustaf: ArchivesOne's growth statement included "while maintaining current margin." And one of the firm's values was: "We do not act, nor do we want to act like big company. Avoid being bureaucratic." What are some other things to keep in mind as a serial acquirer?

A.J.: We were very committed to our values and literally spoke about them every day and at every meeting. It was part of everybody’s evaluation and was our secret sauce and glue that kept us together as we grew geographically.

We were dedicated to growing our business and maintaining or increasing margin. We were keenly focused on cash flow and expanding it and not tolerating diluting margins with growth.

We also sought to avoid acting like a bureaucratic company as we got bigger. Some examples of that would be losing touch with customers, being too inwardly focused, and allowing team members to feel disconnected from the mission, values and culture.

Some other things we tried to do as a programmatic acquirer were to chase and achieve the four holy grails:

• Doing incremental deals with debt and free cash flow but no equity.
• Making certain that every deal we did was accretive and had material multiple arbitrage.
• Making sure that shared services went down as a percentage of revenue as we scaled (this ensured that incremental deals came in with higher contribution).
• Maintaining a dynamic sourcing machine that delivered lots of actionable acquisition choices (never any pressure to do any one deal).

These four holy grails are powerful once you get them spinning in the right direction and can help drive lots of growth and value creation.

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Gustaf: How was it to be on the selling side of the table in 2007?

A.J.: Selling a business is hard, and it might not be hard for the reasons most people would expect. Yes, it is an intense burst of energy to go through a sale process, and you sort of have two jobs at once for six to twelve months – running the business like you are not selling it and working on doing everything possible to sell it at an outlier price. The process is shrouded in lots of secrecy because very few people in the business can be aware of the exit.

What was really hard for me was letting go of my baby. I loved being a CEO and running a business, and I really did not want to sell it at all. We were in a great place from an operating, financial, and momentum perspective, and there was no reason for us to sell.

I have done some writing and research on this, and that culminated in What’s Next: The Entrepreneur’s Epilogue and the Paradox of Success. Being a post-exit entrepreneur is hard. You lose meaning, structure, and identity pretty quickly and have to rebuild a big part of your world. Many entrepreneurs struggle with post-exit life; it can take years to find your footing again.

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‍Gustaf: What would you try to instill in a freshly graduated A.J. today?

A.J.: I would tell myself a lot of things. I have plenty of mistakes to learn from. On a personal level, I would remind myself that family, friends, health, and spirituality should not be suppressed while trying to build a business.

Being an entrepreneur can be all-consuming, and when it works well, it feels amazing. However, being an entrepreneur is not nearly as important as being a fantastic spouse, an amazing parent, and a loyal friend. When building a business, you must be intentional about allocating time and energy to both your professional and personal worlds – because you are also building a life.

On a business level, we should have been more aggressive in our programmatic acquisition strategy. When I was trying to buy up companies, the strategy and practice was not nearly as accepted and embraced as it is today. Some of our investors and board members were skeptical and hesitant. So, we were too timid and proceeded slowly and with great caution. We could have been more aggressive, especially once we had all the systems and processes that could facilitate the growth.

Finally, as another business element, I would set up my journey to accommodate a very long horizon. Once again, the notion of a longer holding period was not as in vogue when I was building a business.

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Gustaf: What are some things you tell students interested in acquisition entrepreneurship? And what traits do you prefer in CEOs and searchers that you invest in?

A.J.: Wow, I tell students lots of things about entrepreneurship and acquisitions. I guess some key and high-level themes are falling in love with a business model and resisting the temptation to be overly focused on what a business actually does.

Students often project a type of lifestyle based on what a business does. I always encourage them to focus on the model and economic characteristics and look for businesses that have high probabilities of success compared to cool and sexy businesses that might have great lifestyles but lower probabilities of success.

A cousin of this theme is to find passion in architecting, building, and leading an awesome business that is the best in its industry compared to being passionate about what a business specifically does. I am biased, so take my thoughts with some skepticism.

MBA students want to be entrepreneurs and CEOs and to lead and build an organization, and they want to do it sooner rather than later.

They crave leading an organization that reflects their vision and values. They imagine crafting a culture and strategy that reflects their philosophies and style. MBA students want to be on a path to financial independence and even large wealth accumulation.

They covet flexibility in their job structure with the freedom to set their own hours and schedule. They desire to be creative and use all their academic, professional, and personal skills to architect their business. They aspire to be stimulated and challenged, and they do not wish to be a small part of a big nebulous organization; instead, they yearn to see the entire field.

I get what they want because I wanted all of that too.

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I believe that entrepreneurship through acquisition is a fantastic way to get all of that relatively quickly with a fairly high probability of success without necessarily having a great entrepreneurial idea or capital.

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So, I encourage students to do it and do it earlier rather than later. Top MBA students are ready to be leaders and CEOs. Of course, it is an ambiguous and scary path, but they are more ready than they believe. Running a small business is mostly common sense.

Furthermore, life will only accelerate and get more complex as they wait. Kids, mortgages, and established lifestyles might all make it more challenging to take the entrepreneurial plunge later.

I think the most important trait aspiring entrepreneurs can have is grit. Of course, you need to be smart enough, but being an entrepreneur feels like pushing a boulder up a steep hill every day. It is hard and relentless, and you cannot stop. This is not an IQ test, it’s an endurance test.

Furthermore, the race is not a sprint with a burst of energy, it’s a marathon that goes on for years – you just can’t give up or stop. So I always look for grit in aspiring entrepreneurs.

It’s all about sustained, intense commitment over years.

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Gustaf: Do you have any sourcing or management tips for us?

A.J.: I wrote something about sourcing a few years ago. I think the key point to remember is that if you are engaged in a programmatic acquisition strategy and have the luxury of a multi-decade runway, sourcing is about planting seeds and building relationships.

I do not believe you can force someone to sell you their business – you can only position yourself as a buyer of choice when they are ready to sell.

That means getting to know people and investing in the relationship, knowing that it might not have an outcome for years. Furthermore, when building those relationships, it is important to be genuine and sincere and never come across as condescending or disrespectful.

Finally, you have to appreciate and honor the businesses people have built, even if you might have done it differently.

We built an alumni acquisition program to keep in touch with all the sellers from whom we purchased companies. We programmed to them the same way we programmed to prospects: deal announcements, press releases, gifts.

We wanted to keep in touch and keep the relationship warm and positive. The most powerful part of sourcing is references, and when you keep the alumni in the fold with calls and visits, you have warm references to share with prospective opportunities.

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I cannot emphasize enough how important reputation is in sourcing.

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We never had a strategy about retrading or going into the escrow. We just wanted to be straight with people and do exactly what we promised – and we were willing to take some hits to preserve our reputation.

The only management tip I can offer is this: it is never about you. It’s always about customers, team members, and shareholders. CEOs should view their role as serving others and lifting constituents, making their jobs easier, and supporting them in every possible way. When CEOs start to think it is all about them, things can go off track quickly.

Specifically, in a programmatic acquisition context, this means the center (corporate, shared services) should be about serving the spokes and the field, not the other way around.

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Gustaf: What are your favorite books?  

A.J.: A handful of business books have been particularly influential for me:

• For a general overview of entrepreneurship and growth, I love Beyond Entrepreneurship by Jim Collins – he has a new edition out called BE 2.0.
• ‍The Toyota Way by Liker is a fantastic overview of operations and quality and why they matter.
• My friend Will Thorndike’s book The Outsiders has become a classic and is a super examination of how value is created through capital allocation and what that mindset is.
• Bill George, who teaches at Harvard, has a few great books on leadership, and Authentic Leadership is wonderful.

I think this four-pack of books is a great combination. No one of them has all the tools or answers, but together they provide CEOs and entrepreneurs with a lot of valuable content.

Finally, unrelated to business, I love David Brooks’ The Road to Character and Clayton Christensen’s How Will You Measure Your Life. Those books shaped my post-CEO life and helped me refine what I wanted my second act to be and realize that life is much more than business achievement and wealth accumulation.

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Gustaf: How can people find your research or get in contact with you?

A.J.: Thanks so much, Gustaf. All my research, writing, and course syllabi are available on my faculty bio page at the Yale School of Management.

My email is adam.wasserstein@yale.edu. I respond to all my emails and enjoy hearing from people interested in building excellent businesses that embrace programmatic acquisitions.