One of the most popular topics I am asked about by new Harbour Club members is sourcing. To find a good target, it helps to know what you’re looking for. You will have to learn how to consistently find good deals and keep the stream of deals flowing. The most frequent question I receive is, “How do I find a consistent flow of deals?” This has been something I’ve been able to do successfully over the years, but I learned it organically.
I end up doing a deal with approximately one in ten of the companies that I pitch to. When Harbour Clubbers start, their success rate is more like one in twenty, although I have several members of my gold inner circle who are just as good as me and have multiple deals under their belts. It is not about finding a company; it is about finding a stream of companies.
We teach many different strategies for sourcing new leads, but the aspect of sourcing I want to talk about today is a tactic I discovered many years ago. It’s probably one of the first methodologies that we used, but it’s still incredibly powerful and has been very successful. This tactic is all about how you get a communication line open with a potential target.
Going Back to Basics
All this method will cost you is the price of a postage stamp. First, you need to use a credit checking software and run a credit check on the company to see if they have a red, green, or amber credit rating. You’ll be able to check their balance sheet and see their profit and loss. One of the benefits of using this software is that you also get a list of who the directors are, including their service address, which in most instances is the director’s home address. Once you have compiled a list, you can write a short and ambiguous letter to introduce yourself and tell them you’re interested in their industry. Let them know you would like to discuss investing, joint venturing, merging, or acquiring their business.
This method’s benefit is that instead of sending it to the company, you’re personally sending it to each of the directors. The home address part is key. It can also be used for geographical or sector targeting. The letter can’t come from a business, so don’t include a logo. It mustn’t look like a marketing activity or any kind of “mass production” letter. It needs to be a personal letter from you to them. This method works because different people have different motivations. If you sent it to the company, one of them might read it and throw it straight in the trash. When you send it to their home addresses, you might be sending it directly to the one with itchy feet or who feels that there’s a problem in need of a solution. Your letter will stand out since it will be unusual for them to receive something like this through the postal service.
Closing the Loop
We deliberately don’t give them much information in the letter to open an idea without closing it. You create a loop, and when you don’t close the loop, that non-completion drives people’s subconscious a little bit crazy. It causes them to feel that they must take some action. This method can generate positive and negative responses, but it sparks a conversation where you can take the discussion a step further. This method really can be quite a powerful tool. I cannot count how many deals have been found this way. Lee, who did the Harbour Club course for a second time, recently told me he had done eight deals, with 100% of them coming from the letter strategy. The Harbour Club alumni send out thousands of these kinds of letters and get incredible response rates.
For perspective, I’d like to compare it with the corporate finance or investment banking alternative. Suppose you went to a corporate finance boutique or a buy side representative that helps you find an acquisition. In that case, they will generally write letters to acquisition targets addressed by their company, not personally like in our method.
Those types of letters can be very arrogantly positioned. The difference is that this slightly arrogant positioning doesn’t resonate well with entrepreneurs or owners of businesses, and it doesn’t create the right type of conversation. Whereas the deliberately vague, short letter but personally addressed to the directors is a much more powerful approach.
Remember, when using this method, be sure to write to all the directors for each company because they may have different agendas or different goals that they’re hoping to achieve. We have been using this sourcing technique for 15 years, and it still works as well as ever. This is just one method we teach at the Harbour Club. Sign up for the course to learn more.
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