Introduction
Today we’re speaking with Jed Morris, a former Air Force veteran and MBA graduate who experienced a business acquisition failure firsthand. After purchasing a $1.2 million landscaping business through SBA financing, Jed lost approximately $750,000 of personal capital. Since then, he’s interviewed 24 other failed acquisition stories to uncover patterns behind business acquisition failures. His insights reveal critical pitfalls every prospective buyer must understand before signing that purchase agreement.
Founder Success Story QnA
How does the story begin? How did you decide to buy a business?
It begins in business school. I’m a 10-year Air Force veteran I did financial management and acquisition when I was in the Air Force and when I got out I wasn’t really sure what the next step was going to be so I went into business school and right on the tail end of that is where I happened to stumble across search through acquisition and total accident. I found myself reading the HBR guide, I attended the Harvard Business School Conference in the fall of 2021 which led attending the Chicago conference the following year.
So did you immediately pursue it?
No I did not. I kept doing my research but while I was in the MBA program I got recruited at Microsoft and I was like this is a fantastic opportunity I have to take it. I had no computer science background so Microsoft just needed people with top secret clearances which I had so the whole idea was they recruited me in this class and they’re like we’re going to teach you how to code. I had no computer science background so at the time Microsoft just needed people with top secret clearances which I had one and so the whole idea was they recruited me in this class and they’re like we’re going to teach you how to code we’re gonna teach you how to build the cloud and you’re gonna come do that for us and I was like sign me up.
Back to your buy box, tell us what it was. If you could give us specifics and those things that you had to let go of, how did you choose what were they and how did you choose that those were the things that you could be flexible on?
My buy box was I was looking for something that was in defense tech or defense IT enabled services that was the industry I was going to go after because I felt like I had a unique skill set in that area because of my decade of experience working in the Air Force working directly with defense contractors and now obviously being in tech. The next piece was it has to be regionally specific so for me that meant the Southwest United States California was optimal but it had to be the Southwest United States. And because I’d spent a decade in the Air Force on active duty and not controlling where I was going to live and so this was something that was not flexible for me. Then beyond that you know the other things I was a little bit more flexible on. I wasn’t as hardcore about recurring revenue as a lot of people are I felt like project based revenue is totally fine to me as long as there was diversified customer base consistent cash flow. The final thing was I had this epiphany moment I was sitting on the couch talking to my wife about this and I realized I’m like look everybody’s looking for Cinderella right everyone’s looking for that perfect business. We all know those don’t exist. I’m like I understand the capital constraint I’m on and so with that in mind I was like all right well if I’m not looking for Cinderella I’m looking for one step below that what does that look like. For me I wrote down the whole list of items from the HBR guide of what I should be looking for and I was like which one of these things is the one that I can just cross out. Which one did I feel like if that wasn’t a strength of the business would I be uniquely qualified to help solve. For me it was owner risk. I wasn’t really scared away with a business where the owner was intimately involved in the business.
What about size? How small were you willing to look?
The smallest was 500 of SDE. I felt like if I could do that then I knew that based on the numbers if there was 500 SDE then 45% of that would automatically go out the door for debt payment that left me with $250,000 to help move forward the business depending on the capital requirements of the business that could work but obviously each deal is deal by deal specific.
And what were you expecting to pay yourself?
I was expecting to pay myself $125,000 a year. For as long as it took. This was a personal realization for me because at this point I was making much much more than that working in tech. My realization I had was that my tech salary wasn’t going to provide what I was looking for. I was constantly chasing the higher salary. I got up to 120 I was like wow I’ve made it and I got to 180 and wow I’ve made it by the time I walked away from tech completely I was pulling in just over four. What I had realized was that it didn’t really matter how high the salary went because half of it went to taxes and you weren’t really building anything substantial. Although I was doing all the right things I was putting my money in 401ks, maximizing my HSA. The thing that really hung over my head was that I was working in the private sector and at any given point I could lose my job. That’s a huge risk that I just was not comfortable with. I was not comfortable with the fact of putting my entire financial future in someone else’s hands.
So you pivoted out of defense because you had great business buyer fit. Is that part of the story? Is that part of the hardship that you were an outsider to the landscaping business?
It’s not specific to my story. I was brand new to the industry. I was lucky in the sense though because when I ended up acquiring my first business I met the owner nine months before I actually bought the business and I used that time because I wasn’t planning on buying that business I just met the owner we built up a relationship and so it became a situation where I was like hey how would I just come help you do some of your stuff.
When you pivoted into Landscaping, anything more to say about that before the business that you were about to tell us about comes across your desk?
When I pivoted into Landscaping I found an industry that was highly fragmented. Definitely on the smaller side because there seem to be a lot of big players and small players and that’s because it’s really hard to be a middle-sized player in that space. If you’re a small player as long as you’re licensed you need a license and a small team you can get to work and you can do relatively well you can get above one to two million in annual revenue. On the commercial side though you don’t need the license but it’s much harder to turn a profit on the commercial side you’re competing with the big companies and those companies can afford to underprice your competition. So it’s very very tough so you end up finding a lot of mom and pop shops and then a lot of large players and very few in the middle. What I realized was this is a good market where there was a lot of this unique owner fit where perhaps I could step in and then end up scaling that way.
So by targeting some of the Mom and Pops, you’d go after that market which is very fragmented and build something into larger into maybe that middle tier and beyond?
Yeah I was like maybe that could be an exit strategy but we’ll see. Well given how much there is a lot of PE activity in landscaping so the idea that you look at it and it’s a very large industry. A lot of the actual businesses are relatively small anywhere from 2 to 10 million in total revenue on tight margins too. But the industry is massive. The idea that there could be a likely buyer if you’re able to fulfill your plan to build something to professionalize something and build something and maybe both inorganic and organic growth seemed like a sound North Star for this whole Venture.
What’d you find? What kind of deals were you looking at?
I was looking at deals that were anywhere between 2 and 10 million revenue. Most of them were Commercial Landscaping most of them services HOAs not a lot of businesses but a lot of homeowners associations that was kind of like the bread and butter of what most people did. What I ended up finding though which led to the internship that we referred to earlier was I found a project construction company. Not commercial maintenance not recurring revenue. This particular gentleman had been running his business for 40 years and he had a license he had a broad license to do a lot of construction and he had a small team that he’d been working with for a long time and they did phenomenal work mostly residential work. There wasn’t really an area in that space that they didn’t have experience in and so they had a lot of experience in that space they had a fantastic reputation.
What happened with that relationship?
What I found was the owner was a wonderful individual and I found a business that was really great on the front end and needed some work on the back end. You can imagine the books weren’t great there was no CRM there was no advertising they got all their leads through Yelp and House and things like that. There was a lot of space that I felt I was like all right well there’s a lot of space for improvement. But it was not the kind of business I was looking for. I was not looking to buy this business and so we struck up a deal where I was like look I’m looking to buy I’m not sure yours is the right business to buy but that said I’m still new to this industry and how what would it look like for me to come in and kind of help out a little bit you know while I’m searching. I’ll help out. What I get out of it I get to test out a few ideas that I have about strategy because I’ve never ran a business before. I get to learn a little bit more about the industry and then if I don’t end up buying this business then hopefully this helps you out a little bit.
At that point had you quit Microsoft?
At that point I moved from Microsoft to HP Packard. I was still working at HP Packard during that time and one of the things that made it possible was that my job at HP Packard was not very intensive. I kind of got into a corporate role to where there wasn’t a whole lot needed of me so I was able to fully fulfill my work there while also working on some of the stuff for this other guy while doing my search.
When you talk about this internship, you weren’t actually managing the crew or doing any front line work?
I did get out there I did spend some time with the crews I got to meet them I went to a couple work sites I got to see what kinds of things that they were doing. But no I was not managing the crew I was not managing the team and there were definitely a lot of things I could have done during that time to get a better hands-on feel for what ownership would feel like especially when it came to managing the teams of a very much in the trenches kind of industry. I wish in hindsight I wish I had spent a lot more time doing that.
When you shook hands to do this quasi internship, was there a possibility you would buy the business?
Exactly. It was like I doesn’t feel like this business is right for me but maybe and so let’s agree now as to a handshake on what the acquisition price would be. I love the option that you put in there that if you’re going to be pouring all this value into the business now I’d like that to be I’d like to capture that value rather than have it go to you.
You wanted to get away from relying on Yelp and House. Why?
I am staunchly against focusing on lead aggregators such as Yelp or House for your leads. I don’t think there’s anything wrong with getting leads from there but if I’m going to pay for leads I’m going to pay for leads that are direct to me. If I’m using a company like Yelp to generate my leads especially if it’s a bulk of my leads I’m not getting those leads exclusively those leads are being farmed out to other contractors as well. It falls on me to not just outcompete those other contractors but get that lead and I’m still paying. I’d rather, back to like I want ownership of the business I want something to where if Yelp turns off our leads we’re not dead in the water. I’ve got Facebook ads running I’ve got Google ads running I’ve got word of mouth growing.
When do you decide that okay maybe this is the business I buy?
Towards the end of that year I had seen success there and I was like wow this is the my theories of how this could actually develop were in place like the website was there the leads were coming in and the biggest thing with projects is just making sure you’ve got the calendar filled and so the calendar was filling in. I started thinking about like look I’ve got a great relationship with the seller I’ve tested some theories here this makes sense why not move forward here this makes sense. I can actually I can make this deal work. I already been in the business I knew that there were no skeletons in the closet I’d seen the books I’d been in the bank like the owner had given me access to the bank account. There was a high level of trust there was a high level of diligence there. There were no secrets.
Can you tell us what that number was? Can you give us some numbers around the business itself and then the terms of this acquisition?
The business was we highlighted what we thought SDE was and then we did a two and a half times that so the total cost was just over 400,000 so it was relatively small doing just over around 1.2 million Topline. Because of the size of the deal I came into this thinking I was going to do SBA maybe and especially if it was at the top I was going to do mezzanine debt bring in equity investors. I didn’t even do any of that. We came to a deal where it was one-third cash two-thirds seller note and then we decided on the length of that seller note. One-third cash two-thirds seller note acquisition price of 400k. Two and a half times so that puts SDE at 170.
The two-thirds seller notes, personally guaranteed?
Personally guaranteed. It was five years so we amortized it over 10 but then we put a balloon on month 61. The big question is like well how does a seller trust you with a seller’s note like that. It was the personal guarantee and I had planned on using the SBA from the beginning so the idea of signing a personal guarantee on the note was always part of the cards. I also didn’t think it was fair otherwise because otherwise how am I bringing any real impact to the business? I’m bringing the cash but I need to be able to prove that I’m on the hook to make sure this is going to be successful.
Tell us about now taking over and becoming operator and owner of this business.
I tell people it’s kind of like a startup there’s that J-curve effect where it’s like you have to expect things to kind of slump and then they’re kind of gonna pick up as you keep going. There’s the J-curve of being an owner then there’s the J-curve of being in a new industry. The new industry experience was tough because you have a lot to learn really quickly. You’re downloading experience from someone who had been in the industry for decades and had always done something in a very specific way and had been successful. It’s hard to tell somebody you know in 40 years you’ve been doing it a certain way and that’s really working but now we need to do it in a different way. The ownership part when you’re finally in the seat – it’s kind of like joining the military. I can tell you what it’s like to put on a uniform I can tell you what it’s like to go on deployments but until you’ve done it you have no idea what I’m talking about. Same thing’s true for business ownership. Until you’re the one responsible for the debt until you’re the one responsible for payroll until you’re the one making those decisions about profitability you just don’t understand.
How do you know when to take the advice of people who have been in the industry for a long time and when do you know to trust your gut?
It’s walking this fine line of like I just bought this business I don’t know what I don’t know and I definitely know what I don’t know so how do I follow what I believe is the best advice per the HBR guide – just don’t break anything for the first 12 months – how do I follow that advice while also doing what I think is best for the business? A lot of times it means deferring to the knowledge and experience of people who are already there.
Why can’t you just bite your tongue for six months?
It’s usually not a dumb way it’s just an old way. There’s one really key reason and usually it’s because before you buy a business it’s running debt-free and now that you’ve bought the business there’s debt. In the past if business was slow or profitability waned the team could just stay home. Now with debt on the business, that changes everything. If my customers were paying by cash and check well now I need to speed them into a digital payment structure because now my cash conversion cycle has really expanded. If I’m not taking payment upfront now I’m basically floating that payroll until I can get to a point where I can collect the cash. The accounts receivable are really weighing on me. My team has been running on weekly payroll cycles now I need to move to bi-weekly payroll cycles to make the cash actually work. It’s an interpersonal relationship issue – people don’t like when you mess with their personal money.
How does it go once you find yourself in this J curve?
Honestly it goes pretty well right from the beginning. One thing I didn’t expect was after acquiring the business you’re perceived completely differently once you buy a business. I spent the better part of two years searching calling brokers and calling business owners directly. The vast majority of the time they didn’t think I was a tire kicker so that was helpful but there was also the fact that I’d never bought a business. The moment I bought a business the seriousness went right through the roof. I got contacted by brokers and all kinds of people like wow this is a person who actually closed. Your reputation completely changes. When you buy in an industry you learn very quickly that industries are much smaller than you realize especially when they’re local. You own an HVAC company in your local city you probably know a lot of other owners. Several of them went to high school together in the 70s. Employees all knew each other. They used the same suppliers. They all knew each other. Once I bought a business heads perked up – who’s this new guy buying this landscaping business? I found out very quickly through the grapevine that there were other owners who were interested in having an exit as well.
Should we jump to that part of the story?
It seemed good. I immediately had identified four additional owners who were all in the area within a 50 mile radius with varying levels of company sizes. I did the math real fast I was like look if we find a way to combine all these companies into one you know that’s a 12 to 15 million Topline business and now we’re competitive. I tell people I’m like it became an accidental rollup strategy because I was not anticipating that whatsoever. Here I am like and they’re reaching out to me and I’m like wow if we were to pull this off then that would be pretty incredible.
How long into your ownership did you put out that first LOI of an add-on?
Three weeks after buying one. I actually bought the second business five weeks after the first one. One of the very first lessons I tell people is that when I look back there were plenty of things I did wrong and there were plenty of things I did right but one of the key things I did wrong was I moved way too quickly. When I realized the situation I was in I was like and other people were interested I immediately went into deal making mode. I should have taken a huge pause. I should have just taken a huge pause and say all right well business number one is successful. All these other businesses have all been successful for a long time. The more important thing would be for me to really establish business number one really get my arms around that and at the same time building out those same types of relationships with owners of two three four and five just like I did with the first one. If I really just repeated what I done with the first business on the others and spread that timeline out over 12 to 24 months then we could have had potentially a different outcome.
Why did you choose the one you did and not any of the others?
Expediency. I actually met them first. Conversations went fast. They opened up their books I got to look at those. I felt pretty confident in the space already. They were ready to leave and I was like all right cool well then let’s just move. I’m a dealmaker now. The size of that business was similar to the size of business number one. The only real difference is that business number one was project construction and business number two was almost entirely commercial HOA maintenance. For me I saw that as a big positive because the downside with project business is that it’s not recurring the downside with commercial maintenance is that the margins are tiny. Now I had an opportunity to basically buy my customers and do project maintenance on a commercial maintenance property. It allows both teams to feed off each other in the same customer.
So the first business you bought was about 1.2 in revenue this one was about the same size so now you’re a $2.5 million business?
My original thesis on this ended up being true. The commercial clients our revenue was our profitability was very small – margins were small we’re talking below 10% typically around five. That’s just kind of the business. It was a small commercial maintenance business competing directly with the big guys who are always underbidding on new projects. It had taken decades for this company to build up to the point where they were. My thought was all right they’ve built up to this point but the profitability is bad. On the bright side business number one had high profit margins which is great because it’s project construction but the downside is that typically in the winters in the slow season things do slow down. We get the bulk of our business between April and November. Why can we not be able to use both customer bases and feed ourselves? The HOA side on commercial maintenance it’s almost always just cut and blow. But there’s a lot of add-ons that get subcontracted out such as irrigation repair or tree trimming or concrete laying. All of that work could be done by business number one because that’s what they did. Especially in slower winter months all my project crews can do the work for the commercial maintenance properties and vice versa.
What doesn’t go well?
When businesses don’t go well especially when you buy as they collapse you get into a place where there’s a lot of stakeholders involved – you as the buyer, the seller, the lender, investors, other people who have debts against the business. When you move into insolvency everyone’s got a claim and litigation is expensive. A lot of times what happens is you move into a settlement and with that settlement there’s almost always a non-disparagement non-disclosure agreement. I did not know this because I’d never been through it. It wasn’t until a few months after I’d gone through my settlement agreement where I started getting back on LinkedIn and connecting with other business owners who had been in the same situation. I started to realize how common my situation was.
Tell us the name of the book have you named it yet?
Right now I’ve called it Buyer Beware: Lessons of Real Business Failure. I think it’ll probably stay that as the title. I’ve got the pre-sale out. I really want to capture these stories and make sure that people get a really good look at what happens when things don’t go according to plan.
Anything more to say about the key takeaways from your 24 interviews?
First and foremost if you’re a searcher and you’re looking to buy a business you really need to understand the risk involved. You need to understand what happens if you take out a personally guaranteed debt and you fail at that debt. Understand what chapter 7 and chapter 11 mean for you personally. Have that conversation with your spouse. One of the things we love about search is that it takes a lot of the risk away from a startup but just because the success metrics are higher doesn’t mean they’re 100%. People do fail and if you don’t take the time to do a proper risk assessment then I would argue that you’re not making an investment you’re gambling. Pay attention to the biggest red flags. If there’s something in you that makes you feel like I like the deal but I don’t like the owner that’s a red flag. A business is the direct reflection of its owner every single time. The idea that the owner is simply going to step away and then you’re going to step in and you’re not going to be responsible for however they built that business is irresponsible. Do everything you can to learn how the business actually functions as much as possible. Get your hands dirty in a small business because until you’ve been in the operator seat there’s just going to be too many variables that you’re unaware of.
Can you be more specific what does a true war game look like?
The first and most important thing is having a very deep heart-to-heart conversation with your spouse because when things do go bad the part that you’re probably not talking about is how it’s going to impact you and your family. When my business went under I moved in with my brother. We lost our house in the settlement. We lost all of our financial assets. I’ve got two little boys that are four and two. We had nowhere to go. It was just fortunate that my brother owns his own home and has space for us. That will impact you and your family in ways that you’ve never experienced before. It sucks. From a business perspective, once you start moving into business failure you move into an area called insolvency. When you start to realize that you may not be sustainable you may not be making payroll you may not be able to continue operations that’s insolvency. When you get to that point your fiduciary duty to the business changes. Now you actually are a fiduciary for the debt and capital stack. You have to start making decisions that are in the best interest of the debt holders not just you.
Can you share anything more about your final outcome any numbers?
Whatever you think the worst case scenario is expect it to be a little worse. I told you that I’ve got a great MBA and top secret clearance and I can code but I’m still unemployed after eight months of looking. Sometimes the market changes and so assume that things could be worse. I would also say that you do have options. I have not declared personal bankruptcy. That does mean that I have several hundred thousands dollars of debt but at this point we’re going to try to pull out of this. Working on a couple things of my own to try to generate some income. When you think about it I did the math before it was right around $750,000 of cash out of my pocket whether that’s selling our home liquidating our assets cash that I put in the business to try to keep it going when it should have been insolvent. About $750,000 and then the multiple hundred thousand liability that you still have hanging over your head. All in all about a million.
How do you reflect now on search broadly?
I think that search is a fantastic opportunity for the right buyer and the right business. It’s everything I thought it was when I started searching. We see those positive stories all the time. If you are willing to roll up your sleeves especially in the self-funded search space and be an owner operator then you absolutely we need you get out there and buy a business. But things have become saturated the last couple years. Not so much in saturated in deals saturated in influence everywhere you look there’s somebody telling you to go buy a business it is the fast track to wealth. The biggest red flag is that there’s a kernel of truth to it there really is but the problem is that in the fervor and excitement of buying a business so many of us forget to look at the risk we forget to look at the downside we forget to look at the diligence. One thing that’s really key in a lot of situations is that you can do diligence all the right ways you can get quality of earnings checks you can get legal reviews but there will always be things you don’t know and that is risk. Make sure that they’re doing their appropriate due diligence. Understand that your first deal the most important thing is just being successful. Don’t over lever. Don’t skip quality of earnings. If your answer is oh I just don’t have the cash for that then I would argue that you’re not ready to buy a business.
Jed Morris Business Stats
Through his acquisition journey, Jed built and ultimately lost a combined $2.5 million revenue business. Despite the outcome, his experience provides valuable metrics for understanding the realities of small business acquisitions, particularly those financed through SBA loans with personal guarantees.
- First business: $1.2M annual revenue, ~$170K SDE (Seller’s Discretionary Earnings)
- Second business: Similar size and revenue profile to first acquisition
- Total capital at risk: Approximately $1M including $750K cash from personal assets
| Business Metric | Value |
|---|---|
| Total Revenue (Combined) | $2.5M |
| Initial Investment | $400K |
| Personal Capital Lost | $750K |
| Revenue-to-SDE Ratio | 7:1 |
Jed Morris Method
Jed’s approach to business acquisition incorporated several unique elements that initially seemed promising but revealed critical flaws during implementation. His methodology combined elements of traditional search with innovative relationship-building tactics that provided valuable lessons for future acquisition attempts.
- “Internship” model – working with target businesses for months before acquisition to build trust and knowledge
- Focused on owner risk as acceptable trade-off while maintaining strict location requirements
- Prioritized digital transformation for lead generation to reduce reliance on platforms like Yelp
- Attempted strategic combination of complementary businesses (project construction + commercial maintenance)
- Used seller financing (2/3) to minimize upfront capital requirements
Jed Morris Tools
While Jed’s acquisition ultimately failed, his strategic use of technology tools demonstrated promising approaches to modernizing traditional small businesses. He leveraged digital solutions to address core weaknesses in his acquired companies, particularly around lead generation and customer data management.
- HubSpot CRM – Imported 3 years of customer data from paper scans to build marketing list
- Google Local Service Ads – Increased lead conversion by 34% almost immediately
- Digital payment processing – Attempted transition from cash/check payments to card processing
- Marketing emails – Sent promotion to imported CRM list resulting in 7 immediate sales
Key Notes
From Jed’s extensive research into acquisition failures, several critical insights emerged that should inform any potential business buyer’s approach. These lessons combine his personal experience with patterns observed across 24 documented acquisition failures.
- 65% of acquisition failures stem from seller misalignment – either through outright fraud or unrealistic expectations
- Cash conversion cycle misunderstandings represent the second most common failure point
- Personal guarantees create enormous personal risk with potentially devastating consequences
- “Internship” models with target businesses provide valuable insights but require deeper operational involvement
- Rushing into add-on acquisitions before stabilizing the initial purchase creates compound risk
- Business is always a reflection of its owner – buyer must be prepared to inherit original operational culture
Get Started in Just 5 Steps
Based on Jed’s hard-earned lessons, here’s how to approach business acquisition with proper risk management while maximizing your chances of success. These steps prioritize sustainability over speed, recognizing the critical importance of getting that first deal right.
- Conduct thorough personal risk assessment including Chapter 7/11 understanding and spousal alignment
- Implement “working interview” by gaining hands-on experience in target industry before acquisition
- Build comprehensive 13-month rolling cash flow projection accounting for ALL conversion cycle variables
- Validate seller integrity through multiple trusted references and verify all representations
- Structure first deal for moderate leverage with substantial equity to create breathing room during transition
Conclusion
Jed Morris’s journey through business acquisition failures reveals sobering truths about the risks inherent in the search process. While acquisition can be a powerful path to business ownership, his research showing 65% of failures stem from seller misalignment underscores the critical need for rigorous due diligence. The $750,000 personal capital loss he experienced serves as a stark reminder that even seemingly well-structured deals with seller financing can result in catastrophic personal consequences. However, his conclusion remains optimistic: with proper risk assessment, realistic expectations, and a focus on sustainable first deals rather than maximum leverage, acquisition remains a valid path for the right candidates. As Jed notes, “I spent a million dollars learning how to do it the wrong way and the right way – it would be foolish to throw away all that knowledge.” His book Buyer Beware promises to transform these painful lessons into actionable guidance for future searchers.