The third path to becoming a CEO

There is a new way to make it to CEO, and holding an MBA from one of the world’s top business schools will help you get there.

There’s a new wave of entrepreneurs who are securing their CEO roles via a non-traditional path.  

Rather than being promoted through traditional ranks, or beginning their own start-ups from scratch, they are raising seed capital among a network of investors to buy a successful business and take on the role of CEO.

Along with an entrepreneurial mindset, the commonality these people have is that they typically hold an MBA from one of the world’s top business schools.  

Jackson Allan is the first alumni from Melbourne Business School to enter this elite world, successfully securing 18 investors and establishing his own search fund.  

For Jackson, his MBA from Melbourne School was instrumental in his success.

“The reality is that the majority of people who raise search funds, have an MBA from a regarded institution,” Jackson said.   

“Particularly with Australian investors, the MBS brand really helped provide me with credibility.”  

Along with the capital for purchasing a successful business, the funding also covers a modest salary for Jackson, giving him a few years to find the right organisation.  

“I’m essentially searching full-time for a business that fits a certain set of criteria. You find the business, the owner wants to sell it, the investors want to invest, everyone comes together and then you step into the CEO role in that business.”

Origins of search funds

While it might be new to Australians, the notion of using search funds to buy businesses has been successfully used for almost 40 years ago in other countries.

The idea has its roots in academic institutions, originating out of the hallowed business school grounds of Stanford and Harvard.

“There’s a little bit of contention with who came up with the idea first,” Jackson said.

“But essentially, an academic, Irv Grousbeck from Stanford University, backed one of his MBA graduates to go and buy a small business and grow it over time.

“It worked out really well, and so they just kept backing more of their students after they completed their MBA and found that they were getting these incredible returns on their capital.”

For example, one of the most successful search funds Asurion, which began when two Stanford alumni acquired a small roadside assistance company, ended up generating investors over 5,000 times their original contribution.

While search funds have been active around North America and the UK for several decades, it has only been in the last 10 years it has taken off globally.

“In the 90s there might have been four or five search funds active at one point in time,” Jackson said.

“Fast forward to today and there are more than 600 search funds active globally.”

Jackson’s path to the search fund way of life

As well as being the first MBS alumni to raise a search fund, Jackson is only the 12th in Australia to do so.

So, what made him take the path less trodden?

“I was just primed for it through the MBA,” Jackson said.

“I would sit in Geoff Martin’s classes, and he’d often talk about how there’s all these small businesses out there, but how there’s a real succession problem in Australia,” Jackson said.

“He’d say if you want to, you could just go and buy one, take it over and pick it up and run with it.”

While Jackson had thought about the idea of acquisition in the past, he’d never really done so in this context.

Later, Geoff had a guest speaker who had done just this, buying up a stationery business and taking it over.

“I put my hand up and asked, ‘what if I wanted to do that?’,” Jackson said.

“He told me to just come talk to him – so I did”.

After also seeking advice from the School’s Director of Career Services, John Gurskey, and reading up on the literature on search funds, Jackson’s mind was made up that the traditional path of consulting just wasn’t for him.

Instead, he began networking with people who had pursued search funds, both in Australia and overseas.

In October 2024, he attended the 6th International Search Fund Conference in Barcelona, connecting with others on the path, as well as several potential investors.

What followed were months spent pounding the pavement.

“I reached out to more than 400 investors cold, conducted 51 investor interviews and that lead to me now having 18 investors secured,” he said.

“It was quite an arduous process.”

What makes a company suitable for a search fund purchase?

With funds secured, Jackson is now looking for a company where he can take the helm.

So, what makes an organisation the right fit?

“There is a certain set of criteria that other people have established over the years that seem to work,” Jackson said.

“For the most part it’s B2B service businesses, because the relationships are longer term and more predictable. In B2C you’re relying on brand and big marketing spends to keep customers coming back, which is a lot harder for a first-time CEO.

“With B2B you usually get contracts that give you stability in the revenue, which makes the transition a lot safer.”The revenue in the business also needs to be sustainable.

For example, a company with existing long-term contracts, where you know you have stable cashflow over the next few years.

“When you put a new CEO in a business like this, you have a transition risk in the change of ownership,” he said.

“You are really wanting some cushioning of sorts, to ensure the company is able to withstand the transition and give the new CEO an opportunity to succeed.”

For Jackson, the next year will be spent searching for the perfect opportunity.

This involves sending 100s of emails each week to business owners, cold calls, direct- marketing, and most importantly, ferocious networking.

“You have to tell everyone what you’re doing. You need to stay top of mind for people in your network, so they remember you’re looking to buy a business,” he said.

“If they hear of something, they might then reach out and try and connect you.”

Jackson’s advice for others looking to enter the field?

“At the end of the day this is about running a business. You have to want to step in as CEO and actually lead it,” he said.

While the process of cold calling may be arduous, Jackson encourages people to lean into the search fund community – and to not give up.

“The search fund community is generous. If you reach out and ask, people will share their experience and that saves you a lot of wasted effort,” he said.

“You are going to talk to hundreds of people and most of them will say no. The key is to just keep going.”