The 7-Year Collapse of an SBA Acquisition - Acquiring Minds Recap

Podcast: Acquiring Minds

Published: 2025-12-11

Duration: 1 hr 39 min

Summary

Scott Duncan shares his challenging journey of acquiring and ultimately closing down his tool-and-die business, highlighting critical lessons learned about revenue concentration and operational pitfalls.

What Happened

In this episode, Scott Duncan recounts the seven-year saga of acquiring F&M Tool & Die, a business he believed was well-aligned with his mechanical engineering expertise. Initially, the acquisition appeared promising with strong recurring revenue and a vital service for customers in manufacturing. However, Scott faced multiple challenges, including key personnel departures, a poor company culture, and the disruptive impacts of COVID-19 and inflation.

A significant turning point occurred when Scott discovered a troubling revenue concentration issue. Although he was aware of the risks associated with having a single customer contributing 10-15% of revenue, he was blindsided when one customer accounted for 50% of his earnings. When that customer stopped purchasing, it resulted in a devastating loss for the business, ultimately leading to its downfall. Scott's experience serves as a cautionary tale about the importance of understanding not just revenue concentration, but also its impact on EBITDA, emphasizing the need to monitor both closely in any acquisition.

Key Insights

Key Questions Answered

What led Scott Duncan to pursue an SBA acquisition?

Scott Duncan's journey began between his two years at Harvard Business School (HBS), where he was inspired by the Rick and Royce ETA courses. He realized that despite working for venture-backed startups, none had truly materialized into successful businesses. This prompted him to explore the idea of acquiring a business instead of continuing in traditional roles, as he wanted to create something meaningful.

What challenges did Scott face after acquiring his business?

After acquiring F&M Tool & Die, Scott encountered numerous challenges that undermined his efforts. Key personnel left the company, which disrupted operations. Additionally, a poor company culture contributed to difficulties in maintaining morale and productivity. External factors like COVID-19 and inflation further complicated the business landscape.

How did customer concentration impact Scott's business?

Scott understood that a single customer contributing 10-15% of revenue was acceptable, but he faced a harsh reality when one customer represented 50% of his EBITDA. When that customer ceased purchasing, it resulted in a substantial financial hit, effectively taking away half of Scott's earnings. This experience taught him the critical lesson to monitor customer concentration not just in terms of revenue but also in terms of EBITDA.

What does Scott's story teach about self-funded acquisitions?

Scott's story highlights the potential pitfalls of self-funded acquisitions, particularly the importance of due diligence. He emphasizes learning from his mistakes, particularly about the risks of relying too heavily on a small customer base and the impact of external economic factors. His journey serves as a cautionary tale for other entrepreneurs considering similar paths.

What insights did Scott gain about company culture?

Scott recognized that the culture within F&M Tool & Die played a significant role in the company's success. The poor culture contributed to operational inefficiencies and employee dissatisfaction, which ultimately affected the business's performance. His experience underscores the necessity for future business owners to prioritize building a strong, positive culture to foster employee engagement and productivity.