8 Characteristics of Durable SMBs

Introduction: Defining “Durability” in the Lower Middle Market

Durability in small and medium-sized businesses (SMBs) isn’t about surviving downturns; it’s about compounding strengths over decades. We don’t just look for businesses with momentum—we look for structural staying power. Informed by hours spent evaluating companies, speaking with owners, and studying what works, we believe durability can be decoded.

While no business is perfectly future-proof, the most compelling companies tend to exhibit a distinct set of characteristics that create not only resilience, but also a platform for compounding value across market cycles.

5. Long tenure of customers, employees, and ownership

Durability often lives in the stories behind the spreadsheet. Companies with long-standing customer relationships, multi-decade employees, and owner-operators who have run the business for 15+ years often reflect a deeply embedded trust in the business ecosystem and an ability to drive value for all stakeholders year over year.

This tenure creates continuity of culture (which we define as measurable and codifiable “working norms” — but more on that in another article), institutional knowledge, and relational equity. During diligence, we explore org charts, tenure stats, and turnover patterns—as well as interview owners for insights into leadership philosophy.

6. Conservative balance sheet and limited external dependencies

As the 2020 Stanford Search Fund Study observed, post-acquisition performance is often derailed not by margin compression but by liquidity stress. Durable businesses don’t chase growth with leverage or capital intensity—they grow from cash flow.

We favor companies with minimal capex (<5% of revenue), low customer concentration (<15% per account), and limited regulatory risk. Asset-light, internally funded models compound over time with fewer shocks.

7. Clear levers for value creation, without heroics

A durable business should not require brilliance to improve. Instead, we look for firms where a capable team applying best practices in pricing, sales management, or technology adoption can drive meaningful gains.

To understand value creation levers, we assess pricing power, under-optimized workflows, and digital maturity. As one investor put it, "We want to buy a machine that works, not a turnaround that might."

8. Cultural integrity and aligned stewardship

Finally, durability rests on intangibles. Is the culture resilient or brittle? Is the seller a steward or a speculator? Will employees stay after a change in ownership?

We spend a lot of time thinking about long-term stewardship, and often ask sellers: "If you were staying another 10 years, what would you do?" Durable businesses tend to have leaders with pride, not just exit intent.

A closing reflection: durability is not static over time

These characteristics aren’t a checklist—they’re a lens. Businesses can evolve from fragile to durable or vice versa depending on leadership, market shifts, and decisions made under pressure. Our job as investors and operators is to recognize the patterns early, ask the hard questions, and bring playbooks that reinforce what’s working while addressing what isn't. To be thoughtful about protecting durability — and to consciously double down on virtuous, durability reinforcing characteristics as waves of expansion and evolution are planned and executed.

Durability creates the space for compounding; the luxury of thoughtful reinvestment in the pursuit of sustainable growth. For us, that means finding businesses we can bet on and build with for a decade, not just a quick flip.

Still, open questions remain:

• What specific leading indicators best predict durability pre-acquisition?

• Can certain industries sustain durability across multiple ownership transitions?

• How can we best measure culture pre-close?

We’re continuing to study these questions, and in future articles, we’ll share deeper dives on our evaluation frameworks, portfolio learnings, and owner psychology. If you’re an operator, advisor, or seller with a view—we’d love to hear from you.