Think Like an Owner

My guest on this episode is Mark Brooks, Managing Director of Permanent Equity. Mark leads Permanent Equity's post-close operations team, partnering with company leaders to overcome challenges and unlock growth. Mark is a really reflective person, which you can tell from his writing on Twitter. He's thought very deeply about management and creating transformative teams, and this conversation is dense with value and insights. This episode is a fantastic dive into all things management, including brevity and effective communication, creating an environment that encourages debate and disagreement, and why great teams are crucial to combat process depreciation. Listen weekly and follow the show on Apple Podcasts, Spotify, Google Podcasts, Stitcher, Breaker, and TuneIn. Links: Mark on LinkedIn Permanent Equity Mark on Twitter Margin call scene: Explain it to me as if I were a child Morgan Housel Ben Thompson Matt Levine on Bloomberg Topics: (2:58) - How important is brevity internally in business? (8:17) - When you think about writing key messages, how would you coach communicating via email? (10:10) - How do you share ideas across companies? (13:10) - How do you make sure your companies aren't reliant on one person? (17:13) - Is there a long term goal that operators should aim for in terms of the decisions they have to make? (19:37) - Healthy laziness in delegation (23:14) - How do you best shift the mindset of a new manager to think more about team performance vs. their individual performance? (26:40) - What are some common character traits of leaders who are great delegators? (28:23) - Building a team for space and for stress (31:45) - How do you evaluate a candidate's ability to build a team? (33:26) - When you bring in new managers, are there common behaviors or patterns that need to be adjusted? (35:59) - The depreciation of processes (38:38) - How do you create a culture where employees feel comfortable disagreeing with management? (41:48) - How do you try to pinpoint holes in your own processes and methods? (44:34) - Of the highest performing operators you've seen, are there any consistencies in their daily routines? (47:55) - What's a strongly held belief you've changed your mind on? (50:25) - What's the best business you've ever seen? (52:10) - Which newsletter writers do you really admire?

I'm joined by Sara Heston and Peter Kelly. Together at Stanford, Sara and Peter, among other projects and teaching, assemble the Stanford Search Study that has been released every year on even years. The study is widely considered the go-to resource for learning about search funds and is often the first resource shared with folks considering the path. The first study in 1996 was only two pages long, and the 2022 study released in July is over 30 pages, reflecting both the growth in the Search Fund Model and the increased availability of data. Our conversation covers the purpose of the study, it's evolution since 1996, a half-dozen interesting trends they have observed among Search Funds, characteristics of ideal Searchers, and data sets they want to add to the study in future years. Enjoy. Listen weekly and follow the show on Apple Podcasts, Spotify, Google Podcasts, Stitcher, Breaker, and TuneIn. Links: Email Sara here: sheston@stanford.edu Sara Heston on LinkedIn Peter Kelly on LinkedIn 2022 Search Fund Study Search Fund Primer Topics: (1:32) - What's the background and genesis behind this broad Search Fund Study? (3:28) - How has the audience changed over time and what are the goals of those reading the data? (6:28) - What are some decisions you've seen made by people utilizing the study? (8:02) - What's the methodology for putting together the study? (9:48) - What are some of the most notable things you've added to the study over the years as it's grown? (13:10) - Where do you get ideas for new data sets to add? (15:27) - What are some interesting trends you're paying attention to based on the study? (18:49) - Why do you think you're seeing a spike in returns? (21:58) - How much of the rise in multiples is due to the 10-year bull market we've had? (26:59) - Is there anything else notable you've noticed that's influencing Searcher equity? (29:22) - How have you seen exits evolve over time? (31:53) - Are there any interesting sets of characteristics that the best Searchers have? (37:07) - Do you see Searchers who feel out of their element building teams around them to pad weaknesses? (39:20) - What are your thoughts on Partnered Searches? (42:14) - What are some data sets you'd be excited to add to future studies? (45:53) - Do you have a sense of how large the self-funded Search community is? (47:39) - How can folks in the community help make studies more robust? (49:31) - What strongly held belief have you changed your mind on? (53:45) - What's the best business you've ever seen?

My guests on this episode are Jay Davis and Jason Pananos. Jay and Jason acquired Vector Disease Control, which provides vector borne disease prevention and lake management services, in 2011. About 4 years after acquisition, they realized serial acquisitions complementary companies could be a powerful growth lever. And 14 acquisitions later, they sold the company in 2017 for a very successful outcome. Following the sale, they founded the Nashton Company where they've been mainstay search investors and the last few years holding company investors. They're also co-founders of Compounding Labs, a partnership between Jay and Jason, Kent Weaver and Will Thorndike to invest in long-term holding companies. Our conversation covers their investing in holding companies, how they approached serial acquisition at Vector and how they advise other searchers in the strategy, sources of capital and deal pacing, and building deal teams and when to start that process within your serial acquisition or holding company cycle. Listen weekly and follow the show on Apple Podcasts, Spotify, Google Podcasts, Stitcher, Breaker, and TuneIn. Links: Jay on LinkedIn Jason on LinkedIn Nashton Company Compounding Labs Stanford Search Fund Harvard Business Study 2022 Topics: (3:17) - If you look at Vector as a play for acquisitions, how did it fit into your strategy? (6:41) - What actions did you take to prepare yourself for rolling up other businesses and acquisitions? (10:56) - What key roles need to be in tip-top shape before you begin acquisitions? (14:39) - What were some best practices you developed over the process of 12 acquisitions? (16:14) - How have your roles evolved over time? (20:53) - Have you noticed folks things being easier for serial entrepreneurs if they have a partner? (22:29) - What other types of investments have high returns in the early days outside of team-building? (25:24) - Are there any misallocations of time entrepreneurs have in the early innings of a serial acquisition strategy? (29:49) - Does the presence of Private Equity in a certain industry make it more attractive to you? (33:10) - What are some factors you weigh when looking at industries to potentially invest in? (35:27) - What characteristics do you look for in entrepreneurs? (37:46) - How does pace increase factor into your path as the team grows? (39:38) - How does the source of capital shift over time? (42:38) - What are your thoughts on Long-term holding companies and their increased popularity? (47:27) - How do you sus out whether an entrepreneur knows they're in this for the long haul? (50:51) - How do these long-term hold companies shift over time? (54:02) - How do holding companies shift your role when investing compared to a traditional search fund? (56:59) - What strongly held belief have you changed your mind on? (58:43) - What's the best business you've ever seen?

My guest on this episode is Nick Haschka, back for a third episode to provide an update on his early ambitions of a holding company, which have taken a slight turn. Two years ago, Nick and his partner Anupam Sharma acquired a commercial landscaping company Vargas Gardening. They added a manager and grew the business, but realized the road ahead was going to be substantially more difficult and so made the decision to sell the business, earning a two-year IRR of 122%. Running a second business with a worse economic profile than Wright Gardener wasn't going to be as valuable an endeavor, and thus they renewed their focus on Wright after the sale. Nick has also been thinking more about search investing, having reduced his investment activity due to the declining economics he's seeing. We talk about this change of thought, his interest in investing in public micro-cap stocks, and deeper, more targeted industry theses. Listen weekly and follow the show on Apple Podcasts, Spotify, Google Podcasts, Stitcher, Breaker, and TuneIn. Links: Nick on Twitter Nick on LinkedIn The Wright Gardner Nick's recommended products, reading, and more! Connor Haley on The Fort Podcast Topics: (2:39) - Updates since Alex and Nick last spoke at the outbreak of the pandemic (5:35) - Nick's venture into acquiring a commercial landscaping company (9:49) - Selling the landscaping company (19:30) - What changed in your growth approach with this second business? (22:35) - How have the last few years been for The Wright Gardener from a growth perspective? (24:24) - Why have you slowed on investing in Searchers? (26:53) - Do you get the sense that terms have gotten worse or the quality of deals has declined? (28:45) - What's been your experience with investments since slowing down? (29:48) - What's your interest in Micro-cap stocks? (35:28) - How do you think about expanding your network from Search into Micro-caps? (36:28) - What's your long-term vision for this Micro Caps approach? (38:35) - What other topics or ideas are you focusing on?

My guest on this episode is Andy Cagnetta. Andy is the CEO of Transworld Business Advisors, one of the largest business brokers in the country. The typical guest on Think Like an Owner is an owner operator often running a business they acquired, although not always. And therefore, the buyer's side of a transaction is where we have spent the most time as a podcast. I wanted to hear the other side and learn more about a broker's perspective in the small business and search world. What do they care about? What do buyers do that is counterproductive, and how could they more effectively build relationships? We go over questions like this, along with what a good business broker looks like, why some listings never sell, how to impress sellers and brokers as a buyer, the perception of search funds, and how Andy himself is an acquisition entrepreneur who acquired Transworld and became CEO. Listen weekly and follow the show on Apple Podcasts, Spotify, Google Podcasts, Stitcher, Breaker, and TuneIn. Links: Andy on LinkedIn Transworld Business Advisors BizBuySell.com Closing the Deal by Andy Cagnetta Halftime by Bob Buford Never Split the Difference by Chris Voss Topics: (3:59) - Andy's background and career before acquiring Transworld (7:25) - What's the business model of a business brokerage? (9:24) - How do you find someone who is contemplating selling their business? (10:28) - What is your thought process behind growing franchises? (11:41) - What are some of the most common questions or concerns business owners have when you start working with them? (15:08) - What's gotten more challenging about evaluating and buying businesses? (16:41) - Do you find that sellers are consistently overvaluing their business? (19:33) - What types of listings have a tough time selling? (22:24) - What are some unique or vanity-play businesses that are tough to sell? (23:49) - What percent of listings never sell? (24:20) - How do you identify a good broker? (25:50) - What are some common miscommunications between buyers and brokers? (30:59) - What's the broad perspective of buyers from the eyes of brokers? (34:15) - How have you seen buyers distinguish themselves from a seller? (36:41) - What are some ways buyers derail the acquisition process? (38:44) - How much influence does the broker have over who the seller chooses to go with? (40:09) - How impactful is a track record of previous acquisitions when compared to a new buyer? How can new buyers make themselves stand out? (43:30) - What are some helpful tips for sellers to prep their business to be sold? (44:56) - What should sellers do after they step away from the business? (45:54) - How have you built relationships in different markets and communities? (48:43) - What college class would you teach if it could be about anything? (49:21) - What strongly held belief have you changed your mind on? (50:04) - What's the best business you've ever seen?

Today I'm joined by Kevin Knoepp and Zack Seely. Zach acquired a healthcare software company called FSI in late 2020 with technical diligence help from Kevin, a software due diligence advisor and Trilogy operating executive. Our conversation doesn't discuss the attractiveness of software as an investment, which it very much is, but rather on how to properly diligence software and operate and improve the business once acquired. We review common technical issues in software companies, how much technical debt is acceptable, Zach's experience in diligence and operating improvements at FSI, and constructing a capable team to move a software business forward. Listen weekly and follow the show on Apple Podcasts, Spotify, Google Podcasts, Stitcher, Breaker, and TuneIn. Links: Zach Seely on LinkedIn Kevin Knoepp on LinkedIn FSI Martin Fowler - The Strangler Fig tree pattern Topics: (4:00) - Zach's experience at FSI at the acquisition point (6:05) - Zach's skills background & where Kevin fit into FSI (7:34) - Kevin's process for analyzing the technical side of software businesses (10:50) - What are some red flags you'll see in diligence? (12:22) - What's your perspective on Technical Debt? (15:03) - How did you structure your deals or build teams to adjust for technical challenges you found? (17:03) - How did you first set your priorities for what to fix with FSI? (22:22) - What are some must fixes before you can complete an acquisition? (23:52) - What sorts of gaps did you focus on in the first 18 months at FSI? (26:54) - How did you evaluate the technical team before the acquisition? (28:12) - What kinds of questions do you ask the technical teams to assess their abilities? (31:46) - How do you evaluate and mitigate risk on a technical team? (36:46) - What 2 to 3 changes did you make to the technical team right off the bat? (41:59) - What sorts of processes have you set up to make work more transparent? (45:11) - What are your thoughts on outsourcing vs. insourcing tasks or positions? (49:19) - Is it common for software companies to offer some sort of budget for outsourcing services to their developers? (51:27) - How do you evaluate if your team is utilizing capacity properly? (54:34) - How did you evaluate FSI's pricing strategy? (57:15) - What common parts of a pricing strategy could use the most improvement in software businesses? (59:19) - What strongly held belief have you changed your mind on? (1:01:30) - What's the best business you've ever seen?

My guest on this episode is Freddie Bellhouse. Freddie and his partner Nick Ashford are co-founders of Fordhouse, a UK-based acquirer of small companies. In the eight years since they're founding in 2014, they've done 25 deals and are beginning to consider more fund-like permanent capital structures for future acquisitions. I was fortunate enough to meet Freddie's partner Nick in New York City, and we hit it off immediately. He'll be a future guest on here pretty soon. Freddie and I talk about lessons learned going deal by deal, building expertise in integration and organization building, and differences between the US and UK small private equity markets. Listen weekly and follow the show on Apple Podcasts, Spotify, Google Podcasts, Stitcher, Breaker, and TuneIn. Links: Freddie on LinkedIn Fordhouse EIS (Enterprise Investment Scheme) Topics: (3:30) - Can you walk us through some of the deals you've accomplished in your career? (7:24) - What are some nuances between the US and UK in regards to SMB? (9:55) - Have you met any people in_______ (11:12) - Are there any European companies that have multiples as low as the US? (12:02) - Why have you decided to raise a fund instead of raising deal by deal? (15:03) - What's an example of a company where you needed to build out the executive team function? (17:53) - How do you evaluate whether a team is ready for growth? (19:15) - Have you noticed that most of the compounding growth at a company happens at years 4 & 5? Why do people sell right before that? (22:13) - The scripted nature of acquisitions (24:19) - What are the differences in transaction costs between the US and the UK? (26:21) - What kinds of offers have you received for businesses? (27:45) - How intriguing is Fordhouse as an acquirer? (30:27) - What is the longer-term focus in your work? (33:10) - How do you think about keeping managers happy in terms of liquidity or dividends? (35:33) - What tends to go wrong when interests diverge? (37:39) - What causes a mediocre performance? (40:48) - Is there one company you've acquired that's vastly outperformed the others? (42:35) - Thoughts on integrating companies (43:45) - What are some of the example PCV's that you've enjoyed studying? (46:57) - What college class would you teach if it could be about anything? (48:14) - What's a strongly held belief you've changed your mind on? (49:20) - What's the best business you've ever seen?

My guest on this episode is Rob LeBlanc. Rob is a co-founding partner of Ambit Partners, a search investment fund founded in 2020 that invests in searchers worldwide in countries like Paraguay, Spain, Germany, and South Africa, where Rob is based. Together with his two co-founding partners, they have raised a $25 million fund with plans to back 50 to 60 searchers in this first fund. Today, they have funded 32 searchers in 20 markets with 5 acquisitions thus far. A recurring concept we discuss in the episode is that investing in search internationally is like going back in time to the early days of search in the US – competition was less, fewer owners were aware of searchers, and search tactics were more effective. Those are still true in most countries around the world today. Rob and I talk about finding entrepreneurs, themes that are similar across countries, and good and bad reasons to accept a given searcher in your cap table. Enjoy. Listen weekly and follow the show on Apple Podcasts, Spotify, Google Podcasts, Stitcher, Breaker, and TuneIn. Links: Rob on LinkedIn Ambit Partners Info@ambitpartners.com Discovery Vitality Topics: (3:47) - Which countries have features that make them attractive for searchers and which countries are on the come up? (8:52) - How is conducting a search in other countries like "going back in time?" (13:37) - What business models seamlessly transition overseas from the US? (15:06) - How valuable is it to have an investor from the country you're searching in? (18:02) - What are some "bad" reasons to have a certain investor on your cap table? (21:37) - How do you think about which companies where you want to be on the board vs. having a partner on the board? (26:39) - What's a situation where you wouldn't be a good fit as an investor? (27:53) - What have you seen with searchers struggling to fill board seats? (30:22) - What personalities are best for leadership roles in search as the industry develops internationally? (34:24) - Where do you typically find international searchers? Would you ever go overseas and try to find people who would be good fits in Search? (40:00) - Where do you see Ambit over the next 5 years? (42:17) - Where do most of the exit opportunities exist for international searchers? (44:20) - What college class would you teach if it could be about anything? (46:18) - What's a strongly held belief you've changed your mind on? (48:41) - What's the best business you've ever seen?

My guest on this episode is Brendan Anderson. Brendan started his post-banking entrepreneurial career by acquiring Stam, Inc., which manufactures custom bent tubing before founding a private equity firm called ScaleCo where he has raised three funds and acquired 21 companies to date. He built his career by being an operator first and learned to become an investor, a path that's given them a big leg up when talking to other CEOs and potential sellers. One subject I've wanted to study more deeply is building a team that naturally attracts great people, and this is a major topic of our discussion and something Brendan has given a lot of thought to. We also talk about the use of debt combined with long term investment time horizons, how they facilitate data and information sharing across the portfolio, and what the top idea on his mind is today. Listen weekly and follow the show on Apple Podcasts, Spotify, Google Podcasts, Stitcher, Breaker, and TuneIn. Links: Brendan on LinkedIn ScaleCo Patrick Lencioni Books Gino Wickman books Topics: (4:21) - Are there any market indicators you focus on that have broad implications for your portfolio of companies (5:31) - Where do your CEOs get most of their information? (6:37) - How are you bringing your companies together to share best practices? (8:40) - Can you walk us through the TAC method? (13:47) - Brendan's background and career (23:16) - What were some notable misses you've seen across your 3 funds and what did you learn from them? (27:16) - How do you find great talent locally in your area? (29:35) - How do you think about scaling your recruiting pipeline? (31:03) - How do you retain great people? (33:52) - What is the "fund route" you offer people? (34:52) - Are there career advancement opportunities for people working in your portfolio who may want to jump to another company under your umbrella? (35:49) - How does your mindset shift when you're operating with a long-term hold mindset rather than selling within a few years? (37:30) - What kind of freedom does someone at a ScaleCo company have relative to working elsewhere? (39:03) - How do you view debt within a long-term time horizon? (42:19) - What's the top-of-mind idea for you right now? (43:36) - What college class would you teach if it could be on any subject? (46:52) - What's a strongly held belief you've changed your mind on? (47:55) - What's the best business you've ever seen?

The 4th episode in our Trilogy Search Series features Kristen Glenn from Reverb People. Kristen is an HR professional with over 15 years of experience in HR Leadership and Business Partner roles. We also have Cyrus Symoom, the Co-CEO of Clariti Software, Clariti helps governments across North America with permitting and licensing solutions. Finally, we are joined by Jennie Ellis, who is an Operating Executive specializing in Talent Acquisition with Trilogy Search Partners. This episode is a deep dive into talent acquisition, sourcing, and HR function development. Each of my guests brings a unique perspective with their experiences in fractional HR for small companies, running HR as the owner of an acquired company, and talent acquisition. The last several years have been challenging for recruiting and retaining great people across all different kinds of companies and search funds. There are special challenges for smaller firms in hybrid arrangements, and each of my guests provides great insight into how companies can find and keep great team members. Enjoy. Listen weekly and follow the show on Apple Podcasts, Spotify, Google Podcasts, Stitcher, Breaker, and TuneIn. Links: Kristen on LinkedIn Cyrus on LinkedIn Reverb People Clariti Software Topics: (3:38) - Introductions, backgrounds, and thoughts on the current recruiting market (8:59) - What are some tactics you've seen companies do to adjust downward as the market turns? (11:30) - Challenges Cyrus faced in building Clariti (13:43) - What ways have you seen talent compound at Clariti? (15:41) - Is sourcing talent from companies that are going through periods of change an effective strategy? (18:00) - How do you determine whether a company has good HR fundamentals in a prospective acquisition? (23:05) - What was the HR function like at Clariti when it was acquired? (24:25) - When did you decide to delegate out HR? (25:28) - How do you coach people on developing their HR function? (28:38) - How does the HR function look as the company scales? (30:01) - What does HR at Clariti look like today? (31:12) - What do fractional HR clients need to do to develop stronger HR functions? (34:52) - At what stage do companies stop outsourcing HR? (38:20) - What do some of the best HR functions have in common? (40:36) - What metrics are most important at Clariti for recruiting and retention? (41:19) - Can you expand more on the interview process at Clariti? (43:47) - How do your periodic check-ins with employees differ from the initial interview questions? (45:32) - How frequent are your retention interviews? (50:20) - What are some best practices for retention in companies? (52:40) - Where else can CEOs remind their team that communication should be open and transparent? (54:11) - Where does Clariti need to improve the most in their HR function over the next 24 months?