My guest on this episode is Andy Ellis, a managing partner of Localize Capital in Pittsburgh which, as the name suggests, focuses on investing in companies and entrepreneurs around the Pittsburgh area. Little known fact about me, I used to live in Pittsburgh as a young kid and was extra excited for this conversation because of that. Andy grew up in Pittsburgh, worked in Southern California, and eventually moved back to Pittsburgh to help form Localize.Andy and I talk extensively about the structure of Localize and how they choose to invest in companies over a very long term, with a core idea being to look for owners who think not just in years, but generations.You may have heard of the concept of finite and infinite games, a concept written about by author James Carse. A finite game has known players, a beginning and end, and set rules, whereas infinite games have known and unknown players, no end, evolving rules, and the goal is to perpetuate the game. If this concept sounds interesting, this conversation is for you as we discuss this concept in the context of private equity and entrepreneurship.Please enjoy the episode. Links MentionedLocalize CapitalBryan Materials Group Finite and Infinite Games I’m also the founder of The Operator’s Handbook, a print publication where small company operators share their insights and ideas for building more effective and profitable companies. Articles focus on process improvement, sales, hiring and training, managing culture, and all responsibilities within operating a small company. If you run a small business and are looking for new ways to grow and improve, subscribe today and join your peers in the endless pursuit of better at theoperatorshandbook.com.

My guest today is Kevin Graham, an Australian native living in Thailand running a web hosting company called Site Arrow, which he uses as his acquisition vehicle to buy other web hosting companies. The topic of software in micro private equity has come up more and more often and has been a recent focus of mine to learn more about, and Kevin was very helpful to that goal. While a great deal of the technical side of our discussion went over my head, his thinking around using permanent capital to perform a roll-up of sorts of small web hosting companies was fascinating.  Beyond web host acquisitions, we also briefly discussed digital nomads and the life of living abroad. I hope you find our discussion as interesting as I did and if you or someone you know is in the business of acquiring small software companies, I'd love to chat as I want to continue learning about this space. Please enjoy the episode. I’m also the founder of The Operator’s Handbook, a print publication where small company operators share their insights and ideas for building more effective and profitable companies. Articles focus on process improvement, sales, hiring and training, managing culture, and all responsibilities within operating a small company. If you run a small business and are looking for new ways to grow and improve, subscribe today and join your peers in the endless pursuit of better at theoperatorshandbook.com.

This space has some of the most unique backgrounds and my guest on this episode is no exception. David Krock joined a band as their drummer coming out of high school, did not go to college, and wound up starting a recording studio which led him on a path to entrepreneurship and micro PE investing, which he does today through his firm Sunset Coast Capital. David is your quintessential outside-the-classroom learner and has a rare depth of thought and experience.The topics of our conversation include his early years switching from music to entrepreneurship, the advantages of seasonal and cyclical businesses, lessons learned along the way, and a way he's trying to emulate Amazon. You can follow David Krock on Twitter and on through his sites DavidKrock.com and SunsetCoastCapital.com.Please enjoy our conversation. Links• Scaling Up • Simple Numbers, Straight Talk, Big Profits • DavidKrock.com • SunsetCoastCapital.com Show notes1:14 Music background and switch to entrepreneurship2:51 Parallels between music and business7:13 Leaving the recording business behind7:58 Advantages/disadvantages due to music background9:36 Lessons learned by failing10:50 Not being afraid to ask for help and potentially look dumb11:30 Initial businesses started & growing into an entrepreneur16:20 Starting entrepreneurship meetups19:02 Becoming a consultant22:06 What industries/characteristics do you look for?24:00 Investing in a retirement community25:55 Wedding industry/business model, being a seasonal business31:55 Building the business in the offseason34:40 Cash management strategies for cyclical/seasonal businesses41:00 Using earnings from portfolio companies to reinvest43:41 Funding projects within portfolio companies45:07 Calculating returns50:52 Using Amazon's model in micro PE through Sunset1:02:58 Which service are you going to turn into a business first?1:03:56 What class would you teach in college?1:07:57 Most fortunate event that was completely random?1:09:07 Best business you've ever seen? I’m also the founder of The Operator’s Handbook, a print publication where small company operators share their insights and ideas for building more effective and profitable companies. Articles focus on process improvement, sales, hiring and training, managing culture, and all responsibilities within operating a small company. If you run a small business and are looking for new ways to grow and improve, subscribe today and join your peers in the endless pursuit of better at theoperatorshandbook.com.

This episode is unique and is a joint episode with Karen Spencer from Searchfunder, Walker Deibel, and myself, and is something I'm calling "Author's Chat." I recently sent out a survey to see what content listeners and readers might enjoy hearing most and many of them said that conversations with authors of books relevant to micro PE would be interesting to them. This is one conversation along those lines.Karen and I's guest, Walker Deibel, is an acquirer of 7 businesses, author of the book and site "Buy Then Build", and is an active investor and advocate for entrepreneurship through acquisition. This conversation focuses on his book and lessons and stories from his investing and operating experience. I hope you enjoy our conversation and if you want more episodes with authors, please let me know! I’m also the founder of The Operator’s Handbook, a print publication where small company operators share their insights and ideas for building more effective and profitable companies. Articles focus on process improvement, sales, hiring and training, managing culture, and all responsibilities within operating a small company. If you run a small business and are looking for new ways to grow and improve, subscribe today and join your peers in the endless pursuit of better at theoperatorshandbook.com.

My fifth guest of the show is Nick Haschka, an MIT graduate living in San Francisco focused on buying small private companies through his firm Cub Investments, along with two other partners. Together, they recently purchased a business called The Wright Gardner which provides interior plant leasing and maintenance services to companies in the bay area. One thing that is interesting about Cub's approach is their use of add-on acquisitions to expand the plant leasing business and part of our discussion is on how they view the risk with add-ons versus platform acquisitions, which was very interesting.The more I read and learn about the micro PE and permanent capital space, the larger and more diverse it feels. Every investor invests differently and each story is different. Nick is no exception, and in our discussion we cover how his background has influenced his investing, his unique work experience, misconceptions he sees in small company investing, and his disagreements with the concepts of competitive advantage and Porter's Five Forces.I hope you enjoy our conversation as much as I did. Show Notes Links • Cub Investments • The Wright Gardner • Credit Parent Notes1:30 Brief overview of Nick's background4:00 Strategy of focusing on local businesses, found The Wright Gardner5:04 No external investment, utilizing SBA loan program5:30 What experiences prepared you best?6:44 How do you view add-on acquisitions at Cub and diversification?9:31 Weighing buying a new platform business versus an add-on11:32 Risk of investing in an add-on and integrating it into your existing companies14:42 What is involved in the Cub Investment "car wash?"16:46 Examples of new processes added to companies18:18 Are there benefits to not having experience in the business you're going to acquire?19:31 Misconceptions with buying small companies23:34 What gets looped into the earnings number that you need to remove and how do you view that process?25:22 Role of the 80/20 rule in due diligence and working with the seller27:53 Role of the previous owner after acquisition30:29 Is the size of purchase an indicator of the replacement value of relationships with customers?32:28 Growth of Cub Investments34:26 Change of valuations recently36:39 Competition for deals37:34 What class in college would you teach?39:10 Most fortunate event that was completely random?40:47 Best business you've seen? I’m also the founder of The Operator’s Handbook, a print publication where small company operators share their insights and ideas for building more effective and profitable companies. Articles focus on process improvement, sales, hiring and training, managing culture, and all responsibilities within operating a small company. If you run a small business and are looking for new ways to grow and improve, subscribe today and join your peers in the endless pursuit of better at theoperatorshandbook.com.

Today I'm chatting with Peter Bell and Justin Turner from Traction Capital Partners in Tacoma, WA, just south of Seattle. Peter and Justin both reached out over Twitter and the more I learned about their firm, the more interesting to me it became. Traction is a small private equity firm that blurs the lines between a private equity fund and a permanent capital vehicle, which is what made them so interesting to me. They have a handful of long-term investors and seek to buy and hold great companies indefinitely, which gives them the unique ability to make long-term oriented decisions and wait for great opportunities.We begin with Peter telling me about a content idea he has for Traction and move through the topics of starting a private equity fund, lessons learned, what they look for in both businesses and owners, and a few stories. Peter and Justin are both deep thinkers and have been fun to get to know, and I hope that shows in the episode.Links• Hodinkee • GF Data Show notes1:25 Peter's video/audio content idea2:50 Firms using content to attract deal flow and find business owners4:28 Backgrounds and early days of Traction Capital6:10 Justin's jump to private equity and general views on investment banking6:45 Founding of Traction in April 20177:26 Peter's background and work in investment banking and BlackRock8:38 Team at Traction, division of labor9:28 Balance between using Traction as an investment firm and offering a service to the seller10:20 Traction's operating philosophy compared to traditional private equity's perception10:50 Group of investors and their philosophy12:26 Evolution of Traction's source of capital13:43 Benefits of being a permanent capital vehicle with closing deals15:10 General discussion on current valuations16:06 GF Data16:44 Lessons learned in starting Traction18:40 Lessons learned in operating companies in that first year after acquisition19:25 Importance of people in small companies20:20 Perception of private equity21:34 Growth of Peter at Traction22:22 Looking for intellectually curious people, private equity is designed for insatiably curious people23:49 Frustration with deals not closing25:38 How small can private equity funds invest?, Economics of investing in small deals28:18 Traction fits between private equity and search funds29:16 Backgrounds of Traction partners and benefits of having operating backgrounds30:29 Differentiation of Traction31:25 Optimum business owner and ideal characteristics32:33 Finding passionate business owners who are focused on their people and business, rather than the highest price33:50 Looking for businesses where the owners has effectively has taken themselves out of the day-to-day34:41 Questions to ask during due diligence35:03 Red flags that come up during research and due diligence40:09 Importance of background checks on management41:02 Relationships with intermediaries and the evolution of those relationships42:29 Establishing credibility and a reputation at Traction44:40 Will Traction go upmarket or remain in micro PE size?44:57 What class in college would you teach?47:30 Mental models used in private equity50:09 Most fortunate event to have happened to you by chance54:02 Best business you've ever seen I’m also the founder of The Operator’s Handbook, a print publication where small company operators share their insights and ideas for building more effective and profitable companies. Articles focus on process improvement, sales, hiring and training, managing culture, and all responsibilities within operating a small company. If you run a small business and are looking for new ways to grow and improve, subscribe today and join your peers in the endless pursuit of better at theoperatorshandbook.com.

This is my first conversation on this podcast with more than one person. I'm meeting with the team from Searchfunder.com, an online community dedicated to search funds and the various parties involved. A search fund is the smallest form of micro private equity I've found thusfar and is typically one entrepreneur seeking out a company to buy and run as the CEO. The team consists of the two co-founders, Luke Tatone and Mark Yuan, and their COO Karen Spencer, all of whom are graduates of MIT. Luke is the first speaker, followed by Mark, and finally Karen.During our conversation, we discuss what a search fund is, how they're structured, who participates in search funds, and how they've evolved over time. If you are interested in running/buying/or even starting your own company one day, this conversation is for you.I met the team after signing up on Searchfunder only to discover all three of them lived here in Portland, OR. Mark initially reached out and invited me to coffee where we chatted about all things search funds and I quickly met the rest of the team. This conversation is the result of one of my most recent, and favorite, small world stories. I hope you get as much value out of this conversation as I did. Links mentioned Stanford Report Asurion Stanford 2018 Report Housatonic Partners Alpine Investors Peterson Partners  Show notes1:38 What is a search fund? Structure, goals, parties that participate3:08 Harvard business school: Royce Yudkoff, Richard Ruback, Jim Sharpe3:26 Search fund accelerators4:18 What individuals create search funds?5:38 Risks of launching a start-up vs running a search fund7:20 Shift from finance professionals to operational professionals7:47 Most valuable experience to have had prior to launching a search fund?9:00 It is important to investors that you're able to lead a team9:32 Number of searchers that Searchfunder.com has studied and had on the site10:01 Strong growth in number of search funds launched and corresponding acquisitions10:34 Number of search funds formed last year compared to five years ago11:09 Reasons for growth in number of search funds11:30 Who are these searchers buying from and why is the owner selling, normally?12:22 Steps in creating a search fund and acquiring a company13:30 Best thing to do to learn about search funds, intern for one15:44 Importance of practice and repetitions21:33 Average distance between the searcher and the company eventually acquired24:19 Normal size range and multiple size of companies acquired25:44 Why do these companies have lower multiples than larger companies?26:30 A business is only as worth as much as someone is willing to pay27:27 Lower bound of company size in search funds27:51 What types of companies are these search funds buying?29:00 Examples of companies acquired39:14 Role of interns40:01 How many companies close after signing an LOI?40:40 Structure of deals41:58 Using seller note42:39 Benefits to self funded in terms of deal structure43:09 What should a searcher do in their first year with the new company44:35 Holding period45:55 Search fund market on Searchfunder.com46:15 Stanford report on search funds47:45 Why they started a site on search funds instead of a search fund49:43 Would you like to run a search fund in the future?50:15 How Karen joined Searchfunder.com and importance of your alumni network50:55 More than just search funds on the site, goals for the site53:11 Gap between mature private equity and micro private equity/search funds53:37 How do these larger private equity firms access this space?55:08 Economics of mature private equity firms buying these small companies with in-house staff57:33 What's the most fortunate event to have happened to you by chance?1:00:40 Best business you've ever seen

My conversation today is with Mike Boyd. Mike is originally from Brisbane, Australia and currently lives in Singapore where he runs one of the leading car rental comparison websites in the world - Vroom, Vroom, Vroom, among other portfolio companies. He has been an entrepreneur for virtually his entire life, starting at a very young age. Mike built on his experience starting businesses and has evolved to buying them whole. Today he invests his own money, permanent capital, into digital-only companies and intangibles globally, with the goal being to build a portfolio of cash-flow producing companies for the very long term. Our conversation includes discussion on his early entrepreneurial stories, how he became CEO at such a young age, what he looks for in digital investments, and his experience building a remote team. This one, and our prior phone call, are two of the most memorable conversations I've had about business and investing. I hope once you finish listening, you will feel the same way. I got to know Mike after he reached out over Twitter after seeing my conversation with Trish Higgins and was very generous with his time and experience. If you work in micro private equity or permanent capital, or know someone who does, please feel free to reach out through my website or Twitter - I'd love to have a conversation. Links mentionedMudbrick Capitalvideo on future of workplacesVroom Vroom VroomUpworkCEO AMAHiccup InsuranceCarHire Envato Show notes0:00 Introduction1:49 Early entrepreneurial businesses, keg rental business, video on future of workplaces2:15 Planning 18th birthday party4:50 Decision to start keg rental business, Coolybar Keg Hire6:50 Story about inbox filled with orders for keg rentals, top of Google results for “keg hire Brisbane”8:40 Evolving beyond college, moving from Brisbane to Singapore, started non-profit called The Hive10:20 Getting to know various entrepreneurs through starting non-profit program, mentorship11:45 Using photos to market Coolybar Keg Hire12:12 Digital/social media consulting12:50 Vroom Vroom Vroom opportunity13:30 Owners of Vroom Vroom Vroom reached out15:26 Offered, and accepted, to run Vroom Vroom Vroom as CEO17:01 Starting adding/fixing processes within the company, scaled21:20 Frequently seeing poor business skills within digital world22:10 Discussion on why only digital companies, finding these companies, filtering23:28 Vroom Vroom Vroom business model25:45 Why Mike moved to Singapore, remote workforce27:30 Training freelancers for remote work 28:50 CEO AMA’s, http://ceoama.co/33:40 Sourcing acquisitions and deals, finding new digital companies, filtering34:25 Hiccup insurance35:44 Mudbrick Capital, private company diversification36:20 Finding opportunities in digital intangible space38:05 Types of digital companies sought out40:12 Challenges in reinvesting capital in digital companies42:20 Types of companies found, examples, transacting sellers45:40 Purchase price multiples 48:00 Example prospective acquisition company52:30 Demographics of owners53:27 Benefits of permanent capital for sellers, Mudbrick value proposition to sellers57:54 Reasons why digital companies with great economics don’t receive higher multiples than 2-4 times EBITDA1:01:08 Add backs/withdrawals from EBITDA to get to true “owner earners”1:04:02 Reinvestment risk, if Mudbrick Capital is in part solution to this risk1:07:01 Carhire1:09:38 Can only really reinvest in marketing when it comes to digital companies1:10:26 Most fortunate event to have happened that was completely by chance1:16:34 Best business you’ve ever seen, Envato

Trish Higgins of Chenmark Capital discusses their permanent equity model, their unique approach to acquiring slow growing businesses, capital allocation within portfolio companies, and the current state of the small business acquisition market. They also explore strategies for making a business more appealing to potential buyers and the decision-making process for investing extra cash in a business.