Think Like an Owner

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 notes 1:14 Music background and switch to entrepreneurship 2:51 Parallels between music and business 7:13 Leaving the recording business behind 7:58 Advantages/disadvantages due to music background 9:36 Lessons learned by failing 10:50 Not being afraid to ask for help and potentially look dumb 11:30 Initial businesses started & growing into an entrepreneur 16:20 Starting entrepreneurship meetups 19:02 Becoming a consultant 22:06 What industries/characteristics do you look for? 24:00 Investing in a retirement community 25:55 Wedding industry/business model, being a seasonal business 31:55 Building the business in the offseason 34:40 Cash management strategies for cyclical/seasonal businesses 41:00 Using earnings from portfolio companies to reinvest 43:41 Funding projects within portfolio companies 45:07 Calculating returns 50:52 Using Amazon's model in micro PE through Sunset 1:02:58 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   Notes 1:30 Brief overview of Nick's background 4:00 Strategy of focusing on local businesses, found The Wright Gardner 5:04 No external investment, utilizing SBA loan program 5:30 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-on 11:32 Risk of investing in an add-on and integrating it into your existing companies 14:42 What is involved in the Cub Investment "car wash?" 16:46 Examples of new processes added to companies 18:18 Are there benefits to not having experience in the business you're going to acquire? 19:31 Misconceptions with buying small companies 23:34 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 seller 27:53 Role of the previous owner after acquisition 30:29 Is the size of purchase an indicator of the replacement value of relationships with customers? 32:28 Growth of Cub Investments 34:26 Change of valuations recently 36:39 Competition for deals 37:34 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 notes 1:25 Peter's video/audio content idea 2:50 Firms using content to attract deal flow and find business owners 4:28 Backgrounds and early days of Traction Capital 6:10 Justin's jump to private equity and general views on investment banking 6:45 Founding of Traction in April 2017 7:26 Peter's background and work in investment banking and BlackRock 8:38 Team at Traction, division of labor 9:28 Balance between using Traction as an investment firm and offering a service to the seller 10:20 Traction's operating philosophy compared to traditional private equity's perception 10:50 Group of investors and their philosophy 12:26 Evolution of Traction's source of capital 13:43 Benefits of being a permanent capital vehicle with closing deals 15:10 General discussion on current valuations 16:06 GF Data 16:44 Lessons learned in starting Traction 18:40 Lessons learned in operating companies in that first year after acquisition 19:25 Importance of people in small companies 20:20 Perception of private equity 21:34 Growth of Peter at Traction 22:22 Looking for intellectually curious people, private equity is designed for insatiably curious people 23:49 Frustration with deals not closing 25:38 How small can private equity funds invest?, Economics of investing in small deals 28:18 Traction fits between private equity and search funds 29:16 Backgrounds of Traction partners and benefits of having operating backgrounds 30:29 Differentiation of Traction 31:25 Optimum business owner and ideal characteristics 32:33 Finding passionate business owners who are focused on their people and business, rather than the highest price 33:50 Looking for businesses where the owners has effectively has taken themselves out of the day-to-day 34:41 Questions to ask during due diligence 35:03 Red flags that come up during research and due diligence 40:09 Importance of background checks on management 41:02 Relationships with intermediaries and the evolution of those relationships 42:29 Establishing credibility and a reputation at Traction 44:40 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 equity 50:09 Most fortunate event to have happened to you by chance 54:02 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.

Join the brilliant team from Searchfunder.com: Luke Tatone, co-founder and MIT alum, Mark Yuan, fellow co-founder and operational expert, and Karen Spencer, COO with a knack for strategy. They dive into the fascinating world of search funds, discussing their structure and evolution, and the unique profiles of participants, from former military leaders to MBA grads. Discover how these funds are transforming the entrepreneurial landscape and learn about the challenges and opportunities of becoming a CEO in today's market. A must-listen for aspiring business owners!

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 mentioned Mudbrick Capital video on future of workplaces Vroom Vroom Vroom Upwork CEO AMA Hiccup Insurance CarHire Envato   Show notes 0:00 Introduction 1:49 Early entrepreneurial businesses, keg rental business, video on future of workplaces 2:15 Planning 18th birthday party 4:50 Decision to start keg rental business, Coolybar Keg Hire 6:50 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 Hive 10:20 Getting to know various entrepreneurs through starting non-profit program, mentorship 11:45 Using photos to market Coolybar Keg Hire 12:12 Digital/social media consulting 12:50 Vroom Vroom Vroom opportunity 13:30 Owners of Vroom Vroom Vroom reached out 15:26 Offered, and accepted, to run Vroom Vroom Vroom as CEO 17:01 Starting adding/fixing processes within the company, scaled 21:20 Frequently seeing poor business skills within digital world 22:10 Discussion on why only digital companies, finding these companies, filtering 23:28 Vroom Vroom Vroom business model 25:45 Why Mike moved to Singapore, remote workforce 27:30 Training freelancers for remote work  28:50 CEO AMA’s, http://ceoama.co/ 33:40 Sourcing acquisitions and deals, finding new digital companies, filtering 34:25 Hiccup insurance 35:44 Mudbrick Capital, private company diversification 36:20 Finding opportunities in digital intangible space 38:05 Types of digital companies sought out 40:12 Challenges in reinvesting capital in digital companies 42:20 Types of companies found, examples, transacting sellers 45:40 Purchase price multiples  48:00 Example prospective acquisition company 52:30 Demographics of owners 53:27 Benefits of permanent capital for sellers, Mudbrick value proposition to sellers 57:54 Reasons why digital companies with great economics don’t receive higher multiples than 2-4 times EBITDA 1:01:08 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 risk 1:07:01 Carhire 1:09:38 Can only really reinvest in marketing when it comes to digital companies 1:10:26 Most fortunate event to have happened that was completely by chance 1:16:34 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.