Justin Ishbia - Lessons from Acquiring 586 Companies - [Invest Like the Best, EP.357]

Transcript from https://podmenti.com/t/1559d13d48d3c71d

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Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best.
This show is an open ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money.
Invest Like the Best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at joincolossis.com.
Mm.
Patrick O'Shaughnessy is the CEO of Positive Sum.
All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Some.
This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
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Mm.
My guest today is Justin Ishbia.
Justin is the founder of Shore Capital. Shore is a private equity firm that invests in microcap businesses within industry niches.
With seven billion dollars in capital deployed, but an average transaction size of just twelve million, Justin has worked to build a system to drive success for hundreds of businesses through replicable operating procedures and championing young professionals.
The firm has created a moat around volume with nearly six hundred acquisitions over the last three years, some of the highest numbers in the world.
We discuss identifying growth prospects, constructing a meaningful board, and the business mentality behind Main Street, not Wall Street, as Justin puts it.
Please enjoy my conversation with Justin Ispea.
Justin, it's such a pleasure to have you joining me today. I remember on our very first call taking more notes about how you were building your firm than about any firm introductory call that I can recall.
And I wanna start with a line that you said when we first met, which is that the system is the star.
as you think about building your asset management firm, maybe describe
why that term or idea is important to you and how it applies to short capital.
I followed your show for a number of years and it's been so impressive what you've built. So you guys have a best in class audience and showing them on every part of it.
create enterprise value as a system. No one person creates it at the star. And so our view have always been like
How can a system, a machine, a process?
that creates differential results outcomes.
And
I was raised in an environment that you always look for opportunities where others aren't looking. And my view of the world is
The last
inefficient part of the private market ecosystem is the micro cap.
And this is where we spend all of our time.
This is businesses we define as sub ten million EBITDA investment.
And I wonder why most people don't play here is I think several reasons.
And go back to the system of the star dynamic is that
In order to play here, takes more resources than normal.
buying a business with four of EBITDA, no audit and a matted team that is
Oftentimes no, I'll say
running the biggest business that I ran before that day.
It's different than buying a business that's doing fifty of you, but the professional management team that's been coming in together and have run a business three times the size before and now coming down to run it. And so
That's the system.
me everything goes back to the system everyone has a role from the organization goes back to a lot of sports as well. How do you become
best person at your job day in, day out. How do you become the best controller? How do you become the best deal professional? How do you become the best marketing leader? And so the system for us.
is documentation. I looked up to organizations or operating companies like Donaher, the DBS system.
We're trying to create something very similar in the private equity community. And so
Everything we do is codified and written down. If you walk in here in our four walls and you're in our offices.
We have a concept of
So the idea of someone our firm comes up with they want to invest in the sector, let's pick on the veterinary sector because everyone knows what veterinarian is. So
Okay generation.
until the day we sign a letter of intent for that platform.
We call that nine things of baseball.
There's literally hundreds of steps that go into each inning has these between five and fifteen steps you must go through.
A settled letter of intent?
There's four quarters of closing a deal.
Well you have made mistakes over and over again. Make mistake, you actually add something to that four quarters say, Hey, make sure you check with international tax council by AB or C.
So creates a codified system.
We close the platform.
Maybe a hundred day plan.
We have twenty three standard operating procedures we put into every business. So we've actually onboard to the shore way of how we do things. We own a business that's the planting phase, the growing phase, the harvesting phase.
We exit the business. It's three periods of exit, like hockey, a lot of sports analogies. But what this allows to be done is.
Allow scale.
we've done over the last few years about six hundred acquisitions, according to Pitchbook, more than anyone else in the world.
Average enterprise value though of transactions twelve million bucks.
Wow.
Hundreds of them deployed over seven billion dollars in a three year time period, but across five hundred and eighty six transactions. So why the system matters is
Early career energy.
First time leaders
running through their own first platforms.
Give these people the tools and resources and saying here's the rules.
And we believe we're all
See one, do one, teach one.
Patrick, cut work on my team.
sit next to me, let's go do a first deal and the veterinarianship looks like this.
Next one, C one. That's the C one. Do one. Let's do it together.
We'll do it hand to hand. I'll tell why I'm doing it.
Next one, you're teaching me how you're doing it. In order to own something, you have to be able to teach it somebody else. And so this system is set up in a way to allow
early career energy, young professionals. I believe Private Happy World is a hustle game and the system is set up a way to have talented people.
who want the ball earlier in their career to have the chance to
grow and have a big role or deal.
The system allows for that. And so that's why our systems are star. No one person makes this place go, and we have to say.
More stars into our system, the brighter the system burns.
Poking around of this system for the rest of our call is gonna be so fun. And there's so many different areas that
You've had this very careful systematic thinking for how to do
great deals and run a great business. Before we do all that.
I'd love to rewind back a little bit to the origins of the business.
And you like so many of the investors that I've found to be the most interesting
started by I think you call it your pre-fund. You were doing these deals without a committed capital vehicle. You were sort of a fundless sponsor going around raising capital for great individual deals. And it was you, you started this. And it's easy now you've got this big amazing team, seven billion dollars, hundreds of deals and so on that there's this great system, but it starts with a person
And I'm curious
to understand like the formative experiences
in those early deals, what you were looking for, why you were attracted to it.
And then why the system began to emerge. What was it that made you think about the market this way and want to stay disciplined, doing very small deals, almost constellation software style, rather than do what most private equity firms do, which is start to get bigger and bigger and bigger in their deal size.
So it wasn't just me, my partner Ryan Kelly, my partner Mike Cooper, and John Hank, the four of us from day one, we were young.
I was 31, they were 29, 28, and 27. So we were kids, we were essentially associate levels.
Where it came from is no originally Ryan and I, Ryan was at Water Street and I was at Valoracy Partners. And what we would do all the time is we would
See a deal is like three or four, we've been done, attractive sector, we bring it to our old boss and basically say, Here's a roll up in this opportunity in the sector. And effectively you're heard you know from different ways of saying, like, interesting, but you're one of my X number of deal guys, we have to deploy X million dollars per year, whatever may be.
Doesn't make sense for us to do that. And basically I heard over and over again was
No one is
Investing is part of the market because when you're good at private equity, what do you do?
Raise a bigger fund.
When you're not good, you wash out.
So who stays small for the long term? The answer is really nobody. And so we decided if you had a franchise, a microcap franchise that would stay small for the long term, but a bunch of different products. And so those probably formative days.
That is when we had a pre fund like pre funds
are something I think that people
Zoom past these days. Want to go raise the first fund one 200 million dollars. Like it is really hard raising 200 million dollars. It's really hard raising 100 million dollars. And so
The reason why we did it that way, I wish I could say I was smart if this was a plan, but my mentor said to me,
years ago, I was like two thousand seven or eight, and said, Justin
Was a good time to fundraise.
It's a bad time to invest.
And vice versa.
And he said, when you start, make sure you start when it's a bad time to fundraise. So I knew it until it was nine. I didn't know oh nine March was the bottom. I didn't know that was exactly but I knew it was bad. I didn't know how much worse I was gonna get, but I said to myself,
Well, you gotta do it when it's bad out there. And so I can't raise the capital. I have no track record. I was an associate, not a private equity firm. I was a lawyer first, an associate of private equity firm. No endowments and investments. That's all of them.
And they're like, yeah, come back to the track record. I was like, how do you have a track record?
We went out and raised money when our first was a prefund was a ten million dollar community capital vehicle, but a couple of important points on that.
Instead of raising just four or five million dollars for the first deal,
We raise ten minutes of credit capital. And why? Someone gives some really good advice that
And go for your first add on.
Someone get divorced, someone changed their mind.
And by having a committed pool of capital, you'll spend much of time raising capital for the second add-on. So having a 10 million dollar committed pool is mostly wealth managers.
Founders of private equity firms.
Head of law firms, traders in Chicago.
Into our little network. We didn't have great wealth.
And then much smaller small offices of twelve hundred square feet.
But those very early days.
It was about being thematic.
And it was about buying a little business where we felt like
We were all healthcare originally.
where the founders were excellent at something.
But did not want to do something else, which was usually the business side.
So they were a pharmacist, man. They could mix XYZ and everyone in town wanted to work with them because they had the best output. And so in those early form of the days, it was
Pick the right theme.
Invest in a business where the founder
clinically was really sound.
We have to say a short couple, good medicine is good business. We wanted to find a good health care provider.
That had the respect of their peers.
Invest in this little business, then bring systems and processes.
We call it a flash and a dash, a dashboard and a flash every single week.
We have to say if you can't measure it, you can't manage it. The very early days we were very process driven, but this pre fund.
Everyone wants to zoom past it nowadays, but you get seduced by the world of Instagram or
Facebook or TikTok, where everyone raises the first two hundred million dollar fund. Guess what? Most people don't start that way.
Most people start something very simple. I like to think of Short Capital's story was
Not that dissimilar from some associate or VP in another priority firm right now.
It takes time.
It takes ten years. If you get it right.
You do it exactly well, you have good deals.
You will make less money.
Your first ten years.
Then you wouldn't stay in the trajectory we were.
But after your 10 going forward, it flips material direction. And so I think people want to go pretty fast these days, but I want to say, slow down, go buy one good business, buy a second good business, make sure those are going well.
If you buy two or three good businesses.
you will raise a fund one day, but don't think just because you work at XYZ firm, you're gonna spin out and go raise money. And do it now. Do the time is crappy out there, recession is here or coming, but now you think about it.
I'd be raising it now, I'd be going to invest in businesses.
When it's a hard
Time to
Create enterprise value. Sellers are scared.
There's no to be
low earnings profile and multiples are relatively lower.
looking backwards, don't do in twenty nineteen when multiples are tick tocked and easy to raise capital.
But it is really hard to get it right because you're gonna sell it five years later, probably into recession, as opposed to you buy it in twenty twenty four.
I'm pretty confident we'd not be selling a recession in twenty eight, twenty nine, thirty.
So obviously you're hanging your hat on
this ability to stay in the small average deal size. So seven million dollars, but a twelve million dollar average deal size is quite something. There's not a lot of examples of firms that have done that. So with that in mind, maybe describe what is the perfect canonical short capital deal. What is the
business look like what does the multiple look like what does the prospect for growth look like?
If you had to atomize it.
How would you describe it?
Everything starts for us the industry. So we're very organized around industry themes and thematics. So pick an industry that we'd say has great long term growth potential.
is much easier to be playing ball and shift growing than going the other direction.
But not only the perfect type of deal for us, then fifty nine platforms in firm's history.
Average revenue, about eighteen and a half, nineteen million dollars of revenue, average EBITDA, three and a half million bucks.
Paying about seven and a half times. That's what we've done over levering it two times. So under lever, over equities.
And
Use about
eighty to hundred employees.
This is Main Street, not Wall Street.
And we're buying business, but it's in a sector we believe that
you create value by consolidation and scale.
And so I was back to the veterinary industry as an example.
Value is created.
By hiring and partnering with the best veterinarians.
We love investing in industries where there's much more demand than there is supply.
So what do we do? I become the supplier of choices. By supply that means
be a place where veterinarians and vet techs want to work. If you have great people want to work with you in demand where it is, then you have a chance to grow really quickly. So buying businesses that I think
Um
in a part of the market that are a price point that is different than what they do at scale.
For a lot of reasons, the matching teams have not been developed.
They don't have multiple geographies.
We all kind of have constant concentration. But we're okay with that.
These are risk we take. They almost never have audits.
On QuickBooks.
These are all parts of I would say um
Size above the country club round?
but below where institutional investors want to invest.
Constellation software, Mark Leonard's a friend and a mentor.
I'm not smart I know to copy.
And try to copy
it all in software, we've done it in operating businesses, but it's a mainstream little businesses where where you can aggregate five, ten, fifteen, twenty five of them or more and get to a spot where
There truly is synergies where
Your cost of goods sold can go down because of scale.
You can have
data points on pricing to be able to have better intuition and knowledge on pricing dynamics.
able also to shift labor around to have better labor legalization. So in a route based business, for example, you have more density than a certain geography creates value. So
I want to have multiple ways to win. I think the last thing I'd say is.
Unlike
larger organizations that buy bigger businesses and competit auction processes were buying on these relatively smaller businesses.
If we get the first deal.
wrong in the thesis, it isn't a death flow.
Most times in private equities, probably speaking, someone commits$100 to a thesis, they're investing between$60 and$80 of that investment for the platform and reserving.
twenty to forty for add ons.
Almost exact inverse.
I'm gonna pay a hundred dollars to a thesis, I'll deploy five to
25 for the platform. And what that does is it creates opportunity to underlever.
Make sure the matching team right.
And it
If the first one isn't what you thought it was to be, your second or third investment, that sector still can be good.
and become the headquarters and the platform later. And so it gives that great opportunity, I think.
to increase your margin of safety, increase an opportunity for success. So all that stuff together creates, I think,
A really important part of the ecosystem. This part
is inefficient. And I think by learning operations, you learn
Martian safety.
You learn upside from operations.
If I get one or two of our things right, we make three times the money. If I get four or five right, we make five, six, seven times the money. If we get everything right,
returns in the teens and twenties multiple times. And so there's
Multiple ways to win.
I like investing where I there's lots of ways to win up rely on one or two factors.
One of the things I'm personally really focused on is thinking about
the different kinds of opportunity costs for capital today as rates have gone up as the S P has a certain sort of expected return, call it 10% over the long term, that really to deploy capital away from risk-free rate or very cheap index funds, you need to demand like a really high rate of return.
And otherwise it's just not worth it. You might as well just stash it somewhere liquid and go home.
What have been the rates of return
in this style of investing, historically, now that you have so many deals done, lots of deals exited, ten years of experience.
Just level set us a little bit on
the return profile of a strategy like this, the return on equity.
Yeah, I can't do for everybody, it's for our results. So we've done fifty nine platform investments. We've exited 14 companies. So it's not saying forever, but it's definitely a critical mass.
Our average gross cash on cash has been seven times cash on cash, IRR seventy-two percent.
We've never had a deal lower than three times gross cash on cash.
Our median is five point five times gross cash on cash. So you're talking about the 50s IRR. So you're talking about 70s gross, 50s net. I'm not saying that forever, but that's been historical results. And this ecosystem does produce, I think a
really strong risk adjust return profile.
But it's hard to do it. The reality is.
When you're small, you can do it, but then you get bigger and bigger, you raise bigger funds.
And it's really hard to stay here. That's just the reality of it because
Your vice president becomes a principal.
when they want to come partner, you've raised bigger funds and it's harder doing smaller deals, some of our biggest deals.
are the most easiest to manage because my managing are so darn good. It's harder to get it right. There's more risk involved.
But I do believe you get it right.
No, you have I think an asymmetric shore profile.
One of the things I used to love studying in my quantitative research days was just return on investing capital of public companies. And the norm would be that ROIC mean reverts.
If it's really high, it gets competed back down.
But there were always some platforms, a lot of them are the biggest companies in the world today, that would have these bizarrely persistent high returns on capital. And when you investigated them, you found classic business motes.
It seems like the same question applies here. Like what is the system moat?
as you would describe it, because seventy percent, fifty percent IRRs, these seem so high as to be like almost unsustainable. I mean, obviously those are absurdly high IRRs and even half that would be good. But how do you think about building unfair advantages into what you do so that you can continue to earn
Really spectacular results.
I wish I could say I was smart enough in the front end to plan this, but I got a little bit lucky, I think.
Our mote is the volume.
the number of transactions that we do.
creates an ecosystem, creates a deal.
Young professional orchestra capital.
gives the opportunity to have so many different executives around the table that reuse people over and over again and try people out relatively small businesses. And so I believe the next 10 years of private equity is all about operational excellence. So we mean really heavy in operations. We have 150 full time people approximately at short capital, over which half of them are our operations leaders.
When you're buying a relatively small business from an honest good founder who has nothing but good intent to grow their business.
But they often leave laffies on the table.
The risk.
they want to take there's four of Ebata.
to go buy a four million dollar machine to automate something. They don't want to do that sort of stuff. And so at this part of the market.
It's inefficient.
And there's an opportunity to, I think, dramatically improve these businesses in the first 18 months.
We believe also
eighty percent of our CEOs are first time CEOs. We believe in this thing called early career energy.
We believe that it takes a really smart person about
Eighteen months?
To learn
Ninety percent of the industry.
That last ten percent.
Takes five years.
Ten dollars not.
We bring more members to come, though.
I think the the opportunities is
Finding individuals who want to plan a part of the market that doesn't seem as sexy at first. But once you get in there,
Return on investing capital.
If I'm a founder, I'm a CEO, I understand what's going on.
Your profile here is much higher than investing in larger businesses. That's just the reality of it, is that
I lay out the math all the time for
More members of ours who we
We couldn't part boards and we usually have about seven independent board members every company by.
And
don't get paid in a cash company they get options of the company if it goes well they do well and they also get a chance to invest in those businesses
But the math in them I say is
We've had now nine times that someone step off the board become a CEO for us.
When they see
If you get it right.
We look at it as okay, median returns in the product industry pretty good is two times your money. I think that's a good fund with most returns. And so our math, we say is
For us.
If you can be a CEO.
of a large business that has not two or three hundred million dollars acting behind it.
It's quite common to have a equity option pool but in a
Two point.
two point five times cash on cash, they can have a twenty million dollar outcome. That is a middle of fair way, I think, for a lot of CEOs.
You can make that as part of the market.
by the cash on cash profile getting it right. And it is oftentimes
Higher probability of success.
Especially when you can recruit talent.
Give me the CEO that can go recruit his her network of two or three awesome people to come to this part of the market.
they see the opportunity and return profile could be six, seven, eight, nine times your money because of multiple arbitrage.
because operational improvements
because of the opportunity to invest in these little businesses.
That have many things left on the table.
that founders know that should be done.
But they don't want to take the risk themselves, and appropriately so.
No, it's Bill a fair way for us to have
Three.
Founders show.
One is sixty five, one is fifty five, one's forty five.
The guy sixty five, more risk averse, guy's forty five, wants to lean a little bit more.
Great.
We can partner with that dynamic and give them some real upside and give them a chance to differentiate. But this part of the market does create those unique opportunities. You get it right.
You're talking about seven times your money. And I think there's no better way than to create value than to compound it and be a leader in a business growing at a really fast pace.
One of my absolute favorite encapsulations of your systematic mindset is the way you set these boards up. We talked about it in some detail.
when we first met. And I love this idea. The idea of a three million dollar Eva business having
a fairly high powered seven person board seems ridiculous, unrealistic, but you figured out a way to structure the incentives and the composition of the board, like the nature of each board member and their background.
That's really seemed to been
a key part of this system being the star. Can you just describe that system, the board system and incentive structure in as much detail as you can?
I just say I build a board like a basketball team.
I don't want five point guards. I want a point guard, a power forward and center.
What traditional private company investing before I found a shore, I invest in small companies about twenty thousand bucks, fifty thousand bucks.
What happened normally is that whoever put the most money on the board.
And usually they hit no relevance, no importance.
The guy puts in a half million bucks and things in the board.
No.
That never happens for us at all. And so
We wanna go
we finally call the Mount Rush more of that industry. So back to the veteran industry as an example.
I want to identify
Cool.
by industry standard reputation is viewed to be
Best in class.
Sports as analogy, I think people often have no college basketball.
Who is Tom Izzo?
Who is Mike's just asking? Who is their family tree?
Every industry has their
Tom Mazel and their Mike Sheshewski, who are no preeminent basketball coaches.
And so to build a board like a basketball team and we say I want someone
Two people.
We have run a business in that exact same sector.
It's at least three times the size what we acquired.
So that person has been there and say, I've been through this journey at this exact size and metrics.
On the voice of the customer.
Wanna voice the supply chain.
Usually want a functional discipline expert who's been in that sector, like a CFO who knows the metrics called, and one or two people from the JSON.
This board
of seven individuals. A lot of times our board members who are first time joining us, they laugh. They say there's more people on the board and there's millions of revenue.
We play business doing eight of revenue, we get nine people to the board.
So it's
Oh wait we're stacked board, but we're stacking boards in a unique way.
It creates a lot of value. And we'll be clear now.
It's more secret sauce. I don't mind it because this is how I started.
We pay them zero.
Pay them zero in cash comp.
See the back. The lead director gets a small stipend to be more involved. We but lead director and we have six.
regular born so regular zero cash comp
But they get options in the company that in our base case they make two hundred and fifty thousand dollars. That's breaking it out. Very simple, guys. It's very simple that
I average it for five years.
On average.
That's four warmings a year. So you're talking fifty thousand a year.
twelve thousand five hundred per morning.
Most people go, Okay.
I'm on join the board for that. And that makes reasonable sense to me. And if we do better than average, then you get much more than that. I've talked to people all the time, they're like, Well, I can't afford that board. I'm like, yes, you can.
You give them options that in a base case look like this. And base case for us is three times.
And so that's a very reasonable outcome. And so I think you go spend the time and effort.
to go recruit that board.
That is the most important thing that you do in the thesis. If you were in my Monday morning meeting and you heard a firm talk about buying a company in the XYZ sector, the question that comes out of my mouth versus time board.
Literally, and then there's like a slide.
That lays out.
The different
Yeah, the voice of the customer, the voice of the supply chain, the voice of the operator, sure relevance.
And
Usually four to eight people deep.
And the person who is leading the thesis is their job to pick the best.
group and
The unique dynamics about a moat or things from the past, but this year we'll close 12 or 13 platforms. So times seven. You're talking about 90 unique board members.
We're talking about a third will be repeat customers for us, but I have 16 new people who will join our family next year. I don't know who they're gonna be, yet they'll all be very talented business people. We talked about someone before his phone call, but also very high end, very talented person.
There's a niche out there of people who are fifty five
The seventy five.
Who don't want to work full time anymore.
But do not.
More than nothing.
They failed retirement.
love the foul retirement woman or man. And so these board members
bring that experience. And so we oftentimes back first time CEOs. Over 80% of our CEOs are first time CEOs.
That's a moment ago.
It takes eighteen months.
To learn ninety percent of the industry.
The last ten percent takes five years.
But guess what? My board has that last 10% from day one to compliment that early career energy. And so if you partner with a
hungry, smart first time CEO, first time CFO, give him a board and naturally.
Of those seven, by the way.
Five becomes super value added, one or two less so.
Just the reality of it. I'm very poor predicting who is going to be value add and who is not.
It's just DNA of the people and after with us one time, I can figure it out. But he's really tell the people these boards and
They help in a unique way.
Every single member helps in unique outsized way at one point during the life of the investment.
Open the door to a customer.
Refers us to a
Former employee of theirs who was talented.
has unique way of
Understanding uh
software system.
For just an add-on.
Wanna buy a business to an eighteen of revenue and want to grow it to hundred of revenue?
You must be the new customer that could bring three men of revenue.
We talk about it first.
A fifteen twenty percent pickup in revenue.
You buy this at a bit of revenue?
There's no ones that are bringing you a 15% pickup in customer. It's just not gonna occur, but
I think what we've learned over time is
We gotta create a funnel environment for this.
Four members too.
They have
choice. We don't do the professional time and effort. We put a lot of effort into creating an ecosystem.
Where we have these operating partner summits where you invite individuals, all of our board members from all of our companies to come twice a year to cross-pollinate and share ideas and bring perspectives.
But creating a family and the ecosystem.
of really talented board members.
Who wanna provide advice and give back.
Part of it is altruistic, part of it's financial, part of it's fun.
All those things together create a really great board member.
And I think increase the odds of success. All of this is about increasing the odds of success. And I think if we do all these things,
Well, I'm not sure which part will work every single time, but it's a system.
And I know the system outcome. I tell our LPs and investors all the time.
and our future seller partners.
I say I won't promise you the outcome, I'll promise you the process.
Our promises written down.
It's clear. And we do the same thing every time and we make it better sometimes, but the process is the same. And I think that is I think what great operating businesses do.
public company that could donate her.
Like a roper. They do great things by system.
And I think that's something we're very focused on.
Why are you doing this in the industrial
subsectors versus somewhere like
Software. What is it about?
That
Addressable market, those business models.
Why pick that instead of something
Like software that
If I took this system and went and did this in software somewhere, it probably worked pretty well.
Why not?
We may at some point, but we start in healthcare.
I always felt like the founders of healthcare businesses
Were
By training.
So I went to Van Bilt for law school. My cousin I'm super close with to Van for Med School.
His eight buddies and my eight buddies one group at Vanderbilt, and we're all still buddies to this day.
He's just about the smartest individual I know of these doctors.
Man, they just
don't get the business out of it, nor they care. It's just the reality of it. And so I saw that enough. I said, okay.
I could partner with my cousin who
would be his my age, but him when he's fifty and then supposedly he was thirty.
And
Have him be my business partner?
And guys like that.
create tremendous competitive advantage. And so it was always like
We partner with individuals, main street businesses.
Where
The founders have a outsized tactical skill.
Well that's
cutting your eye open for a surgery for a cataract.
Or whether that is
No, in the industrial sector, someone that's really good at repairing roofs, or whether in the business sector, someone that's great at making sure your technology, your outsource IT works really well.
To me it's always about
I believe that people excel at things they love to do.
Most doctors did not go to medical school, for example.
to hire the front desk person or to evaluate professional development of their peers.
Great.
You go be a doctor and do what you love to do.
I like to use the words.
I want everyone working.
At the top of their license.
So by that I mean
What can you only do based upon your expertise and your skill set?
And so in a doctor's example.
I don't want the doctor who's a cataract surgeon.
seeing the follow up patient for routine follow up. There's no complications, very simple. And what
A English practitioner can do that.
And they're trained well enough to know there's a problem here. I need to see the doctor on this sort of stuff. And by the way, the same thing, the nurse.
Should only see what the nurse should see and the medical assistance, should medical assistant see?
That creates sickness because employees love doing things that are unique they can do. What frustrates a doctor is interviewing the front desk person. What frustrates a doctor is having to do some of the most
Simplistic sort of follow up or
coding putting into the system. So
We like to partner with individuals.
who love what they do are really darn good at it.
but want to leave another part of the business alone.
They do not want to do it. So
Oftentimes like because my software
Software founders usually are pretty savvy business people as well.
They started the business because they wanted to create something enterprise and they show all parts of it.
We start in healthcare because usually doctors
Wanted to do good and help people.
It was a byproduct of their job to have to do the administrative part of the business. We said great.
You go be the doctor, we'll be the business part together.
best in class and create a business that will help more people on the scale.
That's just how we think about it, but there's so many different parts of the world that you can create value in, but can't be focused. I always tell people when you have a lot of priorities, you have none.
And so we've put very focused.
Sounds like thesis generation and evaluation is like the furthest thing upstream at shore and how you think about things.
Tal me through that part of the business.
Where do these theses come from? What makes a good one? What makes a bad one? What's the difference between one that almost gets in but doesn't quite
really understanding like how something gets through that part of the process would be fascinating.
I want, of course, each and that's professional. So partners have between three and seven, principals have between two and four, vice presidents have one or two.
Why you pick your thesis?
Patrick, give me a love urgent care and I may hate it.
I mean a veteran may hate dogs, so I'll let the investment professional pick something they find interesting.
I find the best investors are curious.
You're curious about something and you wanna
peel the onion layers back. And so how we work here at Short Capital is
every investment professional, senior professional, which is a vice president, principal, or partner.
Yeah, that's how me to pick.
a certain number of sectors they want to focus on and they can't focus on everything.
For us, everything starts what's called a roadmap.
A roadmap is essentially a white paper on industry.
Complimented by
The industry conferences.
And also what we call
the Mount Rushmore of the industry. So in every industry, there is a Mount Rushmore of companies and executives.
And the industry roadmap will also include
The conferences. So your job, Patrick, if you were trying to figure out urgent care industry is
You have to remember to the green with a sector?
You have to physically go to one of the industry conferences in person, off the floor.
you have to identify them out rushmore, lay them out who they are. You have to identify them out rushmore companies.
Where are the disciples? Where have they gone? Where are they at today?
And the pros and cons.
Once you do that as being between a forty and a sixty page white paper effectively.
Present to committee.
And you can say, Hey, I'm Patrick and I love urgent care. And so why I think we as short capital should green light the sector and turn it on. So the whole process goes around that. They present it for their peers. It's almost like you're standing up in front of
fifty people, can be size changes depending upon the vertical. But you present in
Your peers are pressure testing it. And there's it's part of so we're organized through our investment memo process, investment process.
The team is assigned.
I assigned two members to Patrick who wants to put forth urgent care.
be five people on the mask committee.
And if they agree to it.
they are with you for the whole length of the journey. So from roadmap, through your board, LOI, platform, add-ons, budgets, exit, and their carry in the future is tied to your results.
So they have their own curve, their own deal they'll lead.
they're judge on your outcomes as well. And so they're very incentivized to make sure that
Thesis makes sense. They have to also employ capital. We have to also make sure that they're not just saying no to everything, can be a doctor or no.
But it's a five person team who effectively votes to green light your sector of urgent care, in that example. And the smart people asking smart questions and
There's trends we're tracking.

Why does the small player win here?
Why does the little guy win? And
Especially in healthcare. Healthcare is inherently a local business.
And so that makes a lot of sense there. But this is where small guy wins as well.
No does not do well.
You must be multicontinental.
That is not good for us. We're not going to invest in the sector. And so.
Each industry has its own trends, and we try and identify how winds where the bucket's going, and like in healthcare, especially the consumerism of healthcare.
That thing's something we want to believe in, but
It starts with this.
thematic approach. We're very theme driven.
So in this journey
While you're in that roadmap.
You're also recruiting your board members. You found out who the Mount Rushmore is.
before we even present the route rushmore the whole roadmap, you have
15 people who you think could be on the board and you're sharing with them through back.
Hey Patrick.
You're the urgent care expert.
Here's my 20 pages of my deck. Where am I wrong?
What makes a bunch of sense. You're getting a bunch of industry domain expertise.
bouncing ideas off people, making phone calls through LinkedIn.
Two different search engines.
You're outbounding.
If you traffic in that sector enough.
You will eventually learn the good guys, the bad guys.
You will learn who everyone respects.
one trick of the trade that we use a fair amount and I at all time is
You could call it the Industry Association, Urgent Care Association of America.
You ask them.
for their agendas for their last five conferences.
If someone spoke twice or more in the last five years.
Pretty darn good proxy.
the industry respects them.
I want to meet that person.
But little things like that that the industry itself, there's always industry panels about the lawyers and the bankers.
But
Industries
Protate certain people.
And you wanna get to who those industries are. So for me, everything's about the industry.
industry becomes the core of it. And then that partner of short cap or president, vice president or principal, they own it. And their job is to know and they oftentimes may invest in that sector two, three, four platforms of their career or more.
My partner Ryan who leads urgent care for us.
He's on three platforms, version care sector.
And surprise he does more.
My partner.
Chris has done it.
Soon three dental deals.
And so if your job is to know the sector really well.
over time may change.
It may change if you want to invest in it again, but
you almost become a strategic choir.
after a period of time because you know the industry so well. Until the all times are
Executives or board members.
They've forgotten more about the industry.
Then we'll ever know.
For finance guys, our job is to be
Most
educated on domain expertise, impress you to want to join our team because we're prepared. We want to invest. And then for the sellers, I'm telling the seller is
When you choose to sell somebody
Or partner somebody.
There's two parts of the deal. There's the macro and the micro.
The macro is do you believe in this sector, urgent care?
Micro is doing my company.
I wanna take one of those two off table.
I'm believing urgent care.
I have a whole machine behind me for fifty page deck. Here's my board members.
We create a board before we buy the company. So you get the industry.
We get green lit.
Can we recruit a board?
We don't have all seven of them, but we'll have easily three or four of them.
And they're required to go with us to meet the sellers before we buy the business.
So in these early days.
Get the main knowledge, you have people been around the table who know the nuances of the industry. I'm telling the seller.
Don't worry about the industry any longer because if it's not you, I'm gonna invest urgent care.
We're going to invest here. Now all we have to do is agree upon why you're best in class and why we should together go build something that's pretty special. And I think that resonates with sellers and firm out.
Yeah, let's talk about
With
in the given thesis, starting to look at the individual assets, the individual companies.
the diligence process and what you're looking for or looking to avoid.
Once you get down to the actual thing that you're gonna buy.
Describe
In whatever way you want, the things that matter
Most to you?
I'd love to keep walking down this chain and negotiation and operations after the close and everything else, but starting with, okay, we've got a company that's interesting for some reason. What are those reasons? What are you looking for in diligence?
Almost always we're doing a roll up the sector. We're almost always consolidating. And so one of the things I look for almost right away is
reputation amongst your peers in the industry.
And it's a really simple test. I'm sharing people's my inside baseball because I anyone should do this, I think it's rocket science.
Use ophthalmology as an example.
We'll try and try an ophthalmology company.
I'll try and
Identifying that same town.
three or four optimal practices in town.
and call them up and we'll do a secret shop or something and ask them
If your mom had to have a cataract surgery.
And she could not go to your practice.
Who would you send it to?
In time.
And I want the company that I'm buying to get on that list.
Multiple times. Now you have to recognize there's always in town called a Pepsi. There's somebody that likes each other and somebody doesn't, but people in town.
No.
who is pretty good in town. So why that's so important is reputation of that first group is everything, because those who are in the know only want to join the winners.
The New York Yankees are oftentimes showed as one of the best major league baseball teams.
Very different to play team. There's no way the Los Angeles Dodgers
want to join a triple A team.
The Dodgers would join the Yankees in a roll up of baseball industry.
does they're viewed as best in class.
So I think the same way's reputation.
Number two.
I want a founder.
Who has a shared vision to grow.
And has a desire to learn.
Back to curiosity.
They want to understand and want to grow a business.
Beyond their own means.
And they're excited about partnering and they have an open book, our best founders.
Clinically, technically, you know there's a baking sweet goods or a doctor or
A plumber and we have a water safety business.
It's so important that they're really good at their craft.
and then able to identify who are others go through graph. So to me it's reputation industry.
Technically sound.
You don't hear me say Magitine very often, do you?
Because
It's important, but we're gonna go build.
We're gonna take what y'all have and surround you and compliment you.
Oftentimes the founders
are gonna be a role, but I'm see you.
And we're very clear on the front end.
By the way, our biggest company is a veterinary company.
We started when it was
Five of revenue, one of e but uh three locations.
Today it's over four locations over one point three billion revenue.
That's founder, veterinarian, and still CEO.
So that's one extreme. That can be one extreme.
Other extreme I could say, Patrick, you're a great
Mercy room doctor.
If we're gonna partner.
You're not gonna be a CEO in our thesis if you're okay with that, but you wanna be the chief medical officer.
We would love you to be the person to help you create all the doctors to this team and sells the value of problem why we can help people in rural parts of America better than anybody else. And so to me,
It's very much
Reputation.
technical skill set and a willingness
to learn and a curiosity and want to grow.
Those are the things I really focus on. There's always the minutiae of customer concentration and reputation, but reputation is encapsulates so much because this is a role of things. It's not even buying one business and staying still.
We're growing our business usually over 100% per year, organically and organically.
I would say on average that levered roll ups have sort of a bad reputation.
Why do you think that is?
I would say if you see a one level roll up, you see one level roll.
The snowflakes.
What like the restaurants are good restaurants or bad restaurants?
Set up dynamic.
Oftentimes they get bigger also.
The founders have already
left the organizations. Now in the early stage where we start, these founders are
Very hungry.
wanna grow these business and we like to under lever. So we don't put pressure on these teams with
Leverage. We under leverage means no leverage at all.
Also, I would say
People point fingers at
Rocks.
In a way because
the target's on the back of the winner.
It's hard to identify all the small little ones.
And yeah.
When you have
four thousand employees, you're gonna have some of the scrum.
They're gonna somehow leave the organization. So you hear more of that noise versus a four location versus a four hundred location.
I
generally believe that
roll ups end up in a better quality of the business. Usually, at least for us, we create usually a technical advisory board. So it can be a bunch of
Ars and Bakers, it can be a bunch of veterinarians. We want to have a technical advisory board.
We'll bring together and
create a dynamic of what is the best in class delivery of.
the services and so we spent a lot of time on that and so
I recognize that
More arrows are shot at bigger companies. No one talks smack off the Triple A team, they talk smack about the New York Yankees.
You know why people start in New York Yankees, so I think it's easier to point fingers at and do bad things happen? Sure.
By normal scale, if you have a four locations, more likely the one doesn't go as well.
As before.
But I think
In totality.
those businesses are able to
Pay other employees better.
create a better margin profile and therefore deliver better quality of service to the customer end of the day.
Why do they exist?
Because customers keep shooting them.
over and over again people ignore that part of it is like oh levered business that is uh part of a levered roll up like yeah but the customers keep picking up one why because they believe it to be a better value prop than going to somebody who is not part of that roll up and because usually they can offer more services and hopefully a higher quality of care and there's smart people running them with metrics like NetPromar score
You know, other things they're even more sophisticated to identify.
This is what my customer wants. I'm delivering it in a very efficient way.
L Chouse.
What have you learned about
Negotiation.
Yeah.
Lot of deals you've done.
So people say to me, Justin, you're in private, you're in finance. I quickly correct them. I say, No, I'm in psychology and sales.
Look, end of the day.
I always tell our team members at sure.
We've done now.
almost nine hundred transactions. We've had zero losses.
If we ever pull out that document in the future, have to look at it, we've already lost.
I mean we negotiate to do our best to have all those sort of things buttoned up and sort of stuff, but
Of the day.
I want people to believe in the girl story. They have to believe what we're building together.
No, lawyers sometimes will try and I'm a former lawyer, I'm very confident lawyer, I understand the lawyer's job.
But no, when we're negotiating
Most important thing.
is negotiating
Making sure we have catastrophic downside protection.
I need to make sure if Patrick was on the front page of the Wall Street Journal for doing something uh uncouth.
I need a way to separate.
That's important to me because that has risk.
I think the most important thing, especially doing your roll up.
Yeah, I think most of what it is.
What we have to do is create an environment and a structure so that
Not you.
But if someone else down the road or do something
We need a way to unwind that person. If you wear your shareholder hat as opposed to your individual hat, I think most of our partners get it.
Okay, now if I were to do something wrong, that'd be bad, but you can put yourself.
The hardest negotiation is that on my part. No, we've never had to dissolve, never had anything worse than three times our money.
But
I think the negotiation time where it ends up most often for us these days is
So I was negotiating for
a larger part of the upside.
That's where we end up pushing. We used to be we do an eight twenty deal, now it's being sixty forty or
Fifty five, forty five, and that's where a lot of the negotiation comes, but
End of the day.
We've referred in person. We're not fans of Zoom negotiation.
Oh, that's on the I say that's what we're gonna do.
Yes, I can.
write down on paper paper all the weird things happen in this world.
But if you trust me, go talk to these 25 references. I'll give you everyone we're partnering with.
Trust.
And if you look at those documents, we failed you. And so not saying we haven't unwell partnerships. People have not worked out. That's definitely happened.
But
On the negotiating side.
To me it's
Being very thoughtful.
about who you're partnering with in the big picture.
That's I think strategically. But I'm gonna get one level down more tactically. I think I made sure if you want our last phone call.
We have a system at ShortCamp, we call our green, yellow, red system.
Which basically for every material
Document.
in a transactional purchase agreement, an operating agreement, a credit agreement, an employment agreement, a lease.
There's roughly fifteen key terms.
On every
Document.
And we list all those out and we have a scoring system internally. And I'll use the simplest term.
not compete. Everyone knows a not compete and sell business as part of the transaction.
five years is market. That's what most time it is.
If it's four years, that's pretty, I think pro seller. Anything less than four years is really pro seller.
We've a very simple system back to why our teams can grow and people negotiate their own deals is it's a whole entire system that
Everyone in our firm knows
At least fifteen key points.
They know they'd agree to on their own and know they need to raise up the flagpole.
Everything for me is a function of price and terms.
I'm willing to pay you a billion dollars.
if it's a dollar a day for the next billion years. So whatever it may be. And so
On the negotiation part.
I like to figure out a way that
Strategically.
partners feel like they're part of our team for the beginning and they're negotiating.
not in their employee hat, but in their shareholder hat for the long term. And more tactically
I'll give our vice president's principals and partners the how need to negotiate their own deal.
I'd leave the very best people on a super long leash.
Appropriate check ins.
Give them that autonomy.
Read the rules.
Expectations and then
Give'em a scoring system they can give each other.
People love competing with each other.
And the best the light shined on them, and so that's what we try and do.
It's a fascinating set. I just love all the systems and how they all intermingle. If I was the m world's most
Skeptical but thought.
LP and I was looking at all this. I'm sure you've probably talked to this person, you probably picture somebody.
What do you think they would poke in on and say is the weak point of
shore in this whole like system of systems.
I think it's that
first time CEO, the early career energy, are there enough of them out there who are high enough quality that can scale up to the next level. And so I agree with that with that.
So we internally have
I like the homegrown.
And so we create this program now six years ago. We call our CXR program, where we recruit from the best business schools.
Stanford, Booth, Kellogg, Harvard, Wharton, Vanderbilt, Notre Dame.
Well our individuals that come to short capital, they'll be a chief of staff, they'll go to our portfolio companies for four or five years.
And if they're one of our very best, we'll promise to back them next.
And I think we have a unique
fun dynamic. I'd be lying to you if I said I'm putting a thirty one year old
as a CEO of a one point three billion dollar revenue business.
But my average business is 18 of revenue when I buy. I sure will make a 31 year old first time CEO if they performed well in the past. And so I think our biggest risk is.
The high quality talent want to run small businesses.
I think though there's a lot of makings to it. And so we home grow our CEOs through this program called our CHR program and we home grow our CFOs. We hire people out of big four accounting firms usually come to short capital for a 30 month tour of duty.
they go through this program and the best ones can become CFO. So conceptually how I think about it is they offset it.
by recruiting and home growing my own CEOs and CFOs. That is the risk of
Are you gonna trust?
For a roll up.
A CEO is forty one years old, first time. And one of the biggest challenges we get into a roll up.
And some reason that's not going so well, a CEO is wrong.
But it was a big pipeline district buying.
It's hard to unwind that and sort of again.
We've done before.
That is the biggest risk is that
You're doing a roll up, you change leadership, but that's
Why the strong board. So I'm someone steps off the board, becomes CEO.
I think that's where I would be if I was poking holes in my own firm is can you find enough CEOs and CFOs and leaders
I believe the answer is yes and we try to home grow them but also
As needed to grow our firm.
We have a system internally and kind of we're all Star Tracker.
Each company has its own
list our internally people we think our best in class and we'll use them again in the future. So how I think about it is
Talent wins.
But that talentless system.
I think the system was.
But the whole is
enough talent at the velocity that we're building businesses.
There's this great book called Innovation Stacking by one of the founders of Square, where the whole idea of Square's eventual moat was all these small things that are built on top of each other. And then the chain of innovation is itself. The competitive advantage sure really reminds me of this.
One thing that we haven't talked about in this theme of innovation stacking.
Is how to decide.
another fund vertical to go into. You have a real estate fund, for example, like
That's like a surprising thing.
Coming out of health care.
Maybe tell that story.
Why real estate and what is your philosophy of stacking unfair advantages and how to think about that as you build the firm.
I think stacking unfair advantages caught everything I think about. How do we have unfair advantages? So I view market cap.
all of our funds of healthcare, food and beverage, business services, industrials, that's its own product.
But real estate is a different product. And next year with a product healthcare advantage fund. I tell our LPs and I tell our team members at Short Capital.
I will only add a new product if two things are true.
Number one.
We have an unfair advantage.
Mean that.
Odds are tilted of success in our favor.
Because of the dynamics.
It helps the number two is help my base business.
So real estate.
So we have a real estate fund.
We were acquiring so many veterinary businesses.
No, I think no several hundred.
that we can always sell these packs and it was slowing down the deals, those causing problems for us. And so
We felt like there's an unfair advantage.
by I know the CEOs of my veterin companies quite well.
There's opportunity.
Where
They want to stay in a location for long term.
But the
underlying real estate is owned by the veterinarian.
And they oftentimes don't want to invest in that.
So how do we figure out a dynamic where
We know the location is great, underwind balancing the portfolio company is great. We have an unfair advantage of knowledge.
And
Specific knowledge of the location.
And then it helps my base business because
I can do things to help the base business to potentially lower the rent.
exchange for longer term on the release. So the lease becomes more valuable in the market ecosystem. You aggregate hundred of those together becomes a valuable asset.
Because more valuable to the
Veterinary company.
By having a
lower costs or more capital for
Tenant improvements. So it's a win win win scenario.
A portfolio company wins.
Because
They have more EBITDA or more capital spend.
The real estate fund wins.
Because
There's an opportunity to elongate the lease.
exchange for some things that creates a better value over time and

Low cost capital.
work in a more efficient way. So all parts of that make sense. So summarizing that would say we will only extend
Process short capital, two things are true.
We have unfair advantage helps a business.
And I know
having a real estate fund helped my base business on the acquisition and also online portfolio companies.
There's a current conflict. The conflict is not in the by, though, the conflict's in the lease.
And there's so many reads out there with public leases. We have them ourselves.
Just take the read that's out there.
use the lease from somebody else and just move it over and make the same terms. And so that's how we think about it. But the other products that we do in the future, but
I have to help my base business. I have to have an unfair advantage.
Talk mostly about
What you buy and what you do. We haven't talked about selling these businesses. Who do you sell to? What have you learned about the relationships with those sellers?
You're selling a product.
the product is a business to some financial or strategic buyer.
What are the features that they look for in a product and how do you think about that final part of the chain here?
So picking the actual buyer over 14 out of 14 sales, I never picked the right buyer, but
Private founding sure, what other private I can firm and partners have as well.
I hear my mind over and over again my old boss wanted to buy.
I can think what they used to say over and over again. And so how I think about it, it goes back to how we organized people say industry management company.
back the very beginning of the conversation on the industry, the roadmap.
industry is growing, and I think about industry growth of a fifteen year cycle.
Fifteen years gotta be my whole period, five years, my buyer's whole period, five years, my buyer's buyer.
Fifte your time period.
We sold to public companies, the lab core, Hulma, big public companies. We sold to the biggest of the biggest private equity funds, KKR, TA Associates. We sold to
Well private equity funds and we've done some teamation vehicles as well.
End of the day, I have high confidence in the following statement.
If I buy a business and
Growing industry.
That is
I'm buying an inefficient part of the market. We make it better. We grow it from single digit EBITDA.
to the teens to thirty B but
We will have lots of buyers, both strategic.
And financial sponsors.
So whether it's with a platform or an add on.
I think I like that situation. I like the investment we call barbell industries.
Mean there are
Usually four or five very large players.
And there are thousands of mom and pop, but not much that
I want to go create the new middle one.
And then larger players want to buy it. And so
And also say
larger funds wanna buy, which by the way, some of my investors are friends of mine who run quite large funds.
I hear it. I talked to them.
They wanna buy a business that's a proven track record of acquisitions.
organic growth that beats the industry average by at least three hundred basis points.
one technology stack system that all of business are on.
'Cause any of those three things we can acquire.
You can make them better.
I want technology system.
They can buy it from you as thirty bit doll and go to hundred. And so we're basically
With to say it's short capital.
We are building platforms, not buying platforms.
We like to think of ourselves a lot more like a venture capital firm.
And then the venture capital firms.
partner with a founder.
Great find as an idea.
But usually has no relatively small team.
And then the venture capital firm works with them hand in hand and helps.
Create a whole entire magic team.
We buy businesses like an orthodontics business.
Why one practice?
Literally one practice with one gentleman, one lady.
And we'll go hire a CEO, a CFO, head of business development.
We'll go build the whole entire platform.
And on this journey we'll have some mistakes along the way. We'll have added a lot of awesome people.
And when we're at scale.
We should be known uh
mill of the fairway for a fund that's supposed to deploy between uh fifty and three hundred million dollars for a platform, which is
A billion to three billion dollar fund. That's where we buy in
the buying environment.
the inventory that we're creating, I think, has strong demand.
So funny hear you describe all these elements that I'm just picturing this big effectively like a money machine.
the widgets themselves are companies and platforms and you're perfecting the factory, if you will.
What parts of the factory floor
Do you think our
interesting or surprising that we haven't talked about yet.
So I think it's our focus on operations, and so
Again, I'm not smart. I don't gotta copy I've got no first round capital, it's a venture capital firm. I got to know them a little bit and copy what they've done.
I think my factory floor
is what I call our operations team, we call our portfolio performance group and a group called the centers of excellence.
I buy businesses eighteen of rep with three Viva.
My marketing department.
The person who runs it is not somebody who's run a very large business.
What we do at Short Couple is we have a
Headers of Excellence, a gentleman named Adam Warder, he runs my
Marketing session of excellence. He's a team underneath him as well. His job is to be the node.
And for our forty three portfolio companies
His job is to create a cohort of the head of marketing from all 43 companies and they all
Four times a year get together.
Twice by a Zoom.
Twice in person.
Countless email interactions in between.
And this is my factory floor where
I call it lift and shift.
I am getting the newer companies
To where you need to go faster.
And my example of that would be
orthodox business.
It's a B to C
sort of marketing engine. No SEO marketing and sort of direct marketing to a customer for orthodontics.
Took us years to build a platform to get to the right system, process, metrics we use.
About a year ago he bought a med spot business.
The marketing is very similar. It's B to C as well.
And so
We lift and shift. Adam's job is to help recruit.
Take the incumbent marketing leader, work with them and throw the right person for long term great. If not.
over time work with the CEO to help top grade that individual.
But then lift and shift.
the systems and processes and tech stack from marketing and the orthodontics business and apply it to the Medzpa business.
Or apply to the veteran business.
There's so many different personas we have that things change a little bit, but the whole entire journey.
is I think some of the secret sauce and it's not replicable unless you hire the right people to do it. But to think whereas we have
billion dollar
company resources are flying to nine dollar companies.
And so an old named Julian Larimer is the leader of our division. She's a former private equity back CEO.
Incredibly talented. She runs the whole entire group.
roughly I think thirteen functional disciplines.
facility a senior management team from a Fortune five hundred company that work at Short Capital, and their job is to help every portfolio company in that discipline get better. A chief data officer, chief technology officer, head of human resources, head of talent.
All these people
help all four or three companies and elevate all of their games.
I think you told me that
This is a crazy stat if it's true that nobody above an associate level has ever left shore.
How have you made that happen?
A lot of people, a lot of years, a lot of companies.
Talking about career trajectory in the system there.
Two hundred and fifty full time people.
So if you're a vice president, a principal or partner, not one person has ever left short capital. But associates go to business school and then come back. VP, I think we have about forty
three or forty four people who are in that bucket, not one person's ever left. And
Well some of the philosophy behind it. So
I think a little bit of it is
Hard to be
thirty five year old look at the founder who's forty six and say, When do we have my chance?
I have the different verticals, healthcare, food and beverage, business services, industrials. My most talented healthcare
Vice Presidents
Went on to become a

business services fund and same thing industrial so it's a little bit of a waterfall where the
Homegrown talent moved to a new vertical.
My dad always taught me a couple of things about treating your people well, but he said two things, Justin.
Okay the market comp or a little bit above market comp.
And most importantly.
People don't quit their friends.
So my job is to create an environment where they come friends with each other.
And so that means holiday parties. It means we have things called a party when we sell business, we have celebrations.
It's important for I think leaders get to know each other's spouses.
And so
I think it's really investing your people because if I'm a seller of a business.
The thing I fear most if I'm a
friend who sold the business to private market firm.
I wanna drill in really carefully.
Who is the partner on my deal?
And who will be with me this journey.
Because there's turnover in those rings.
It's really hard and increasing draws a success.
So I think his core competency to private equity and for my business is to make sure that
People stay the same.
when they're partnering with a founder in a business. And so I guarantee you forever ever will be here the same way. The answer is no. It's not realistic forever, but for 15 years now, no one's ever left. And I think it's because people don't quit their friends. And my job is to create an environment where friends develop.
In a way that I feel really good about. And
I have financial upside and again I go back to a really long leash with appropriate check ins where goals, nerves, and goals oriented. People know their own goals, set their own goals, and they know when they're performing.
Yeah. I love the idea that I think you pay for people's dinner if they want to go out if there's three people or something like that. Like every little detail is so thoughtful.
Three or more want to go, didn't I pay for it?
One of our younger guys named Tim, I won't say his last name, but Tim, you know who you are. He had like a big build at a club one night. And he's like, There's three of us. And I was like, Tim, I'm paying for it this one time, but clarify point, if it's a bill over X dollars at a club, it doesn't count anymore. I love it. Oh, I think this is the
Everyone in the team loves the kid. He's a great young man and he's he's awesome. But I was like, he's meant for another club model service somewhere, and I'm not paying for that for everyone for the long term, but he follows rules and he's a culture carrier and I want to create nodes of culture carriers.
People who want to be here. It's a very high bargain of the Vice President though.
But it makes my president.
I'm basically telling you I view I'm saying to you.
I don't want you here for a career.
That's what I'm saying to you.
It's my job to get that environment they want to be here.
You obviously love sports. You have spent a lot of time thinking about
sports, the leagues, teams, you're now an owner. Talk about
Why you love this so much. And more importantly, everything you've learned about becoming an owner of major sports franchises.
Yeah, so no, my brother and I are best friends and we were fortunate enough to become the controlling owners of the Phoenix Suns about a year ago now. Um February closed, but we signed the contract in December last year. First of all, we're stewards of a community asset.
We don't own the team. No owns the team.
Offens.
The
X million people live in Phoenix. That's the all's attainment.
There's a lot of knowledge between private equity investing and sports and metrics and numbers, but
We buy a business, you know what we did, we partner with Phoenix Suns.
Yeah, it will work there.
The first day Matt and I met with every person at a town hall meeting, we all sent a survey out that said.
Tell me the two things that we should keep doing here.
That'd be stuff doing.
The all time is short capital, also.
And
We got of our three hundred employees roughly, we got two hundred and seventy some responses.
And I read every single response.
And I think it's important. This isn't the glamorous part of no partnering and running businesses, but the details. And you hear themes of the coffee sucks. Okay, that's easy win.
How do I make some easy wins on the way, but
The sports business.
It's a complicated business. I view sports and private be very similar.
There's a scoreboard in the gap.
And private equity takes 10 years for the score to flush out.
In the MBA, you can see tonight if we won, or we lost, but there's a lot of similarities, and I love that there's a zero sum game in sports.
Yes.
Only one champion.
Matt and I talk about all the time in thirty years from now.
We'll look back at no hopefully Mat and I've ownership and stewardship of the Phoenix Suns and the Phoenix Mercury is what we're really excited about Phoenix Mercury.
is that no one say, Oh, they improved even the Mars by four hundred basis points. No one's give a crap.
We're gonna want to know were they competitive and they win championships.
And the day we have four pillars, and like all our business short capital, it's goal oriented, it's values, it's core values, and so at the Phoenix Suns.
Number one.
Wanna create a raving fan experience.
It's gotta be an amazing fan experience. People forget it's not a sport, it's entertainment. These people have choices to spend their money at a movie theater.
at a driving range or the basketball game. Someone could have raving fan experience. Number two.
Take care of your voice.
On a place where it's a great place to work and people are happy and they want to be there.
Number three.
Or a community asset.
Give back to this community, be stewards of this community ass, and do right by this community number four.
win win championships to win everything we try and do. And so sports investing has become, I think, a bigger trend the last decade or so.
No, we're big fans of it. I don't think there's be more NBA teams in the near future. Maybe one or two, but beyond that, but there'll be
More people throughout America.
It's an intellectual property at its core.
As much like the highest and best type of real estate, the corner state made New York.
Phoenix Suns are going nowhere.
Things murky or going nowhere. And so
It's a fun opportunity and it's a really opportunity to give back to a community and
And hopefully create memories. Matt and I grew up playing sports.
My best memories were my mom and dad and I, Matt, going to games.
We didn't have the best seats in those days, but
our heartbeat was watching our Detroit Pistons win on this and uh hopefully create an environment like that. That's the fun part about sports. It's the platform for good and for change and create a lot of positivity. And so we're really excited about that.
Has anything surprised you so far about how
The league, the teams, the ownership.
The ownerships.
function and work.
Anything been
Really surprising.
It's much more of a partnership amongst thirty teams than I thought it was. Between the white wise, it's fierce.
Askable operations like no.
It's like no.
Some game.
But people are quite collaborative.
Some of the people you would know that are well known when we joined the league that said next to one of the guys at launch and he said, Congratulations, you're brass, you're young. I was the same thing. You'll make a bunch of mistakes, talking in five years, but have fun on the journey. So people were very helpful.
the other day we want to create a great product for the fan and MBA is a
Great opportunity.
and the other teams want to help each other.
Wanna help each other, I want
Your seam to be full, my seam to full. And no, I want to quote unquote lose is I want the other sports, or I want other entertainment options to lose to the benefit of the NBA.
But I think the camaraderie and the
Well is to help each other, I think has been something not just in the game, not just in sport, but also outside. If I'm doing something in a different sh community, you know I'm in
Oakland for something and meet somebody they
able to open a door to somebody, that's been really helpful along the way also.
You talked about Mark Leonard before and
You're just like a benchmarker. You remind me of Mitch Rails, who
facing any new challenge. Interestingly also doing this exercise with the commanders right now. If it's about the stadium, he's meeting with 30 stadium owners and stadium operators. If it's about something else, he's benchmarking constantly looking for great ideas.
And it seems like you've done that.
Who apart from Mark
stands out as key
individual people or firms that you've learned from.
Well certain people.
Suite capital.
They've been great to me.
If it was over there.
They're different.
square heritage, no more specifically, there's a group they have a
network and I've learned from them of the power of a network and introducing really talented people to each other.
People with
Professional success.
I'm very selected about use our time.
Creating an environment of bringing the best and brightest together, I think creates a lot of opportunity for success and unique outcomes.
So I think some of the people over there, Kevin Kelly is one that keeps Johnson too, that stand out a whole bunch.
More specifically in the private economy, one individual who I've learned a ton from a mentor of mine, his name's Kent Dotton. He's the founder of Keystone Capital.
He is in my opinion.
amongst the most humble and successful people ever come across.
It's a steady hand on the wheel and do the right thing over and over again.
Also a gentleman named Jim Forrest, who was at Wind Point Partners for a number of years.
He is now the chairman of Short Capital.
He is an operations leader at heart.
He's always thinking about the customer, the customer, the customer.
Mark Leonard have been a great friend for me and
I've learned a ton from how he thinks about growing businesses and
How he thinks about having a very disciplined process.
Um
And then there's a professor at uh Harvard Business School for executive education, there wrote a school there named Boris Croysbury, I've learned a ton from as well, on processing. He
studies Mitch and other people in the DBS community and I think
She's a big one business that I aspire to be most like and consistent process is done her.
There are people Donaher leaders who are on the boards of my businesses. I've recruited people from Donaher who are retired to be on our boards. And so
different people
I think that
End of the day.
You have to find your own niche of individuals.
Who
Wanna support
Your vision.
And wanna be around the table and
have a good heart that want to help.
People help me on the way up.
And help me and I wanna be able to do that to others as well.
My guess is that you're effectively never satisfied with the system. It's obviously evolved a lot. It keeps improving.
Where does it feel the most incomplete to you today?
How do you most want it to improve over the next five years?
Most incomplete, I think you're never complete.
at the short capital level and operations.
I get frustrated when I hire a new team member.
And their first two weeks.
on the job.
They're
Ten business days aren't scripted almost by the hour.
They need to know where to go. The onboarding experience. I'm very much into experience and process, making sure when we've made a mistake somewhere else.
It's prom against the whole entire team. And so
do a thing called what we learn every time we close a platform.
We do a one or two page on what we learned and we share the whole entire firm.
How do you balance
A scale.
Efficiencies and knowledge sharing.
That's the hardest thing I do every single week, trying to balance those things. It is more efficient for very small people who know things.
but it's way more valuable for knowledge sharing.
I didn't think of short capital like a
academic teaching hospital.
Майоб істоті.
Our principals, vice presidents and partners.
all the mistakes we've made elsewhere. And so I think the biggest challenge is
It made mistakes.
Not making the same mistake twice.
documenting it and making sure that's front and center.
I mean the system around it. So
We have a short capital playbook on the operating things. Like, for example, we made mistakes in the past where we did not renew a lease at a portfolio of the company at an important location and the landlord extracted a pound of flesh out of us after the fact.
What did that fact is now all of our businesses are required to have a thing called least query. I don't care if the system was called least query, and all of our leases of all the data points in the system to make sure we never have that mistake happen again. So there's prompting. And so
I think
The biggest way to improve the organization, I think, is hiring more and more accountable people, getting tighter and tighter on processes, making it incredibly clear and reducing the likelihood of making the same mistake twice.
I say all the time in short capital, very rarely is there a problem of first impression.
When you have
thirty five thousand team members and you have a hundred locations and you have
Every day things are occurring.
The same mistake can't happen twice.
How do we reduce the risk of that? And that's through knowledge sharing, but doing it in an efficient way.
Is there anything about how you spend your personal time?
that you wish was different.
I wish there was
More time, I always say, to work with sellers.
I've not been a deal in short capital in seven or eight years now. I miss some of that relationship with building with sellers. Those early as a short capital, the board members I personally recruited, I was one of four partners.
And I was the lead partner on one of those early deals.
As the firm gets bigger, my job is to run short capital.
And give people resources they need and remove obstacles for the system and the whole organization.
But you kind of miss the newer boards that created a lot of great people, some really talented people, and just don't know them the same way as those early boards. It's almost like high school buddies.
You know them better than your work buddies. Not that you don't like work buddies. I like them a whole bunch.
It's just that my high school have a little special place in my heart. And so leading a deal, negotiating a deal.
working with a founder.
Recruiting a CEO.
I do less that.
That's coming to the very end of it.
But no, I do miss
One of the best questions I think that uh LP has ever asked me.
And if I was an LP, I'd ask people the same question.
Do you think you're a better investor?
Or better manager.
And why?
I think at least for me.
The right answer for short capital.
Yeah.
I have to bet a manager.
I love investing. I love buying companies.
But to create what we wanna create and build and our system grow. We want our system to grow.
It's a manager. You're a leader of people. You're imagined system and processes that create.
Increase the likelihood of success.
of many things at once as opposed to
Very effectively one deal.
But that is not going to create the same value for our investors and for our team members. And so I think it's my job to create an environment of
I was seeing one, do one, teach one.
and not let our best people do things that they've seen done before.
I would very eagerly read a long white paper or HPS case study or book about all these various systems. I'm really
thankful for your willingness to share the very specific details of so much of what's behind shore.
Most firms are not willing to do that. And I think it's pretty cool that you've done it here today.
I am sad and forced to go to my traditional closing question. I could go for you, you know, on this system for hours and hours with you.
What is the kindest thing that anyone's ever done for you?
That's a great question. I've heard you ask it before.
You know, I was fortunate to have lots of mentors and different people in my life who made a really big and positive impact on me, but one I think actual piece of advice someone gave me an eye back to in the last decade for sure, and I'm proud of when I telephoned to some people that work in my organization was advice is this.
Try and have one friend in each decade of life.
So friend of the thirties, friend of their twenties, friend of their forties, fifties, sixties and seventies.
Um
The idea behind it is you truly have a friend in each second of life. When you go to those moments in time, you actually call upon them for their wisdom, their experiences. And whether it's not losing a loved one, a mom or a dad, it happens most often your fifties or so or sixties.
Or if you end up having, you know, a child, that often happens most often in your twenties and thirties.
But it's a really great piece of advice that
On the personal side helped me a ton.
Well professional side.
Things you go through and experiences you have.
in your seventies and you're winding down your career, the emotions that you may be going through and friends have shared with me things along the lines of,
All my peers aren't working anymore.
Or
really hard to try and go get new business.
And
promise some be helpful when they're kinda going, Are you gonna be around here in five years?
Yeah, so some changes that you know coming for me, at least I'm forty six. I'm hearing that in twenty five years, that could be a possibility, aware of that fact pattern, how to prepare myself best for it. And so
Having a friend at each second of life is something that I focus on.
And it's created great value for me and I help others find it.
Justin, you built a uh fascinating business. I'm excited to do this again in five or ten years and see how it's all unfolded. Thanks so much for your time.
Thank you so much. I hope you want to do it again in the future. I like to think we're inning two of Shore Capital. You build an amazing podcast and following. So thank you for the opportunity to share our story. Thanks for your time today.
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