Brent Beshore: Business Brilliance and Happiness at Home

Transcript from https://podmenti.com/t/9ee8a5d3f606aa1e

All investing at the end of the day is the assumption of risk. The ideal investment scenario is you are assuming
A risk that is knowable, you are being paid.
More than
To assume that risk and you have some ability to mitigate that risk. So we all
have three basic moves in conflict. It's called Move Against.
Which is like
The the second one is
And then the third one's
And so if you watch, all of your conflict will follow that pattern. Let's talk about incentives. How do you set incentives for the CEOs? The I think the ideal system is what have you learned about hiring people that most people miss? I think that's probably been the biggest leap forward. What most people get wrong is most people
Don't understand. What's the playbook?
When you take over a company.
So we are um
Welcome to the Knowledge Podcast. I'm your host, Shane Parrish.
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My guest today is Brent Bashore.
Brent is the founder and CEO of Permanent Equity, a private equity firm that buys and grows boring businesses.
And by boring, I mean the kind of businesses that most people overlook, but that are essential to making the world go round.
Some of his companies include Ace Fence, the largest residential fencing company in Texas.
Chance rides the leading amusement ride manufacturing company in the United States.
And Pacific Air, which has one of the aerospace industry's largest selection of on hand inventory.
I first met Brent about ten years ago now, and we became friends right away.
I've met a lot of people in my life and I remember flying home after the first time we met, thinking how incredibly special he was.
After this conversation when Brent was flying home, I felt so grateful that that chance encounter had turned into a great friendship.
Not only does Brent love the details, he can talk about any company they own
or their competitors at the fifty thousand foot level or the one inch level.
But he's also one of the most thoughtful and kind people I've ever met. He's bigger on the inside than the outside.
Well this conversation is one
Continuous episode, it comes in two distinct parts. The first part is about life, and the second part is about business, and his wisdom is equally profound in both.
We discussed the small changes and mindset shifts he's made that have had a profound impact on his personal life.
And about forty five minutes in, we switched to business.
We cover operating out of abundance and what that means, why longevity matters, why debt is not a source of return, why not having debt is actually a strong signal of a good business.
What it means to own a business, incentives, his first deal.
Taking outside capital, the advantages of personality testing, and so much more.
In a world where everyone is chasing the next big thing.
Brent is focused on finding value in the overlooked and underappreciated.
And that's a lesson we could all learn from.
It's time.
To listen.
And learn.

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What's changed in your life in the past two years?
I would say my marriage has changed a lot. My inner life has changed a lot.
Like
physical outer life has changed a lot.
Ironically, the business has not changed.
A lot.
It's been interesting how the different seasons
Do and don't overlap.
But there's been a lot of changes about how I approach work that have changed, but the actual work itself has not changed. Let's dive into that. What's changed in your marriage? What's changed in your exercise? Well let's tackle exercise first.
Yeah, well I I think maybe all of it is um
Is connected to to a walk I went on.
Gosh, I'm probably pushing now three years ago.
And
Um, there's a gentleman on this walk who was at it like a small gathering of people in Colorado. He kinda picked me out, it was, you know, like forty or fifty people in the crowd and and afterwards he said, Hey, hey, can I
I'm going to walk with you.
I was like, sure. And he said, Hey, can I speak truth into your life?
And he said
I see a lot of shame in you. I see a lot of fear in you. And I worry that that's
Dramatically negative impacting
a lot of your relationships. It was more in depth than that. I mean, he we we we we talked for, you know, another probably twenty, thirty minutes about what he saw. And I just try to take a posture. I mean, initially when somebody says something like that to you, like cuts you, right?
Yeah. How dare you?
I have great relationships, you know. You've known me for a long time now. We were talking about this at least ten years, if not more. Yeah. And you know, I wouldn't have said
six or seven years ago that I had bad relationships. Yeah. I would have said I had really good relationships. Um, if you'd asked me how my marriage was five years ago, I would have said
Oh, I guess six or seven, you know.
We have our challenges, but like
We get along and
you know, compare to where it is today.
I would say it was like a
Like a two.
I just didn't know. You know, I think about this idea of, you know, everything's relative. So like world class is the best you've ever seen. You know, you ask somebody who's only eaten at fast food, what's their favorite restaurant in the world, they're gonna tell you fast food restaurant, right?
Um, so you know the question we have to ask ourselves is like
Nice.
What do we have to compare it to? And are we talking about relative or in absolute terms?
And to be honest, I don't think I had been exposed.
Three years ago to what was
possible in relationships or what was possible in marriages. Like I had not seen marriages where I was like I was comparing my marriage to what I'd seen in other marriages. And I felt like we were doing fine. Like we were probably right in the
Middle of the ballpark. I think what this person did for me
was open my eyes to like there was a lot more out there. There's a lot more possibilities that I that I didn't
No, that was like a seminal moment of like
A warning shot across the bow.
of oh my gosh, like
I need to probably go and look and study like
Who am I? What makes great friendships? What am I giving to my relationships? How do I think about my marriage? And like what am I doing in my marriage? And like
How how should it be?
And am I willing to settle
for an interior life filled with anxiety and shame and fear? Am I willing to settle for a marriage where things are being hidden and and there's disconnection and
Division, right?
Um, am I willing to settle for friendships that that maybe uh don't go that last 10% and uh create that really meaningful deep connection? Am I willing to settle for a physical body?
that is overweight and out of shape and and likely gonna become diseased. And so I think that was a you know that was a major moment. And then that led into, you know, really finding finding these different people who have who've shaped and changed my life, including a incredible counselor who I started working with.
And bringing to the surface a lot of these issues that I didn't even know were there. Yeah. I mean, I look back on the person I was even three years ago and I I was certainly far better than I was ten years prior, but I was compared to sort of where I was now, I felt very shut down.
And
frustrated and irritable and
And competitive and I feel a lot of those things myself.
in terms of competitive and you know, maybe a bit more anxious than I should be. What was the next step that you took?
in this journey that sort of like, Okay, well I realize something, I feel it.
Now what?
I don't want to sit here and pretend this like self reliance is the thing that got me through.
this period of my life because it felt like it happened to me.
And it happened for me.
It didn't feel like that I somehow
figured out like outsmarted.
the world outsmarted my
Shame and fear.
It felt like I had these sort of people be put into my life and these revelations that started to occur.
That
All of a sudden, I mean th I think there's a there's an old adage that like when the student is ready, the teacher appears, right? And I think there's very much there's a choice I had to make.
Three years ago.
It was like am I going to pretend
Like I
Like everything's fine. Cause that's what everything in me, that's what my false self
Wanted to do.
No, screw you, you're wrong.
You don't know what you're talking about. Who are you? You just met me.
You can't you don't know you don't know me. You don't know anything about me.
And it was like I I remember having this very distinct choice to make.
And I remember being like
If I if I continue on the path that I'm on that would have denied
You know, it's just sort of this idea of like self promotion and self protection, right? That's what that's what our false self wants us to do. Go around self promote, self protect,'cause then we don't have to really be vulnerable. Um now we also are shut down. We can't have great relationships. We can't, um
figure out the real sort of us that comes through. But that was the choice. And and I I remember kind of it was an act of surrender of being like,
I have to take the risk that I'm gonna take a look at myself and I'm not gonna like myself very much. I'm gonna I'm gonna admit things to myself that that are
ugly and that I've done more wrong, maybe, than I'm willing to admit.
And that I've hurt people.
that I care about. That was the choice that I had to make and I and and
I remember very clearly saying, Okay, I you know, I surrender and I wanna know.
And then things started to change ever so slowly. I mean there's a a weird dip that occurs, I feel like when you you know
When you go from denial to
Um
Awareness.
Um it's
That's actually way worse.
So like the awareness of your
Faults.
And awareness of your shortcomings.
Without the healing of those.
He's actually put you in a
far worse position.
And so I would say that you know, that sort of the period of time from three years ago to two years ago
was horrible.
Like it was a it was not a it was not a year of joy. In fact, if anything, it felt like harder. My relationships felt m more strained.
And I think it was because I was becoming acutely aware of how broken they were as as a result mostly as a result of me. I mean, yes, other people's brokenness too, mostly a result of me, but I didn't have any healing in it. I didn't know how to get healing.
Um and
You know, that season was just an awareness building season.
I looking back on that. But it's awful. If you if you gain awareness without healing, it's way worse than not being aware.
Give me an example of
um something that's changed in your friendships. We were talking about one last night. Actually that's a perfect one.
uh where you always want to pay the bill.
Yeah.
Talk to me about that and the the revelation behind it.
And how it came about.
Let's see here, about two years ago, maybe a little less than two years ago, I had a friend who was going through some really tough times.
and uh personally, professionally and
A mentor of his said, Hey, you gotta go to this gotta go to this intensive
Counseling retreat.
And he kinda reluctantly this he's not a touchy feely
Uh, he's a finance guy.
You know, he's he's not a doesn't
He's not voodoo. Yeah, this is not exactly this isn't the ooey gooey squishy stuff is not is not his his ball game.
And I watched him go into that hard.
And hardened and just sort of like
Shut down, shut off, um
Again, very
Protective.
Self protective.
And he came out of that week.
Like changed.
Like distinctively different.
And I remember thinking myself like
Wow, I don't know what happened there. That's incredible. He'd worked with this woman uh the whole week and he was like, You changed my life. Like this is incredible. Like how, you know, first of all, like,
never be able to repay you. Thank you. You know, I was like I don't know anything about you. Who are you?
And she said, Uh, I've got you know, I've got these kids and whatever, I and I live in Columbia, Missouri. And he's Columbia, Missouri, what
He said one of my best friends lives in Columbia, Missouri.
I live in Clifford, Missouri.
And so he said, Brett, I'm I'm telling you, like you have to go.
see this person. And it was right around this time that I felt like I hit rock bottom in my awareness of like my own brokenness.
And like how
I didn't really see
A path forward.
Like I kept like
sitting in
This
dismal state where you're like aware of
How
messy everything is, but there's no way to clean it up.
And all the self help stuff, like
None of it works. Like at least for me. Like I I can only speak I'm an I'm a N of one here, but like
You know, this self reliant thing doesn't doesn't work. And so he said, Hey, you I think you should meet with her. And I was like, Man, this is
A true Godson. Like I had no idea.
That somebody of that
caliber national international quality caliber was in Columbia, Missouri. I started
going to her and doing these three hour sessions and dredging up things I didn't even know was there, um, that were all connected to the behaviors. If you if you think about like the way that I I think about it now, is like we have these we have these behaviors that other people can see and that we can kind of measure, right? Am I doing good or am I not doing good?
Um, the reality is there's so many layers underneath that though.
that are influencing that behavior, right? Like, oh
Something terrible happened.
And I really don't feel anything.
That's weird.
Right, or something very small happened and I'm triggered into this like spiral.
That's weird.
And what I would do in the past is I would just kind of like shove it down.
Right? Like I don't know.
I'll get it.
But life's weird and
Whatever. Gotta go on. Yeah, you gotta go on. And so anyway, through this series of of sessions, and I mean I've done
A lot now, like probably twenty five or thirty of these now. Three hour session, so a lot of time. We got down to one of the sessions. It was actually probably about
four or five months ago, out of the blue, kinda f seemingly unconnected. And we were talking about friendship.
And my counselor said, Do you always pay?
And I said.
Yeah, of course I always pay.
She was like hmm.
I got to the last.
hundred times that you shared a meal with somebody, how many times did you pay? And I was like,
Like a hundred.
And she kinda sat back and I was kinda proud of myself, right? Like
I'm a good person. I pay for the bill. I care about people, right? This is like the thing I told myself in my head. I do the exact same thing.
Yeah.
And and by the way, those those motivations are I think
real and true. They are bad. But she said, Yeah, I wouldn't be your friend.
And I remember just being rocked by it. Like w you wouldn't be my friend, she goes. I was like w what
Why? It like totally broke my paradigms.
And she said because
In a friendship, in a real relationship.
You cede control to the other person, the other person can cedes control to you. It's not you're always controlling.
The whole point of a friendship is that you can trust and you can be vulnerable and you can seed control. And so paying the bill is just merely just a form of control that you're exerting over your friends.
And I remember
Oh crap.
Hm absolutely right. And she goes, Yeah, and I'm
I suspect it's not just paying the bill.
You like to have your environment. You like to have your way of doing things.
I was like, yeah, I do force a lot of relationships. Again, this is only like five months ago, right? I force a lot of relationships into these
boxes where it's like I want you to be in my box. I tell myself, because I can provide great hospitality or because I can do do these interesting things, right? And I'm caring for them well. And and and genuinely sometimes, and I suspect the same for you, like
Those are real motivations, but we are this mixed bag.
And I think that's what I realized is like
We we hook the good and the bad together and then we do things that come off to other people very differently and confuse and
frustrate and constrained. And it's really hard for somebody to be frustrated
It's at a friend who's always buying them.
lunch or dinner or whatever it might be.
So what it does is it builds up
Resentment and frustration in the other, and they don't even understand, right? Like we're all we're all confused. It's very hard to see ourselves clearly. We can see each other clearly, right?
We can't see ourselves clearly. Um, I think that we're designed like that because we're designed for relationship. Like we need one another. No one is an island.
Yeah. No one is self reliant.
Right. We need one another. So how do you handle dinner now?
So what I say.
Only if I mean it.
by the way, um sometimes I don't say this, um, but if I don't mean it, I won't say it now. I I say
It would give me great pleasure.
I would enjoy being able to buy dinner tonight. But
If you
Don't want me to buy dinner. I will respect your choice.
I give them the choice.
And sometimes.
I buy dinner and sometimes I don't.
But if they say no.
I wanna buy dinner tonight.
I say.
Okay.
Thank you.
And the key there is they have agency now. They have agency.
And so the resentment doesn't build even unconsciously. Correct. In in kind of psychology circles, there's this idea of a of a triangle.
Where you have a a victim
And a hero.
And like a judge or a a prosecutor.
Um and
And heroes.
are those who are without knowing the good like the they they tell themselves that they want to do good for other people.
And what they're really doing, and and by the way, I I relate very strongly to this. This is this is
a lot of action that I see myself having done and do is to cover up my own shame and insecurities and and sort of to
to push down the pain that I feel. It's like, well I'm gonna go external and go try to help somebody almost against their will. Like they didn't ask me to help, or if they did ask me to help,
My response to them is so outsized.
that it removes agency from them.
And so buying dinner is like a very small example of this. And I've got, you know
Unfortunately a lot of bigger examples of this. You know, I probably
I probably have really engaged in I would say dramatic heroics.
Five or six times in my life.
where I perceived somebody was in grave danger.
Um
They needed my help.
And I sprung into action and did this dramatic
thing for this other person.
And
you know, in my head the thing I'm gonna get is oh
Thank you so much, Brent. You're amazing. I'm so grateful for you. Now if you hear even the thoughts in my head, it's all about me.
So it's actually not about the other person.
Yes, I can justify it be based on the other person, but but really it's about me. Yeah. Five out of five or five you know, six out of six times.
It has been
met with initial
Oh man, thank you so much. Like this is incredible. Wow, I'm like blown away at your generosity. And I'm like, oh, got all the good feelings and
Uh and then I end up
Not having a very good relationship with th those people.
And it shocks me. And it almost feels like a slap in the face, like
How could they how could they
Do that. How could they
not be better friends with me as a result of this.
And then when I started
doing these sessions and started working with her, um it became clear that's like, oh, heroes create victims.
Because you're removing all agency from them.
And you are telling them that they can't
Help themselves, that they are helpless.
And
When you do that.
y you are creating somebody who who is diminished.
And insulted.
And now now again, in the moment, that's not how it feels.
But that's where we we're constantly chewing on and assessing our environments. A great example of this, and this is not a a close personal relationship. I remember my wife and I one Christmas, um
We had a public school teacher who we knew and gotten to be friends with and
Um, we were kind of sitting around the dinner table one night and and she was sharing, she's like, Yeah, it's heartbreaking. She's like, You know, these kids around Christmas that I work with in this particularly poor school district.
You know, they don't have any Christmas presents. They don't need Christmas.
Like there's no joy.
And it really like touched my
Why should I?
We're like wow, like
What if we did this dramatic act and anonymously, of course.
We bought like
thirty thousand dollars worth of Christmas gifts for like every kid.
In that school.
And in our heads we were like, This is amazing. This is wonderful.
Um, these kids, you know, you can imagine the kids who are like, Oh, we wouldn't have had Christmas, but now we have Christmas and wow, somebody cares for us and loves us. Like that's what we were hoping to have.
Done.
And
And so we did it.
And the response from

you know, small group people that knew about it was like, this is incredible. You all are so generous. You know, Pat Pat on the back. We're feeling great. We're in the we're in the Christmas spirit. Oh, what joy, you know, all this stuff. And then it was about a month later and I I followed up with um the teacher and I was just like hey how did that how did that go?
And she was like
It was really good. You know, everyone was like grateful, you know, whatever. There's a few people who
Who had some challenges.
And I was like
Had challenges with us giving
Giving gifts? She said, Well
Some of the parents of the kids
Oh felt.
Felt really insulted by it.
And then it like hit me and I even like mean I'm trying not to get emotional about it. It it like it hit it cut me so deeply'cause I realized what I've done.
But we had done, my wife and I had done.
We had
Taken away the dignity.
Of those families.
And yeah, they couldn't buy their kids Christmas gifts, but they were gonna do something for them.
Whatever they could do for them.
And instead.
Like any kid, you you give a kid a present. Kid's like amazing, you know. But then it started asking all kinds of questions. Well, why can't you buy me that present?
Do you not love me?
Why do these other people care more for me than you do?
Kids don't understand how money works. They don't understand how
Some people have more and some people have less. They don't understand ab anything about that.
And so what I'd inadvertently done
When I was trying to be kind and generous.
was I didn't put myself in the position to understand what the the real consequences were gonna be, the second, third order consequences. Yeah, a kid would have had, you know, less toys to play with at Christmas.
That's not the point of Christmas. I missed I miss the plot.
The point of Christmas is to show love and care.
And
In doing what I did, I short circuited the ability for those families to experience love and care.
And I hurt them.
There's a great book out there called When Helping Hurts.
And it
afterwards actually somebody gave it to me and I read it and I mean you talk about being cut deeply.
It's a book about
When you try to help and it hurts people.
Um, it's one of the one of the best books I've ever read on sort of philanthropy and and how to think about
um caring for those who you don't have a relationship with. And I think that's the bottom line is like
It all comes down to we we can't go wrong if we're
In deep relationship with somebody.
And we are respecting what their needs are.
Um where if somebody asks me for help, you're not a hero if somebody asks you for help and you rise to meet the need.
That's called being a good friend.
Where you become a hero and you create victims.
Is when you
Don't know somebody, don't know their needs.
Um
They never asked you to do something.
And you rise to meet a neat they don't have, and in in turn you take away agency and dignity from them.
So it's things like that that I mean, these are these are deep waters, right? These are things that are challenging.
Stuff that we don't talk about a lot. But this is the stuff that I've like
It's been a joy and it's been
awful in some ways to explore the stuff in me and to see how
Frequently I am
engaging in this maladaptive behavior under the name of goodness and virtue and all these things that we tell ourselves. Yeah, the story we tell ourselves to justify sort of what we're doing'cause we want to be the hero in a way. Unconsciously in a lot of ways, right? Like we're not consciously trying to save somebody. We see a friend in need and then we we want to jump in and help them.
When's the last time you asked somebody for help?
Uh this morning.
I'm asking, I'm I'm learning this is a new learned behavior though.
Um'cause in all the years I've known you, this is like this is different recently. This is different. I um
Yeah, I would I would always be the one who
would be eager to help, but rarely ask for help.
And again, that that that destroys relationships. There's not just there's no way to have a real relationship with somebody unless it's bi directional.
It can't be
You helping somebody and never needing help.
'Cause then again, it's the exact same principle.
you're creating sort of a a hero victim dynamics, the power dynamics in any relationship are super sensitive.
And where we have best relationships where we're on equal footing.
different but equal, right? So um I always think about it as like, you know
uh the X Men or whatever, you know, you have everyone's got different powers, but everyone can like fight the battles together.
Right. Um, and you respect the other's opinion.
Right, you respect the other person's skills and talents. But if somebody is always the one who can shoot laser beams and, you know, blow stuff up and make stuff happen, and the other person is just, Oh, thank you, I appreciate that.
Thank you for helping me.
It's not a real friendship.
I had never thought about any of this until dinner last night with you.
And I stayed up late last night just going over all the different ways that I I do this in my own life.
with my friends from you know um
always offering like not even offering to pay for dinner. It's like
I'll race up to the waiter and you know, while everybody's sitting down to go to the bathroom to make sure that I
And I had re like I was just p replaying this stuff in my head, going like, Oh my God.
This is crazy. Yeah, I went on an apology tour after I had that realization to a lot of people.
And I said.
Hey, I'm really sorry I did this to you.
And of course people are kinda caught off guard'cause I don't even think they realize it.
But when I said it to him, they were like.
Yeah.
Thank you.
And so now like my close friends
Like I
We have this understanding and and oftentimes I still am able to buy lunch or dinner or whatever. Right.
Because I enjoy it and they know I enjoy. Like I love hospitality.
I love the the to be a provision and provide care for people. It's like a core part of my personality. But sometimes they say
Thank you but no thank you.
And you know what? I feel super loved in that.
I feel super loved. So I so the the the cool part is before
I didn't feel love.
Either way.
If somebody else bought
a meal, I would feel frustrated and sort of irritable about it. And I they took something away from me. Right.
And if I'm how everybody else feels when you do it in a way, Right. Exactly. And vice versa, right? If I did buy the meal, it was a little bit like
You start playing with ideas in your head, Oh, am I only a checkbook?
Mm. Do people really like me? And it's like well
You're the one who insisted on buying dinner and you're like, Well, but the other person could have insisted on buying dinner more, you know? Oh you start getting into this like weird psychology. Right. The old alligator arms, you know? Um
And so now
It's like the inverse of that. And I think this is like a like a good metaphor for life. Like
I think that
The the more that I meet what I would call elders, so there's a difference between elders and elderly.
Elderly or like
self-focused, incurved, Bla Blaze Pascal would call it in curvature, right? They're incurved on themselves. Um, they're irritable. It's all life is all about them and what they need and they're scared and fearful. And you got elders who are the inverse of this, right? Who are outwardly focused, right? The more I meet these types of elders that are like genuinely caring and loving,
The more that I see them exhibiting this type of behavior.
The more that I see them
Like
No matter their circumstance.
In good circumstances or in bad circumstances, they live with a joy and a lightness and a freedom. And then you see Elder Lee.
And sort of now I can pull it back and see in my life that like no matter my circumstances.
Like I'm living in fear and shame and and hiding.
And so it's like I think that's the that's the the thing that we're really talking about here is like these are all even like
Maybe the second tier down or the third tier down, like at the at the basement of all this stuff, at the very core of all this stuff is there are really only two ways to live.
You're going to live out of fear.
Or you're gonna live out of genuine love and care for others.
And
Love and care for yourself. And like that's it. Like everything else rises between those two. Like
Like fear driven is scarce.
It is the way of the world. It is uh
Um
uh a famous author in the seventies uh she said that the that nature is red in tooth and claw.
Right? It's like this idea that's like there there's nothing but
You're either gonna be
A predator or you're gonna be prey?
Everything is a battle. Everything's a battle.
Everything's about com competition.
Right.
And and believe me, like that's when I am at my worst, that's who I am. And by the way, the world loves my false self. The world loves that fear driven self. I can get an extraordinarily
Incredible amount done.
In that time. Uh a friend of mine calls it clean fuel versus dirty fuel. Like it's very difficult to see.
Like the car looks like the car from the outside, very difficult to understand.
Is it clean fuel or dirty fuel that's operating the car?
And I can I mean that car can go fast. It can take a lot of people with it.
If I'm on dirty fuel. In some ways, dirty fuel is a
For me, uh, I'd learned through my life to be it's it's a it's a more potent fuel in the short term for me.
Like I I get more stuff done.
Quicker.
And usually even sometimes with higher excellence out of dirty fuel than I do clean fuel. That fear is like a tech of a octane almost. It's higher octane. The problem is it's got all kinds of contaminants in it, and you eventually like torch yourself and the car breaks down and you
go off the rails and blow yourself up, whatever analogy you want to use.
And so getting back to the original question, like what's changed, like I think that
More and more I'm trying to operate on clean fuel. I'm trying to be
self unconcerned, I'm trying to become an elder.
I think people listening resonate a lot with this.
So I'm curious what other ways
You found yourself
subtly controlling your relationships, whether it be your marriage or your friends.
Uh the paying is an example, but I'm sure you've got other ones.
You get older and you get better at hiding your motivations, right? And you end up wrapping them sometimes consciously, sometimes unconsciously, in
These maybe good packages.
But the reality was it was like
I was
Demanding control. I was demanding
care. I was demanding people to see me and sort of praise me. And so
How do I do that on a daily basis? It was um and and by the way, this is not like it's a
victory declared or whatever. I mean, this is this is like an ongoing battle, I would say, on an hour by hour, minute by minute basis, is I can tell
So quickly am I operating out of fear or love.
And the test is do I have peace or not?
Am I anxious or not?
Mm-hmm
When I'm anxious and fearful.
And when I'm
I you know, I have a tendency to catastrophize the future.
And always be running down all these different rabbit holes of what ifs might happen. And I haven't uh I've been given uh an incredible capacity to do that, which makes me
Like my day job as an investor.
It's really useful because I can run down a tremendous number of scenarios.
My personal life, it's terrible.
And I I I hate it.
Um it's the dark side of creativity.
Right. When you have vision and creativity, you can envision a future.
That is beautiful and bright and loving and wonderful, or you can envision a terrible future, dystopian future.
And so
Yeah, I mean uh examples of this. I mean, I would go into meetings and I would I would need to take over the meeting.
To get praise.
Hm and by the way

I've been given a gift.
to be able to say things and think quickly on my feet that people
genuinely were praising me. It's not like I hope. I mean
No one's perfect, but like I we create an organization of permanent equity that's
Like very um
Kindly confrontational about.
ideas. Like we want to be
uh we we want a lot of friction. And so I the last thing in the world I want to do is create an organization of yes men or yes women, right? Like
we we want divergent thinking. We want a lot of uh variety. And so I I don't think that they were doing it because it was like
Oh boss, you're so good. You know, that type of like
You know, sycophant type type thing. I think it was genuinely like
In my false self.
When I'm really charged up.
Like I have a capacity to envision a future that a lot of people like.
I know internally though.
My my vision of that future.
is really driving
Maj to be liked, my need to be respected, my need to be praised.
And so
Mm.
And I would I would have this high anxiety in these meetings, right? And then I'd get out of them and it's like I mean, I'm so wired up.
Hm I so much cortisol in my system.
'Cause I craved that. I needed that. That was like my sort of my drug of choice in that in that setting, to the degree that I almost lost my right eye as a result of excess cortisol in my system. And that's how
stressed and I wasn't stressed in the sense of
mean yes, like what I've call normal stresses. Like I mean there's always gonna be
Um
sickness and death and as we've grown as an organization, there's just a lot of
lot of people and a lot of people are a lot of brokenness. But I would say the vast majority of the
stress I was experiencing was self induced.
was because I wasn't okay.
And I knew I wasn't okay, but I didn't know how else to cope with it.
Rather than try to get
praise, try to c grab things from other people, right? So it's
I was incurved.
as Blaise Pascal would say, I was the one who was inwardly focused and focused on my needs and what I wanted. And I was not on the path to being
An elder I was
on the track to being elderly and
The inverse of that is I get more freedom as I as I, you know, this stuff kinda comes out in relationships and friendships, in my marriage, in counseling sessions, you know, as this stuff kinda comes up and out and there's healing around it, then I find myself sitting in meetings and like
Letting other people talk. Imagine that.
Not having to always be the leader of everything, not having to have my identity based on short term wins, not being competitive. Competitiveness is the opposite.
of relationship.
Is the antithesis of relationship. Like when we're competitive with somebody, it's I win and you lose.
That's horrible, especially when you're you're you're dealing with
Like my profession.
Doesn't have to be competitive.
When I go out and
play tennis or pickleball with somebody like I don't have to win, but before I had to win because I'm a winner.
Winners win, right? Like And if I don't win I'm a loser. If I don't win I'm a loser.
If I don't win, I'm not okay.
If I'm if I don't win, all that stuff's gonna bubble up from the basement.
And I'm gonna feel terrible.
I used to literally lose in tennis and feel terrible for days. Another thing, I would fight with my wife and I would go do a bunch of email.
It's an interesting behavior.
Well why would I do that?
Well, because I get praise for doing email.
I get a lot of interactivity. Oh hey, thank you so much for that. Oh
Wow, it's eleven o'clock at night on a Friday night and
Just had a blowout fight with my wife. I'm gonna go and do some emails because people are gonna be like, Oh, look how hard you work.
Friday night.
Mm. You're working so hard.
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Social media.
Was deadening to me.
I mean, if you look at the peak of my social media sort of
Addiction.
It it was it was probably five years ago to three years ago. Mm-hmm.
Why? Because I could go online and tickle the ears of people and they would tell me, Oh, this is a really insightful thing. This is really cool.
Wow.
You're so great because you know, whatever Validation. Validation.
It was praise. How many likes did I get? Right. Yeah. But I found myself my my personal relationships people who like
Are we optimizing our lives?
For the people who know us best or the people who know us least?
That's a question that haunts me.
I've watched a lot of people up close and personal.
Who
The more you got to know them.
The less
You liked him.
And I mean that's honestly the lie that we all engage in, right? If people really knew me.
Would they love me? Would they even like me?
Right.
There are people.
lot of people I've I've come in contact with.
They're bigger on the outside than they are on the inside.
Like I want to be somebody.
That was me, by the way. Like I
You know, y I mean, I think we all have this temptation, right? The Instagram pick of, Oh, my life's just a vacation, everything's amazing, right? Twitter's the sort of the intellectual version of that.
All I think is these great thoughts.
Yeah.
Yeah. Have all this wisdom. I'm so wise.
No, let alone my like marriage is disaster, my business disaster, you know, all this stuff. It's like well yeah, but I can spout.
platitudes on Twitter and people will praise me for it, right?
That's the lie. That's the trap. Yeah, as this healing's occurred. It's like I'm on social media far less. Not because like I actually like genuinely want to help people and like when I have something to say that I think could be helpful when I want to engage in conversation, like I'll go on and like I'll engage in it. But like I don't feel the need now to like
Hour by hour, check and see how many people have liked whatever. In my marriage, I'm trying to
Be somebody who's focused.
Purely on the good for the other, but like focus on the good of my wife. Like how can I serve her and love her with no expectation of reciprocity? Like that sounds foreign. It would sound foreign to me, like
the the view we have of every relationship sort of in that fear based, scarcity based mindset is like, Okay, well, Alexis Stokeville called it self interest rightly understood, right? Which is like I do things for you so you can do things for me.
Like that's not true love and care.
That's
Loving yourself. There's a rabbi who calls that fish love.
Right.
He says, you know, we treat our marriages like we do a uh a good fish dinner.
Right, where you're like, Oh, I love this fish because it
Tastes good.
Because it makes me feel warm, because it
you know, satisfies a need that I have, a desire that I have.
You're consuming it.
Right, you're consumer.
And I think that
Without
A shift in mindset and the default assumption of the world is we're all consumers of one another. We are all eating one another, including in our marriages and and personal relationships.
And it's poison.
Straight poison.
I wanna spend a lot of this conversation on investing and sort of running a business, but before we sort of transition
One of the things that you said to me last night that I found super interesting was that you'd stop drinking unless it's a celebration.
Tell me about that.
Well th yeah, the last couple of years have been
An exploration of
Interior and exterior.
Um and I think a lot of our
exterior lives reflect the accumulation of our interior lives. For me it certainly did. I
can remember the first time I was called a fat kid, I was ten years old.
Mm and that was an identity that I adopted.
Um, I always was just a little more overweight than
everyone else. I wasn't like morbidly obese, but I was just
carry a lot of weight. I was athletic, but I but I was a little bit heavier. You know, when I became an entrepreneur
It was all consuming. I mean my twenties were filled with
I had to win at all costs. I had to
I had to put every bit of energy into being successful. I thought that that was gonna make me okay. So my you know, my twenties were filled with uh single minded pursuit.
of achievement.
And uh I put on fifty plus pounds.
in my twenties, I I tip the scales of one point at two fifty two. I remember copy on the scale and I was like
Mm.
I've gotten big. I started uh beginning of last year.
At
uh two thirty five ish. So I was down from my peak, but it was just a battle. I've been engaged in like a decade long battle with like
I'd, you know, try this diet or that diet. I'd try to work out some
I'd make a little progress, I'd slip back. It was kind of like I had this set range. I really couldn't
couldn't get outside of it. Kind of all part of the same transformation occurring at the same time, right? Like
Um
I found out that
Food.
was something I celebrated with was something I turned to for comfort.
was ex how I expressed love and joy and care. As my counselor said it sounds like you eat when you're sad.
And you eat when you're mad, and you eat when you're happy.
I think you're gonna
probably be always eating. And I was like, Yes, I am always eating.
Like I always have a pull towards food, right? Because I'cause I was using food.
And by the way, in a in a like
There are more maladaptive behaviors, right? It just happened to be one that you can't hide very well. Yeah.
But I was using food to to do a job for me.
And sometimes that job was, you know, in concert with joy and care, and sometimes that that was in
You know, concert with pain.
Um, but food was like the tool of choice that would make me
Both feel out of control and in control at the same time. Mm-hmm.
And so as as those sort of things started releasing and the the the the junk that was underneath them that caused that pain started releasing.
I felt a real freedom. You know, you I I I wrote this publicly in my my annual letter this year, like
You would
Huge impact on me. And I and it's funny how we don't often, I don't think when you said it, you realize like how impactful it was gonna be, but it was like a lightning bolt. You told me I I was complaining to you, I think it was.
maybe January fourth or fifth of last year. Yeah.
And you told me that, you know, you're working out or everyone's like, Oh man, yeah, like I've got a news resolution, I'm gonna drop some weight, you know, whatever, and it's just really hard to work out.
And I feel I'm d kinda defeated about it'cause it's like you you know when you know when you're headed to failure.
Yeah.
And it like sort of that's the thing about dieting, and that's the thing about these like short bursts of like New Year's resolutions is like
They head towards failure.
Yeah.
Because they're not sustainable.
And so I remember you saying this one thing to me that sh completely shifted internally.
How I
Thought about health.
And you said, Well I just work out every day.
It's part of my identity.
I don't have a choice.
If I'm gonna work out.
I just have a choice what I do.
And I remember it hit me like a ton of bricks. I was like, Oh my gosh.
Yeah.
You're right.
And around that time
another good friend of ours, Patrick.
Uh I was on the phone with him and um the best of friends tell you the real truth.
Like the pinnacle of friendship is to tell each other the real truth, the hard truth, the truth that the truth that you gain nothing from and you have everything to lose.
'Cause that is true vulnerability. That is truly giving the other person control.
And I remember Patrick took a risk and I said something about I used to make jokes about being a fat kid, right? This is that identity that was imprinted upon me. And they're funny. People laugh at jokes about being fat, right? Self self-effacing and all the stuff. And he goes, Would you knock that shit off?
And it was like very stern voice.
He was like.
Not okay.
Like you I've heard you say this over and over again. You've moks about univages like not okay.
Like you gotta quit that. You're not a fat kid.
He's like, why do you do that to yourself?
And it's again this idea like we can't see each other
We can see each other clearly, we can't see ourselves clearly. That really flipped a switch in me. I was like, I'm not a fat kid.
I'm gonna be healthy. I'm gonna be a healthy person.
whose part of their identity is I'm gonna work out every day.
No, I'm not putting my salvation in that.
I'm not putting my goodness in that. I don't think that people who work out are better than people who don't work out, but I'm gonna make it a core part of me that I'm gonna like honor.
this body that's been given to me, like I've got one container in this life.
And
It's important. When I say basically every day, like I am now I I I work with a couple of people on the fitness side and like their their biggest problem with me is that I work out too much now.
Like I'm l literally, this is not like a bragging thing. This is like I love it so much now. And this is something I hated door count.
I hated it.
I would dread it. I was out of shape. I mean, I hated working out. And so now it's like
I feel the joy.
And I feel privileged that I get to work out.
Like I have an opportunity to move my body into like experience this world. And so whether it's going on a run or a bike or
Playing of sport. I love pickleball and tennis and um or just getting go on a hike or a walk with a friend. Um, I I love it. You know, the the Greeks had this very like it's like body versus soul, like dualistic view. Like we are embodied creatures, like we are one and the same. That's not the proper view. Like our physical
Health impacts our mental health.
And vice versa, right?
Um, and so I've I've seen this like wonderful
Like I have more energy to play with my children and the relationships are better and
Like I can I can I feel better just in general. So like you know, when you feel better and you can move better, it's all this like it's like this virtuous
Upward loop.
Right, an inverse downward loop when when those things start to fail. And so the alcohol thing, very long winded way of saying it, um
I just noticed that when
I drink alcohol.
Things.
Felt hard.
And turns out uh alcohol's one of uh
in men especially one of the biggest inhibitors of testosterone. And we think of testosterone as like the libido, you know, hormone or whatever. And it is, but like that's not the the point. Like I wasn't like I was like, oh well I'm you know drinking. I was basically drinking almost every day.
And I was drinking a lot. Like I got the point, I probably drank to say this even now, I would never in a million years have defined myself as like
With any sort of addiction. Yeah.
And like I could not drink and be okay, but I was drinking like three or four or five drinks a night, every night.
Like you know, you get home and you open up a bottle of white and you're making dinner. We cook all the time. We love cooking. My wife and I'm kind of a core part of what we do.
And you know, you're making this meal, and you know, though you you know, open them, you know, another bottle of wine, maybe a red, and you have a little bit of that, and then it's like, oh man, you know, it'd be really great to nice have a little H tequila or some cognac or something. And
You know, before long. It's like that really adds up.
And it affects your sleep. And and for me, I just noticed like
You know, testosterone, the best definition I've heard of testosterone, what it does is it makes hard things seem easy.
And so when I drink, hard things seem hard. And when I don't drink, hard things seem easier.
Like I can very clearly tell.
And so I just
Said it's not worth it.
and try to come up with other alternatives and how to get the ritual of it and the specialness of it. It's kind of like a, you know, you can mark your days, right? I mean I I went for a lot of my life it was like alternating between like caffeine was one part of my day and alcohol was another part of my day.
And now I don't
drink caffeine and I don't drink alcohol.
For very different reasons, but both of them health related and my life is way better for it. And I so I so my my my excuse now, and I shouldn't say excuse, my the way I think about it is like when when I celebrate
The interesting thing to me when we were talking last night is you mentioned
You use the word rule.
Which I thought was really interesting. Do you have any other rules?
that you've adopted in the last couple of years that have really helped you sort of unlock the next level. Yeah, this is actually a huge part
of a lot of these changes that I've made in my life as well. What w how we spend our days is how we spend our lives.
Like our habits are
Who we are.
And habits are very sticky and hard.
To change.
Uh, they require a tremendous amount of focus. Um, and it's very difficult to add multiple habits at at once, is what I found. Um
Um I'm also not a personality that loves habits. I'm I I don't love structure. I I really enjoy
Um
The variety of life.
And so in in many ways, like habits great on me. But I've really come
as I get older to to appreciate the value of good habits. And so the habits I I
I I try and I would say as I
These are most days, um
Almost all days, um I get up and the first thing I do is read and pray.
Um
the I always try to tell my kids and my wife that I see them and I know them and I love them and that there's nothing they can do to ever
Move outside of my love.
For them.
Um
Um one of the questions I love asking
my kids now is w what do I do when you feel most loved?
Mm and then I really try to focus on doing those things.
for them. Um that's sort of the magic question that unlocks a tremendous amount.
Oh.
intimacy with anyone really. Any friendship, if you ask that same question, you'd you'd be shocked, I think, what the answer you get. Because in my marriage and in my friendships, in my relationship with my children to some degree, like I used to try to love them.
uh the way I wanted to be loved. Mm-hmm.
And it didn't work very well.
'Cause really what you're doing is you're loving yourself by doing that.
And then I kinda went through a phase where I was like, Okay, well I'm gonna love them the way they should want to be loved.
Mm-hmm.
That doesn't work well either. Why don't they love it? Why don't they love it? Right.
And then I started really
Being like, okay.
I'm gonna pretend.
Like I have no preconceived notions of how somebody wants to be loved.
And you're just gonna ask them. I'm just gonna ask them.
And do you know what's interesting is most people
Both can tell you pretty quickly, but it's shocking to them what comes out of their mouth.
Oh interesting.
So most people don't actually know how they want to be loved.
Like it's not something they think about. And I mean you can use this analogy at work too, right? Like, you know, a question I'll ask somebody is like when do you really feel seen and appreciated?
But I think this is the question we're all trying to ask is like how do we want to be loved?
I'm like
really getting down on somebody's level with them and getting in the muck and the mire with them. Like that's real relationship. Let's switch gears and talk about business a little, but I think that the
A good segue question is how do you balance love?
Wait.
Operating.
And you're one of the best operators I've ever met in my life. How do you balance those two things?
Where
were taught to come at everything from a competitive point of view, which you do exceptionally well.
Or did exceptionally well.
For a number of years.
And it made you a huge success.
And then how do you get the same results?
Or better results.
Operating out of love.
Well I think the lie
that we tell ourselves is that if we don't act out of scarcity, that there won't be enough.
Hm.
And what that does is it isolates us.
And it shuts us down and it isolates and shuts down everyone. I mean, anxiety is uh contagious.
Scarcity is contagious. As soon as I mean, if you look at the game theory of scarcity, as soon as one person acts scarce.
The fear ripples through the entire crowd.
And love is fragile.
Care is genuinely fragile. This either this fear mindset or this abundance mindset, this love mindset, it requires
a tremendous amount of protection in order to engage in it.
And
Look, I'm not gonna sit here and pretend that I would often make the same decisions if I weren't already in a position of success. You're operating out of a position of strength already. Yeah. I'm uh coming oftentimes where I'm already coming from position of strength. I do think though
I would hope if I hit
Hit reset.
And I could go back knowing what I know now, life is just way better no matter how you slice it.
Mm.
operating from a position of abundance and love and care.
No matter if you have resources or not.
But
Money makes you more of what you already are.
Right. And so if you look at people with tremendous amount of resources who made that money through scarcity and through high competition and through
Uh stepping on people on the way up.
When they get to the top.
They continue to exhibit that behavior. I think there are a number of people who
experienced that and I by the way, that was
me in my twenties. My twenties were filled with uh doing whatever it took to to to to make it and I would hide it and you know I'd do it in a
more gentle way. Um, but that my heart was scarce.
And I still battle this on a daily basis now. So it's not like again, that there's no victory declared here.
But what is sustainable long term?
is not a sort of Mexican standoff with everyone in your life.
I mean, that's how most business is done. It's like there's power structures and it's like, well, I'm gonna make myself indispensable so you can't get rid of me.
Right? And it's like, Oh well
I wish I could get rid of that guy, but I can't.
It's like that's a horrible like
Confrontational
competitive, scarce mindset to be in business. I feel like this is
The norm, unfortunately, it's really the norm in the finance world. I mean I I feel like I've I've um
I fell backwards into finance. Um, I joked on the force gump of private equity, and it is as scarce as it gets.
I mean it is all zero sum is how it's treated.
As we've moved
towards a position of abundance as we move towards an ability to try to treat people with honor and care and create win win relationships. I mean, that's really what we're trying to do. Um, you know, one of our
Mentors, both of us, Peter Kaufman talks a lot about this, right? As like the only sustainable long term path.
Is that everyone has to win or it won't work.
There's any losers in a system.
It's not sustainable.
So I think that's just something that we we've really tried to pursue. And so what does that practically look like, I think is is a question, right?
Um it looks
Like not.
protecting yourself always all the time.
But giving people the ability if they want to act scarce.
To
Do so.
But in like lower stakes ways.
So like one of my favorite things to do is is be almost open myself up to being taken advantage of.
early on in a relationship.
So if they do, then you're like, Okay, great.
Like and and by the way, there's no judgment in this. It's not like how dare you or I'm somehow better per you know, whatever. It's just
Hey, I just don't think you're in a position right now.
I was there before, but you're not in a position right now to be able to engage in our system because our system requires a tremendous amount of mutual trust and care.
Mm-hmm.
Now again, we're imperfect, we screw up all the time, we're asking for forgiveness all the time, we say sorry all the time. It's not, I don't want to paint this picture of like idealistic, like
Like we got it all together. We got a lot of things to work on, right? But I think
Most of the people
Are trying.
to operate out of a position of abundance. Most of us are trying to work towards
wins for everyone we're trying to be thoughtful
with not just the buyer and the seller, you know, private equity. So we buy
Businesses.
We're not trying to just think about the buyer and the seller, buyer being us, seller being the person who's selling us this thing. We're trying to be thoughtful about the the executive leadership teams at these companies. We're trying to be thoughtful about the employees, the rank and file.
Trying to be responsible and and be thoughtful towards our customers and our vendors.
in the communities, maybe even regulators, depending on the situation.
What does a win look like for a community that we purchase a business in?
I don't know, it's an interesting question. I think it's different for every business.
What does a win look like for the construction worker on a job?
business we bought.
Interesting questions to ask, right? We can't make anybody happy.
We can't make any be fulfilled.
But we certainly can create an environment that that allows more for them to be
happy, free, fulfilled. And this is where I think for the rest of my career the the engaging part for me is not it's not been about money for a long time.
Like
Thankfully that was like I've not had to worry about money for a while.
Now for me, I'm like
Wow, what if
When we buy business
Not only is the work environment better.
Maybe we allow them, provide the environment.
Um, maybe show them a better way. This idea of like everything's relative.
Right?
Maybe we can show them a better way where their marriages get better.
And their friendships get better and their relationship with their children get better. They're more engaged people. They're more active'cause like
I don't want people who are working
eighty, a hundred hours a week every week. Now look, there are weeks where I work hundred eight
No.
hundred hour weeks.
Um
Sometimes you gotta get stuff done.
Right.
So there's no shame in that. There's no but but if that's your norm
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Healthy relationships, healthy physical body.
working that much consistently.
Just no way. There's no time in the day to do it. Mm-hmm. And so like I don't want people who are
s sustainably like like the the whole um finance world is full of just you know chewing people up and spitting them out.
They use people as objects.
Right.
Then they throw'em away when the object doesn't become useful. I mean my fantasy and this may be you know
You know how you look at delusions of grandeur, illusions of grandeur. Uh
Is could we show people a better way that actually you create higher returns?
Long term.
By treating people well.
Um, you create higher returns over time by using little to no debt.
As weird as that is in the finance world, and believe me, I know all the people who are watching this, I get the math. You don't have to send me the math. I understand how leverage works. I can do the I can do the math too.
But I think there's real value in in examining w why why is it that we have a system, especially in the leverage bio world of private equity.
Where the norm is buy lever strip and flip.
Right.
I'm gonna lever this business to the moon. I'm gonna try to use as little equity as I can. I'm gonna try to sell it as quickly as I can to generate the highest return I can. There's no way.
to make good long term decisions with short term capital.
With short term time horizons. There's no way.
And by the way
what are we doing if w all we're like there's no way to create a
long term інjoяв сустайнобл лайф
By having a series of short term transactional relationships that you move your life through. That's where you end up with these people who.
Can buy anything.

hundreds of millions and not billions of dollars who are miserable. Like I've met these people.
Like they have their IRR etched on their tombstone.
Like no one gives a shit.
No one cares.
At the end of the day.
Like
David Brooks, I think, calls him like
ULogy virtues
Yeah. Yeah. Like no one at somebody's eulogy was like
He was a great man.
Made a ton of money.
Hated his life. Hated his wife.
But he got twenty six point five percent.
Right.
IRR. But that that net IRR. Woo.
Boy.
Let me tell you.
Yeah.
He was the one of one of the best.
Yeah. Yeah. I mean, and look, we admire greatness.
Like we're we're a society that worships outliers.
And so you're not wrong to play that game. That is a game to be played. There is a game there, and it does lead to certain things that are
Good.
It also makes you lose your soul.
And also
I don't want to give the impression like we're trying to absolutely shoot the lights out in returns.
Yeah.
Just in a different way. How you go about it. Your way your way is more sustainable.
And and there's a couple of things I want to follow up on that w we talked about there. Uh going back to the first part.
allowing people an opportunity to almost take advantage of you.
Often I find that the first request by somebody
It's very telling where the first offer
Here's what we want. Here's what we need from you.
And if that doesn't come across as fair.
It's like the biggest signal in the world.
that it's like, Oh, this is probably not a relationship that is going to be win win. I'm gonna have to work to try to make it win win. But you've you've given me this valuable piece of information on day one without even intentionally doing so.
Amen. But I would also I would say is
The slight twist I'd make to that is and give grace.
That like
I will fall down, you will fall down, and make offers to people, even though maybe we actually are like in a heart space most of the time that's not transactional.
This happens to me all the time where I will fall down and and and and do something transactional. Totally.
And so it's like what I often do in that situation is say, Hey, maybe this was unintentional.
Maybe you're having a bad day.
Whatever the reason this came across to me as transactional. If I misinterpreted it, maybe I don't understand what actually the the cement underneath it.
But it feels short term, feels transactional, feels extractive.
In
What you offered. Did I misunderstand? And usually that reaction, the more defensive they are, the more kind of like
What are you talking about?
Right? Like the water we swim in culturally.
Is transactive. Mm-hmm.
Extractive.
It removes control. It says it says you will be okay.
If you can build your own kingdom.
Mm-hmm.
So like
It's perfectly normal for that to be the way people interact and transact. Like that is the norm. So like I just want to be careful with how steeped in that somebody is and how much they've realized that maybe that there's a better way.
And what I don't want to do is I don't wanna I don't wanna come across as judging them.
Or can
condemning them based on that. Which is a real danger, right? Because I mean you can you can get self righteous pretty quickly.
It's just a signal. Right. It's just a signal. If anything, even if they are highly transactional and and sort of my my
Like I have this like it's like a weird feeling that rises up in me. It's like a uh like ooh, I don't know. Your spidey sense. Right. It's that
I think it's like a protective
thing where you're like, okay, I can feel myself rising in in competitiveness, rising in scarcity to meet their scarcity.
And I'm like, ooh, I don't like that. That's that dirty fuel that I feel like it's almost like a direct injection of dirty fuel into my system. And I'm like, ooh.
Yeah.
And then it's like okay, well
Even if I say, hey, I don't think we're in a position right now to probably do something on this, or like I don't I don't think the system it would work for you engaging in the system right now.
Try to show'em a better way and encourage them, don't condemn them, right? I think that's the thing that we try to do.
Now, oftentimes I think people
Don't take it as such. It feels I mean, look, if if somebody makes you an offer and you decline, there's rejection in that.
And again
I totally get this because I feel this way is when you get rejected
It touches things that are way deeper.
than just that mere surface level rejection. Totally. So when it travels down and starts ping ponging around and hitting all those things down below.
That's where you get these outside reaction outsized reactions.
to things and and
Again, the response that
you want to have is when you see somebody have an outsized reaction is to make them feel stupid, belittle them. Conflict pattern is something that I uh really have enjoyed studying.
Um so we all
Have three basic moves in conflict.
Um and and actually if you watch these, it's it's fun. Like now it's like uh whenever I engage in conflict, I like I know my pattern.
And I very much know my wife's pattern. And uh I I like I try to guess then other what other people's patterns are. You can watch people like go through these phases.
But there's a uh it's called Move Against.
Which is like
No, you're wrong.
Screw you.
I want to like make you submit to me.
Right. Like it's it's like very much like a forced submission, right? So this is somebody who gets up in your face, who's yelling, or who's like kind of like talking down to you.
Like a very very confrontational, right?
That's kind of like one phase. And by the way, again, we do
All three of these.
We just depends on the order, but we all have an order to how we do these things. And then by the way, how they interact with one another is super interesting as well. Um the the the second one is is move towards the person. So the first one's move against, second one's move towards, move towards is
We need to be okay.
I'm not okay unless we're okay.
Let's just gloss over whatever's happened. It's okay. It's f it'll be fine.
You know, let's just water the bridge, let's just move on.
Let's avoid it.
It's avoiding. Well, it's avoiding in a way that is it feels very relational.
But it's actually not,'cause it's not for the good of the other. It's actually for their good. They want
to to to have things be okay.
Mm-hmm. Um, but it actually doesn't address the underlying issue at all. And then the third one is move away.
This is the isolate.
And so if you watch all of your conflict will follow one of like will follow that pattern. Talk to me about debt and your your thoughts on debt and the optionality it gives you and when it's appropriate, when it's not appropriate.
That is
Not a source of return.
It is an amplifier return.
So it makes
Good things.
Be great.
It can take mediocre things and destroy them.
And of course it takes bad things and
nuke some.
The the the higher your
confidence in the predictability of the future.
the more debt
You can use.
I say can use.
Not should use.
In a perfect world of perfect information where you and I own a business and we're like it's a recurring revenue business.
Um we're for sure.
Going to make it.
Unlevered, we're going to make
Two million dollars this year, three million dollars the following year, four million dollars the following year, and it will go up exactly one million dollars in free cash flow every year into the future.
Mathematically you can create a formula.
to know exactly how much debt you can maximize in that business.
You pull out the equity, the equity returns look
out of this world.
Incredible.
And
Because you know exactly the future is there's no risk in that. So businesses that have high predictability of revenues and incomes and
feel like that they are um
If you're
In this case, since we're creating a scenario, they know that
outside events are really gonna not affect them, then they can lever a tremendous amount.
And it makes complete
Perfect math sense.
Um the reality is that um the world
I believe is
Largely.
unknown and unknowable. The future is is is murky.
And so
It is a form of pride if hubris.
to use more debt than you should.
Now I I'm this is very broad. This is like, you know, 60,000 foot because everything's relative, right? How much debt should you use in the world I play in.
We are buying loosely functioning disasters.
But
Sometimes make money.
I mean these are small
To medium sized businesses, call it
three million to twenty million dollars of free cash flow. You know, my general view after looking behind the curtain at
thousands and thousands of businesses is that
all businesses are loosely functioning disasters. Like whether it's a not for profit or for profit or government institution, like people are messy.
When you get multiple people together, that mess compounds. When you get large groups together groups together, that mess compounds even further. It's exponential. And the volatility of that messiness is
Tremendous.
And so when you get to smaller end of the market.
These are for-profit companies that are making between three and twenty million dollars a year free cash flow. The
Volatility of them is tremendous. Um
And hence the price that we pay is on average less.
Then'cause we're we're paying
to accept that risk. So all investing at the end of the day is the assumption of risk. Mm-hmm.
The ideal investment scenario is you are assuming
A risk that is knowable.
Um you are being paid
More
to assume that risk and you have some ability to mitigate that risk.
That's what we're trying to do in our business. We're trying to find
Things that are highly risky.
Right? Because we wouldn't pay the price that we're paying for them if they weren't highly risky.
But that we have talents and relationships and systems
That we can
Diagnosed with the risks are?
properly analyze the probability and the magnitude of that risk.
And then work to mitigate it.
And that's where our returns come from. The math to me is far less clear.
that over the long term debt
makes you more money. I'll give you an example of this. We bought an aerospace business.
in the fall of two thousand nineteen.
I don't know if you know this, Shane, but aerospace never goes down.
It's always flat or goes up. We were told by by some of the people advising us on that deal, they were like, Are you guys did you guys get
dropped on your head as a child or something? Like you're not putting any debt on an aerospace business?
Like what is wrong with you?
Like this is tons of assets, highly leverable.
Like banks would be happy to provide. Predictable.
Look at the history of the of the business. And we said, yeah.
We don't feel like that's a responsible thing to do.
Again, debt.
Only helps the buyer and the seller.
It doesn't help the leadership team. It doesn't help the employees. It doesn't help the communities. It doesn't help the regulators.
Doesn't help your customers, doesn't help your vendors.
There's all these stakeholders at the table that it doesn't help.
But it does help.
in certain circumstances the buyer and the seller, which again
If you sort of play short term games, win short term prizes.
Area of scarcity.
Non recourse debt, heads I win, tails you lose.
There's a lot of incentives.
To use debt.
irresponsibly. You know, I think that most private equity firms look at, you know, they're the gas and the bankers are the brakes.
And they'll just do whatever
the bankers allow them to do. And it's sort of up to the bankers to say no. And so our aerospace business, um
Yeah, we were
called idiots. I mean actually even on Twitter, I think when we came out with our annual letter that year, people were
Like
Like
finance bros were like, you guys are morons.
It was like maybe.
And oftentimes we are morons and which is good to be called out for it, but like
In this particular case, I don't think we were. And this is obviously way before we knew that there was gonna be a pandemic. Um and
You know, this idea of like did we get lucky, do we get good, I think you can
Yeah.
know that things are not gonna play out the way you want them to, and prepare for them not playing out and keep optionality open, which is going to decrease your returns in any given year, but give you the ability to survive over
Decades.
So pandemic rolls around.
And we're worried.
Um, you know, demand in the industry uh in our segment went off at one point by eighty eight percent.
We started to struggle.
And
we look at it and we were like, Okay, let's and and by the way, the le the leadership team there did an incredible job.
Of maintaining positive cash flow.
Every single month through the entire pandemic, everyone else was negotiating with their banks, everyone else was firing people, and we were the only ones hiring.
And we were building systems and we were taking risk and we were able to do that because we didn't have any debt. Everyone else's
Tied up.
We we didn't we weren't tied up. And the alternative is we lever the thing up and for
I don't know, four or five months.
We get a better return.
And then we negotiate with the bank, hopefully we salvage it. Maybe we have to inject more equity in down the road.
Uh, we're sure as heck not hiring. We're not buying parked packages for pennies on the dollar. We're not setting up for ten years of future success and growth.
Uh we're not, you know, implementing new you know, ERP systems. We're not implementing new
process and ordering system. It it just the whole thing was basically gave us two years.
to completely rebuild that business from the ground up.
And
To see the fruits of that is astounding.
I mean the business is dramatically worth more.
Than it was.
When we bought it.
In spite of having a pandemic.
And dramatically decreased.
Demand.
We can't predict the future. When I was talking to Chris Davis
Who's on the board of Berkshire?
He he mentioned it's a strong signal.
If you're looking for a good business that they don't have any debt or they have very little debt.
Uh because that
mass so many things and the fragility involved is just off the charts.
And people don't realize the risk they're taking. And there's a also a world of difference between data
You know, two percent if you can get long term debt at two percent versus
Uh sort of
Now seven, eight, nine
Even higher.
uh depending on the circumstances and
When people enter into a debt transaction
They just assume that the world is gonna stay the exact same that it is today.
Yeah, I'm gonna make the same revenue.
the interest rates aren't gonna go up. They'll only positively surprise me to the downside.
And then you find out that that's not the case, and then you're you're
All of your free cash flow effectively.
starts getting consumed by debt.
And it doesn't take much. It takes like a five to ten percent downturn in the business, which is a perfectly normal
Business cycle. Reasonable cycle.
To then throw the business into chaos. Yeah.
Like
I I would
I can't imagine being an operator. And by the way
We've never seen a business that we want to purchase ever.
In the history of the firm.
That has bed on it.
Like when we buy it that has debt on it.
Like no family's.
Get wealthy.
By being like, Oh yeah, we have this great operating business. Like let's pull a bunch of a bunch of income from the future into the present and lever up, because that would be awesome. So we can increase our consumption temporarily. So we can buy a bigger house.
Like no one does that.
And for very good reason, like it doesn't make any sense, but somehow
we've gotten ourselves as an industry in the finance industry into this position where it's like
It makes no sense how
Families build businesses.
By the way, every business starts as a small business.
Every business starts as a family owned business. They then take a business that has been operated a certain way for a very long time, gone through ups and downs, survived for twenty, thirty, fifty, a hundred years, maybe. And then all of a sudden it's like actually what we want to do now is completely gut.
How the business operates and runs. We need to hit it with the steroid needle.
We're gonna get we're gonna jack it up with debt. We're gonna strip it of a bunch of cost structure. We're going to hire a bunch of new people who are gonna do amazing things in a short period of time.
And then we're gonna flip it to somebody else. And by the way, once you get on that treadmill, like once you sell to private equity, traditional private equity, do a leverage buyout.
That that business is forever going to be flipped to the next person.
Or eventually might get sold as strategic, but it it it forever is relegated
to a lack of independence.
Like it will never be an independent
ongoing concern for very long after that.
There's just no no examples of this. So for for us, like, you know, I don't think we're
Smart.
I don't think we're trying to be geniuses.
We just look at like okay.
The whole world is built on
An entrepreneur or small group of people.
Entrepreneurs.
Getting together.
Creating something that the world needs.
It's hard.
They built it over a long period of time.
They inherently acknowledge the fragility of it.
We just want to continue to honor them, their legacy, honor the all the stakeholders, and all try to win together over the long term and
I couldn't imagine a worse thing to do than to put dead on. And I think people miss over the long term.
The lack of debt.
Actually works out better.
But over the short term, and I have this saying which is lack of patience changes the outcome.
And so
When you lever up.
to get your your immediate returns and then you're like sort of like playing with house money.
Uh you can sort of
Justify almost any behavior.
And when you think long term like a family thinks of a business and you sort of go, Well we can't do that because
What we want is optionality. You missed the fact that what you guys did, you had
a period of two years where you made more progress than you would have in probably ten or twenty.
Uh, or you're strong.
And you're operating from a position of strength.
And it's almost playing on easy mode in a way, right? It's like oh like now we can expand our business.
Uh people are probably discounting parts uh at these fire sale prices. We can stock up on them.
uh and our margin's gonna expand because of that. We know the business is eventually gonna come back.
I mean, I think it depends on how you look at
our roles. Are we owners? And I'm not talking about
legal definitions here. I'm talking about mindset. Yeah.
If you own something, it is your property to do with it whatever you want.
Do anything you want with it. So like
The the pushback to everything, if I was gonna strongman the opposing argument is
Who are you to tell me what risk to take?
Oh you can take it. Who are you to tell me how to how to how to run my business?
Like I own it.
I can do whatever I want. I used to feel that way. Big shift for me was becoming a steward.
Right, this idea of stewardship and not ownership.
So the way I look at it is families are entrusting us to be stewards of their company.
Hm. It's a responsibility that we have.
Yes, we get benefits.
From being a steward.
Yes, we get to share in the fruits of the
labor and progress of the company.
But at the end of the day, my job
is to make sure that these businesses re you know remain intact.
Are healthy?
And when you look at it from
That position.
The world becomes a lot clearer.
What's in the best interest of of everyone else?
But also me. I mean I don't want to do things that harm us.
Yeah. But Chris if we align incentives properly.
Things that help us should help everyone else.
And vice versa.
Like we will be taken care of if we take care of our people.
We'll be taken care of if we
Take care of our customers.
Like it's not a complicated thing, but I think again
Are we owners or are we stewards?
Or I think often families take a stewardship mindset of ownership. It's it's the exact um it's interesting to me the the I try not to judge other people for what they do.
Or what they choose.'Cause I mean, we're each playing our own game. We're each sort of like doing what's rationally makes sense for us given everything going on in our life. And if we switch shoes, we'd probably see the world very like
Very differently than we do.
But people I think they just
Underappreciate.
The fact that you
Are not thinking about
really what you're doing.
Over a longer period of time.
And
I if you structure your thinking, stewardship is a great example, over a longer period of time, you eliminate a lot of poor behavior.
That you would otherwise get.
Or a lot of things that can take you out of the game. Yeah, for sure. Let's talk about incentives. How do you set incentives for the CEOs of these businesses? How do you think about them?
uh walk me through one in detail, for example. Yeah, well, so the I think the ideal system is everyone's eating at the same table.
Right. So there's not different tables that the food falls onto one and then falls onto the other, right? Everyone's everyone's incentives are aligned to to achieve the same goals.
And for us, when we look at traditional private equity.
And the traditional two and twenty model, right? So on the amount of capital that you have
Either.
gotten to invest or have invested depending on the uh the terms of the agreement with your uh limited partners, you get a two percent fee.
uh annually that goes to covering your overhead costs.
and expenses of operations of the firm, the seeking out, the doing of the deals, the um the oversight and governance post close. And then you once you pay them back with a return, typically a um six to eight percent, maybe ten percent, depending on the situation, then you get to share in the upsides of that. And you know the LPs, the
people supplying you with the money. Um
provide you that capital for
Usually in private equity, ten years.
Roughly.

Which again goes back to
Time horizon. Ten years sounds like a long time.
Shame, isn't that plenty of time to
Buy a business and hold it.
Maybe.
I think if you talk to most private equity people, they would say
It's not the deals that they did that.
that really hurt that they did that went poorly.
The ones that hurt the most are the ones that they
were doing great and they could see a long future compounding that they just had to sell the business.
You're like, but ten years is a long time.
The reality is it takes
Time to find a business.
Get the transaction done. There's a sort of
initial phase of getting to know the business. You know, once you buy, you really never know which which you actually buy. No matter how much due diligence you do, you don't really know until you get into the into the weeds post-close.
So there's a period of orientation, then there's a period of of in traditional private equity growth and trying to hit some sort of metrics to then sell it to somebody else, which by the way, selling takes time too. So you got to buy it takes time.
You get to operate it takes time. You got to sell it takes time. So the really
at max if you if you hit it perfectly in the fun life cycle, maybe you get five years.
five years at most. Most private equity firms now are
targeting what they'd like is two to three years.
So from the time we buy something to the time we sell it is two or three years.
Again, maybe four or five.
If you get past five, it's really distressed at that point. Like you're you're trying to look
Oh.
You're trying to get rid of it and you can't. When we think about incentives.
Uh an incentive for traditional private equity would be
Shane, I'd like for you to come on.
I'd like for you to run do a s do a tour of duty.
Right. Tours of duty is kind of the way that that that
leadership is done in traditional private equity. Once you're tour duty, it's gonna be two to three years. Look, you're you're not gonna see your family much. You're gonna work your tail off. Um, but there's this pot of gold at the end of the rainbow. If you can
Get us
our returns, you can get our investors our returns, then you get to share in the upside, uh of that. It's a highly levered bet of of sort of your time and attention. And we think that that
doesn't m make much alignment. And this is where you see private equity detonating companies. This is where you see lots of problems. I mean private equity, you know
As an industry, when I tell somebody I'm in private equity, it's like we look up to lawyers and reputation these days.
You know, lawyers have a better reputation than we do.
And for very good reason. Like there's been a lot of bad behavior, and by the way, the incentives
are for the bad behavior. All the polls of traditional private equity leverage buyout model is towards bad behavior.
Short termism.
treating people poorly.
Yeah.
Cutting all these things that that hurt. I mean you're you're damaging when you fire somebody.
Y you are hurting not just them, but their entire family, their friend group. Like you're you're you're hurting communities. Now it's also not healthy to keep somebody in the role that they're in.
Because you don't want to fire them, that's not healthy either. That's not kind. Nice, that's not kind. We can talk about that as a separate point.
For what we are trying to do though
is we're trying to have a complete perfect alignment between
R L Ps.
Us.
And the people who operate these businesses on a day to day basis. So we're trying to all eat from the same table, trying to use the same metrics.
Practically what does that look like?
We are
I used to say unusual in our fee model.
Uh now it's unique. I mean we couldn't even get
audited right out of the gate because no one knew what to do with us.
We take no fees of any kind.
No reimbursements of any kind.
There's no cash that comes from either our LPs or the companies.
To us.
Zero guaranteed revenue.
What'd you like?
How do you run the firm?
Thankfully.
we started the firm we were again we were operators so we came in with cash flow and with businesses
And fell backwards into this whole thing of private equity.
I remember um
I the first deal I did is I I it was close to accidental as you could buy a business. I bought it. Um I remember my my lawyer, um
He was like, Well, we just got to do diligence. I typed into Google DO Diligence. Due diligence. Media Cross. Yeah, it was Media Cross. We still own it today. I I remember getting that deal done and I called up a friend who was like my one finance friend from undergrad. And I was like, hey, I did this thing, like I think it's a good deal.
I don't know and he goes, Oh, you did a private equity deal. I literally Googled private equity. I opened my career to Google.
Um
When I started studying it, I'm like, What, this doesn't make any sense? Like all the incentives are off. And so
What I said was when we came in and we were you know, we we ended up taking outside capital for the first time in two thousand seventeen.
I was like I don't need your
fees. Like I don't want your fees. I don't want the incentive.
To gather more and more capital.
Which forces you to go up market. We can talk about that.
Um, I said, and I don't want to I don't wanna be able to win when you lose. Like I want a win-win or a lose-lose situation. Like I am willing to take the risk. I want to be entrepreneurial because that was my background, like I was an entrepreneur. And so we have a model where we take no fees of any kind, no reimbursements of any kind from the portfolio companies or from our LPs, we get a percentage of free cash flow.
as we return cash back. That's how we share with our with our investors.
Well, turns out what that does for us.
Is it gives us the perfectly aligned ability.
Two
If there are high return, high probability projects to reinvest in the portfolio, we would be idiots.
Not to take the cash, defer gratification.
And reinvest it.
Often pre tax.
Yeah.
High rates of return with high probability.
That's what any family would do, right?
That's what we do.
That's what our investors want.
They they want to defer gratification. We want to defer gratification.
And the same thing, we want to incentivize our our leaders to do the exact same thing. So oftentimes the metrics that they're measured on is on free cash flow.
But again, it's not free cash flow.
In a short period of time, it's free cashable over a long period of time. So
When we don't have things to do.
with the capital, high probability, high return.
Reinvestments.
The dumbest possible thing you could do is keep a bunch of cash. I call the bladder problem, right? The more money you have, the more likely you're gonna piss it away.
Yeah.
This is where you see
These businesses being run in ways that you're like they are they are murdering money, they are destroying capital.
How in the world are they getting away with this? And it's like, Well, they're kingdom building.
Reflecting building their incentives are build a bigger business because by the way, you hire the compensation consultants that tell you, well, yeah, the team that that same team
And they haven't really made a great return, but the business is bigger. And by the way, bigger businesses command higher salaries. So you play the game.
It's a bigger business, it's a higher salary.
More cop.
It's like their incentives are off.
The firm who bought them. They're two and twenty.
Buy levers drip and flip.
Their incentives and the leadership team's incentives.
often are misaligned. LPs are misaligned.
Everyone up and down the value chain of the traditional private equity
Structure is misaligned.
Now.
There's so much money flowing through the system, and there's enough safeguards and there's enough discernment over a long enough period of time, it all kind of has worked. You can make an argument that.
when rates are continually decreasing for the better part of two and a half decades.
Interesting weird distortions happen in the market. We just want a perfect alignment. So we want that operator in the business to say the first thing I want to do.
is keep a healthy business with strong cash flow.
Keep the golden goose cranking out eggs. Second, we want to take the
Proceeds.
Free cash flow and look for high return, high probability projects in the companies.
If we can find them.
Especially pre-tax.
Fantastic.
Reinvest cash.
They want to reinvest cash because now
They reinvested a hundred dollars and now they've got twenty-five more dollars every other year following that.
We love that too. We'd be happy to defer.
We're getting twenty five dollars as well ourselves. Now our investors are like, of course, keep the capital. You've got great things to do with it, keep it.
So up and down the value chain, we're completely aligned.
When we should hold cash.
We do and reinvest it.
And when we
Don't have anything good to do with it.
We send it out.
So is it a simple sort of like two variable formula for all your CEOs then or
in in terms of free cash flow and invest capital.
Yep.
Everyone's just
Incentivized on that?
And then do the the CEOs get a compensation on the cash distributed.
Yep. Oftentimes.
Yeah, I mean it depends on the situation. We're sometimes having these CEOs are rolling forward uh uh quite a bit of equity, depending on the situation. So sometimes they're getting, you know, equity or getting cash tickers on top of that.
But oftentimes they're
you know, 10, 15, 20 percent owners in these businesses. And so the incentive is naturally baked in. We we love that. We like we don't want to buy a hundred percent of a company. Right. Like if we have our choice, we're buying fifty one percent to seventy percent of the business and we want
We don't allow non strategic actors. Yeah. We want people who are actively engaged in the business to own the remainder. How do you think about hiring and firing CEOs? How do you know you have the right CEO?
And how do you know when it's time to to move on? It's hard.
It's hard and it's messy, uh, is the is the answer. Since we're talking about comparing us to traditional private equity, I would say is one of the things that traditional private equity has gotten done better than us in some ways is is held people accountable. I think they go they go too far in one direction. I think we've reactionarily gone too far in the other.
you know, in terms of the performance of of permanent equity as a firm
You know
I would say in absolute terms we're not doing
As well, nearly as well as we could.
And this is an area of active learning for us. I'm just being honest and transparent about it. We've been tolerant of a lack of performance to a degree that is unhealthy.
not only for the companies and the returns, but also for the people that are engaging in that behavior.
And this is an active area of discussion right now in the firm. I mean I'm
I'm I'm giving you a like a real live view of what we're discussing. And ultimately it's a failure on my part.
Like I'm the CEO, I'm responsible for setting the tone and I
Deferred.
Too much.
early in my career to the promises and to the optimism that things would get better when things weren't great.
And if you look at where we have really succeeded is working with people who were doing well and making them better, where we've really fallen down as a firm.
is when things get dicey.
uh we tend to defer to relationship
Hm.
And we tend to trust the people that we have, even when there are m many warning signs that
Things have n things are not okay. And I would say this is the nice versus kind principle that we've screwed up. Being kind to somebody is saying, hey,
I think you're in the wrong role.
And they're stressed out.
They're
Lives are not, they're not enjoying life. They're not enjoying their role. They're fear based, right? When you get into a position where things are not going well and you don't know why and you don't know how to get out of it.
It's terrifying.
And
Part of what our role is is to help people.
Like we look fundamentally like we our job is to serve and help others.
If we can serve and help others succeed.
We're gonna succeed. Our LPs are gonna succeed.
And
To be honest, we've screwed this up.
We have not
Done a good job.
Of getting people
The
Help.
And moving people into roles that they should be in or or having them move on to outside roles.
And we need to do better at it.
Does it ever work? Did she I I mean I don't
have a ton of experience with this working out. Maybe you do, where you change a role like, hey, you're CEO, but you'd really make a great CTO in the same company because then you create all these internal politics of like who do I report to and my loyalties to the person who hired me and
Or is it just easier to sort of like transition and move on? I mean, it would that would be wonderful to be able to do that. I think that a lot of people's careers would benefit if they had the humility to to be able to do that. Fundamentally, we all struggle with pride.
Yeah. And we can't see ourselves clearly.
Like w we are a mystery to ourselves.
And what we how we see ourselves in our talents and our
Weaknesses is often different than how other people see us. This is why we need each other. This is the whole point of relationship. This is the value.
And the this is the the terror of where we've gone as a side note.
with social media being so isolating, with with not having in-person relationships. Like this is no wonder that deaths of despair and
Suicide attempts and anxieties through the roof, right? We would love
to be able to take to somebody, hey, you're in the CEO role or maybe in the CFO role or whatever it is, and we need you to take a step back.
You know?
In order to
Move forward. Careers often die by suicide, not by homicide.
Like it's not
Double click on that.
Over and over and over again I've watched this tragedy happen, which is
The Peter principle.
Someone rises.
And they rise beyond their abilities.
And then they can't take a step back. Their their pride, their ego, they their identity is rooted now in their title.
In their position.
And
You say to them I
We love you.
We think you're awesome. We'd love for you to continue to be with us.
the role you're currently in is hurting you.
And hurting those around you and hurting the company.
And they'll acknowledge that.
And then you'll say, Great, could we get you into this role?
No, absolutely not.
People fight.
Claw for territory.
Kingdom building.
It's hard to go from being king.
So maybe
An important person in the kingdom, but you're not the king anymore.
Tart.
It'd be hard for me too. Would I be okay with
R L P's coming to me and saying, Brent, I
I don't think you're the right person to lead permanent equity.
I'm not gonna lie and be like
Oh, that'd be a great conversation to have.
I hope that I would meet it with curiosity. I hope I'd meet it with self-reflection and say, Wow, I really want to hear I mean, I I think I disagree.
But I want to meet it with
Curiosity.
And see what they have to say. And
See if I could discern out of it. Maybe I'm not in the right role.
What have you learned about hiring people that
Most people miss.
Well another journey I've been on.
Speaking of of of these like added tools in the toolkit is I've really become much more familiar with different personality testing.
And
Um, specifically like I I you know, I've looked at a bunch of'em. I really like
The combination of Myers Briggs.
And Enneagram.
If you think about our business as
Um
you know, we we take money and we turn it into more money, I think you miss the most important thing that we really do.
Which is
Our whole business is predicated on predicting
the behaviors of people.
Mm.
Like if we can predict the behaviors of people
There's no way to lose.
And when we don't predict the behaviors of people
We're almost certain to lose.
Like an increase in incredible volatility into the system. If I think about my job as CEO
I need to be helping our team.
to be the most thoughtful
Well educated
Up to speed on predicting human behavior.
I mean, this is where the knowledge project is been super helpful.
the work that you've done, collecting the best of what other people have figured out.
getting it, distilling it, right? I mean, this is what we're all trying to pursue and specifically around
the wisdom of clicking over these lenses that these personality tests provide.
And giving you a framework to to create empathy.
And create predictability in relationships. I think that's probably been the biggest leap forward. What most people get wrong is most people
don't understand why people are doing what they're doing, don't understand how they
should think about
incentives based on the person themselves and not just the financial incentives. And
Don't have much empathy.
For how other people react. So take things personally that aren't personal. You know, everyone acts rationally in the moment. This is the like the heroine addict who's choosing heroin over eating a meal or you know leaving their family.
In that moment
believes they're doing the right thing for them, believes it's rational.
To pursue that hit.
Versus do everything else.
So the question you have to ask yourself is w why?
Right. And same thing in
Companies. Same thing with leadership.
In these firms.
Like the question is why? What do we think
why did that person go off the rails or how did that person
suddenly disintegrate before our eyes, or why is that person performing so incredibly well?
And so
These different personality testing
It doesn't no one's a box. No one is a
You know.
in the sixteen types for Myers Briggs or whatever it might be, there's there's no
grouping that will perfectly describe anyone. That's not the point. The point you you've you've missed it if you think that you're going to put somebody into a box and it's going to predict 100% of their behavior. That's why I like having multiple of these that kind of give you a a 3D look at people.
I mean my experience is it was a eye opening I assume that everyone else operated the way I operate.
I assume people wanted what I wanted.
Turns out I am weird.
So are you.
So is everyone you meet. They're they're weird because they're they're mixtures of all these different axes of how we sit on
These things, right?
And how we how they interplay and interact with one another. But I can tell you, as an example, once I understand sort of the four axes of Myers Briggs.
So
Where do you gather your energy is the first one?
So this is introverted, extroverted.
This is not how you show up in the world. This is where you gather energy. So introverts can appear extroverted, extroverts can appear introverted. That's where this like sort of you get these very um basic ideas about how the world works, and you sort of hear like a little bit of these things and you get misperceptions of what they actually mean.
So it's really important to understand, are you getting your energy?
From inner life, or are you more solar powered, right? Getting your energy from from other people and from the world. The second one is how do you process information?
Are you intuitive or are you high sensing?
This tells you a lot about where somebody starts in how they think about life.
So sensors.
Think about life in the present.
They're present oriented. They walk from the present into the future.
They're very practical. They're very reasonable. They're very rational people. Intuitives.
Like maniacs like me.
We start into the future.
And then we walk back into the present. So we get excited about ideas. We're like, oh, we vision this these.
This future, oh, what might that be? How might that work? What might we do? Who could come along with us, right?
And then somebody says a sensor comes along and says, Excuse me.
Um
I'm I'm glad that you're ten years in the future right now and you have these you know grandiose visions of where you're going.
Um
We've got to make payroll this week.
And by the way the
That's on fire and that's on fire and like we need to be here.
So you need both, right? That's the beauty. N none of these like being introverted or extroverted.
They're just strengths and weaknesses.
Right.
There's always upsides and downsides to each one of these.
But once I can tell, okay, where's somebody powered?
From
Right? How does somebody process information? The third one is how do they make decisions? This is a really important one.
So thinkers and feelers.
Two basic categories.
Thinkers are all about ideas and about truth.
So they're seeking truth. They're seeking ideas. They're very uh achievement oriented.
They want to get things ordered up.
And neatly packaged.
That's how they make decisions. So they're making decisions based on what is truth.
And how am I seeking it?
Feelers on the other hand, uh by w by the way.
Most men are thinkers. So seventy percent of men are thinkers, thirty percent are
Feelers.
Seventy percent of women.
R
Feelers, thirty percent of thinkers.
When we go back up to the sensing and intuitive, it's about seventy five twenty five.
Sensing to intuitive.
So seventy five percent of people are present oriented, twenty five percent are future oriented.
And so I'm like the super weird combination, right? Where I'm external.
Focused. I'm an extrovert.
Who is intuitive.
So right there I'm in the twenty five percent, right? Uh introvert, extroverts fifty fifty.
Um I'm in twenty five percent and then I'm in the
Thirty percent of men that are feelers.
So feelers base everything on relationships and values.
So we feel our way.
to decision making.
It's how will it impact the world around me, how will it impact my relationships, how will it make people feel.
Now again, it's not like I don't have a rational side and I can't
consider ideas and it doesn't mean a
A thinker.
Can't
feel anything. That's not the point. The point is which is the primary lens that you look through in life, right?
And the last one, which is really interesting, is lifestyle. This is a J versus a P, a judger versus a perceiver.
And
It's really about how you like to move through the world.
Uh, do you move through the world in sort of an order way? Do you like structure? Do you like to you you have a decision to make? You gather information, you make a decision, you move on.
Right?
You you like things structured.
Or are you a maniac like me?
who is a perceiver.
Who is
Kinda open for whatever. I loop on things. I need forced I need to be forced to make a decision.
Uh I need a deadline.
um to to do things. And so again, if you understand people based on these these four parameters,
Then you can really have a lot of empathy. Like
My wife and I did this um
Personality testing.
Together.
In each other's presence. And I'll never forget my uh, we know we're going through these lists of like, are you more like this? Are you more like this? You know, whatever. And she's like, Of of course.
Yes.
Like
Only an
Maniac.
Would be
That and I'm like
Yep, I'm the other one. And literally at one point she looked over and and
I could tell but like look on her face was like I have children with this man Like what
Like who is this, right? But again, we're all in our own heads. We think that the world works the same way.
But for us it created a tremendous amount of empathy.
Like she the how I made decisions and how she makes decisions, by the way, were opposite on every single
Category.
You can imagine that might create some friction in a marriage. Same thing in work relationships, right? Right. You ask what do people mostly get wrong? I think we get wrong is that we assume everyone like us. And so if you have a certain attribute set, you tend to want to look at the whole world through that attribute set and say, Oh, well, everyone I hire should have that attribute set.
Yeah.
And if they don't, they're bad. They're bad fit. Yeah. Which is totally not true.
And so
We think about a lot of this stuff as we are recruiting. We think about a lot of like okay, what are the
things that we're asking this person to do and what type of person
Would be good for that.
And then the the other one that I've really enjoyed is Enneagram because it it really shows you what is your underlying insecurity.
And what are your primary drives? So there's nine numbers, and each one has a very different set.
Of
Pluses and minuses, strengths and weaknesses. And so when you're able, again, none of them are perfect. You're not, it's like, oh, I'm a me personally like I'm a three two.
Okay. Right. Which in any gram means I'm an achiever and I'm like a kind of a a people pleaser. Like I I I like to serve.
Um, which it sounds oh, he's an achiever and likes to serve people. Like that's again, like look at it. No, no, that comes with huge downsides. Like my worst fear is
I'm not enough.
My worst fear is if people knew me, they wouldn't like me.
I'm adaptive to other people. And so it was like, do I know the real me?
Like my my serving of others turns into people pleasing.
Do you give people personality tests as part of the recruiting process? Yeah, we we do.
Yeah. We we really and and by the way, we don't
Um automatically acts people.
as part of that. Like it's not like we're like, oh, if they don't fit this exact personality, then but what it does is it allows us if we're getting you know, it's it's usually when we're pretty serious with a candidate, right? So we're trying to make sure that we're
We don't want to do is we don't want to
project onto them what we think they are.
And then come to find out later.
that they're not actually capable. And so when we get really serious, kind of down to the final like three to five candidates is usually when we start testing.
And they often learn things about it. And sometimes we actually had this happen recently.
Somebody was like, I don't think based on the testing that I went through and all that that I actually would be good for this job.
They opted out.
I wanna switch to acquisitions. So
I think a good way to
to dive into the subject is
What's the playbook?
When you take over a company.
So you you go through a process.
internally.
uh you come to a decision. Do you guys write memos internally?
Yeah, we do. W what's in that memo?
So we are um
Describing the what I would call the overall situation.
Of the business.
Um
Who are they? What business are they in?
How does it work? We we also think about like what is the core action of the business. So oftentimes things our favorite deals are ones that look
weird or different on the surface. There may be a little furry fuzzy things on the the deal.
Uh or they're misunderstood.
And hence the price and the connection between the the the price and the value is is is off, right? So we're trying to look for mispriced opportunities.
And so
in order to be mispriced means that something about it is either risky that we can
Or do your jobs right. Yeah. You know?
Just assuming we're we're correct in how we do this. Not always correct, but we're trying.
uh means that there's a divergence between
the risk in our ability to
mitigate it and other people's ability to mitigate it, right? Or there's a lack of
information.
that the other parties have based on their ability to dive into the into the
um weeds on a deal. And so
Uh we like things that
Or misunderstood. I'll never forget um this the second large deal I did was on a a pool business.
That we still own. We've never sold anything, so I mean we still own everything. I shouldn't keep caveating that. It's not like we've sold anything. So
Um, but the pool business, I remember talking about it with you back in the day.
And
You know, most pool builders get big.
because they partner with
uh development firms.
And they go through these massive boom and bust cycles.
Massive boom plus cycles.
And
It's feast or famine all the time.
The other thing that they do is they they're tempted to to be vertically integrated and do all the work themselves, right? Because you make more money at every step in the you know, in the more margin.
But
You're constantly then in the booms. You're hiring a tremendous amount of people, which creates cultural issues, tremendous liability, all kinds of means just madness.
margins end up not being nearly as good as you ever think they should be.
And then in the bus cycles, you're having to let go of a whole bunch of people who are you want to keep.
But you have no choice'cause the business will implode, right?
And so are two unusual things when I first got
The
Deal memo on this.
I remember thinking to myself, like
Uh pool builder. Big pool builder.
like large largest single location pool builder in the country. So like at the time, it's really large.
And I was like
Yeah.
They partner with
They're probably vertically integrated and they probably partner with.
Um
Development firms and like that's just not
You know.
That's not something we want to do.
And then I started asking just a few questions. I was like, Hey, can you tell me what percentage of your revenue is direct to consumer?
Yeah. I was expecting it to be
You know, ten percent or fifteen percent.
It was
Ninety seven percent.
And then I said, Oh, interesting. Like what is your CapEx?
Capital expenditures on an annual basis.
And it was like microscopic.
I was like
Weird.
Tiny capex.
Good free cash flow.
Direct consumer.
Man, that's a really durable business.
That's an example of like
The risks we were taking
And the way that the company appeared.
Like the core action of that business is they are in the business of marketing.
Pools.
Selling pools.
And then handling the logistics, but they're you know
They're subbing out the actual construction.
The hiring, the firing, the risk.
All those things, the boom and the bus to other people.
And that what that creates is a very
Capital light.
Highly efficient.
High cash flow.
high durability business.
that again, everyone else was looking at as a quote unquote construction business.
So
Other people who maybe interested in it were turned off and they're like, No, I don't want that because that's a I'm gonna put that in the bucket of construction. I don't want to take that to a
you know, my senior partner or to the loan commit you know, to the to the investment committee and say, um, hey guys, I think we should buy a
Mom and pop.
construction business in Phoenix, they're gonna be like, What in the world's wrong with you?
Right?
Versus we look at that and we're like, ooh.
That's really attractive. Yeah.
So those are the types of examples we're probably put all that into the memo.
Um, we're trying to put all in the memo the things that we think are holding it back. So
First principles. Like let's go to kind of first principles on an on an a business that we would acquire. So this is a business that's long tenured.
Um, they've been around for on average.
A long time.
And they're still fairly fairly small.
So
Something.
is holding it back.
We think of it as the kind of lids on the business.
And
We're trying to figure out why they aren't bigger.
Right, there's something so by definition
there is product market fit if we're if we're acquiring it. By definition.
There's some sort of moat.
So a moat being defined as you can generate above average returns on invested capital.
There's something unusual about the business that has allowed them to get into business, build the business into a successful again, minimum sort of three three million dollars of free cash flow. Not a hard and fast rule.
We've done some smaller deals, but but on average for for for new platforms, we're you know, three million.
That means there's something special about the business. It's really good in some ways.
And
On the flip side, if it's not bigger.
And it's been around for a long time, there's something.
Holding it back. Holding it back.
And so our job is through those memos
to collect all the findings of
W w where's the moat?
Why do we think it's transferable?
How durable do we think it is?
And on the flip side, what do we think the opportunities are for growth?
And make sure that all of that triangulates with price.
Of course.
Um I
Um
Had the privilege of spending some time with Buffett at one point.
And I asked him this like battery of questions. And he kind of at at I think at some point got frustrated with me, um being I was probably being annoying.
And he said, Price is my due diligence.
It was kind of like the the showstopper like
Drop the mic moment. He was like, because I was asking him all kinds of like, Well, how do you think about this or how do we think about that? And ultimately he's like, I use price as my major due diligence.
Filter.
So that was brilliant.
Like the simple heuristic.
Like the higher the price you pay for it, the more you're pricing it to perfection, the more things have to go right.
The lower the price, the more you can absorb things. And so
You know, we are uh
Because of the nature of these being smaller companies.
They're messy.
They've got some weird stuff.
Going on usually in these things. They're not bigger. So there must be some lids on these things. We're trying to figure that out, and we're trying to correlate that to price.
And the cool part is after close, like all the problems are merely opportunities. I try to remind our team of this all the time because you get in these operating.
Woo!
There's a lot going on.
Like sometimes relationships are very strained. There's weird power dynamics. All this stuff's going on. And I I say to them, Yeah, it's hard, but this is what we get paid to do.
Like we're in the business of shaving fur. Do you
have projections in this mode?
Yeah. We're we're we're um
Do you like do three scenarios like base, upside, downside, or how do you how do you think about that? Yeah, we're trying to stress test where we think based on the history of the business.
Uh it's going.
Often assuming for most of the deals we do that there is
no growth. So we want the the business to underwrite with no change in trajectory.
Um
If it can't stand on its own, like we're not big on quote unquote synergies, we're not big on
Trying to do this massive change. Like if you've
If the business has been operating a certain way on a certain trajectory for thirty years.
It is nothing but hubris.
to come in and think that within a short period of time you're gonna completely change the directory of the business. Yeah.
It can happen. There are some
tricks and some outside perspective that you can kind of look and see and run a playbook from time to time.
But for the most part, like there's no easy solutions. Like I I was talking with a um
uh Harvard educated search searcher the other day.
Uh actually when I say the other day is probably
Year and a half ago.
And um
bought a business.
And had all these grand plans. I was gonna he was gonna introduce all this technology, all these like changing systems. It was an old school business, and he was gonna, you know, revolutionize with technology. And this is kind of like if you go on Twitter, the
You know?
I don't know what we call it or whatever.
The group of people they're trying to do this, SMB land or whatever.
Um
This is often the dominant narrative of people who haven't done it.
Right. So people who haven't actually been in the weeds, who haven't bought a business, who haven't tried to change it is like
This is super simple. You buy things for cheap.
Huge amount of upside. You go in and you transform them. These guys are idiots. Yeah. Yeah. These guys are idiots. They don't know what they're doing. It's like, dude.
Yeah, you may have been to Harvard, you may be well educated.
That guy's been working in the business for thirty years. Do you not think that he knows it everything you know and far more?
Mm-hmm.
Course not.
So anyway, this guy came in, he had all these grand plans, and I talked to him about I don't know, a year later, it's like six months ago.
And I was like,
How's all that going?
And he was like
Oh my gosh, I haven't done anything.
That I wanted to do.
What's it?
Oh interesting. Tell me about that.
And look, the business is actually doing well. Like he's glad he bought it. Yeah.
But how it went post close was not filled with
Oh man, this is perfect. Now we can hit this huge growth trajectory or whatever. He's like
Yeah, our servers went out like the second day on the job. Uh the phones don't work.
We have all these issues.
Um
You know, the head of sales left shortly thereafter had repl you know, it's like this constant fire.
Fighting
Minding in business.
It's running a business. The only people who think
Buying a business and operating it.
Are easy.
Most of the people have never done it.
There's a small group of people who got lucky the first time.
Yeah. And usually the second and third time they get smoked.
I mean look, we took
The better part of a decade toiling away in obscurity.
Doing things like you know.
joke that like we were running the world's smallest family office for a good amount of time there.
Just
slowly compounding, trying to learn systems, trying to get you, I mean, we were just getting smacked around constantly. But that then allowed us through that decade to get good at this.
And then we were able to scale. Like if I'd been given
Fifty, a hundred million dollars.
Right out of the gate.
I would have lost every penny.
Yeah.
And this market is so inefficient, which is by the way
Good and bad, inefficiency being defined as can you make a lot of money or lose a lot of money, depending on skill, right? So like argument is.
If I gave you a million dollars to invest in the stock market and I said, Hey, I'm gonna let you keep
Everything you lose.
Right. So lose as much money as you can. Yeah. And I'll give you sixty days to try to lose as much money as you can in the stock market. Yeah.
It'd be really difficult for you to lose a lot of money.
Yeah.
In fact, you might end up making money in the private markets, like
Give me forty eight hours and I can lose a million dollars.
Like it's super easy, right? Which means skill really matters, which means
If you want to have it as a career
There's a lot of value in honing your skill set.
So
To me, that's the ultimate mode is it's very simple what we're trying to do. It's just really, really hard. And judgment matters.
And so that's the reason why we put everything out on the internet. Like we literally have our entire playbook on the internet.
Like you can go on the permanent equity website.
And you can see our entire due diligence toolkit.
Like not only just the questions we ask, but the why underneath each question.
How would we do that? Doesn't that spark
A bunch of competitors doesn't that help a bunch of people?
Yeah.
Sure.
Helps everybody. Helps everyone. Yeah.
And we're stewards.
And we're unconcerned. There's abundance. Do you go back?
a year later or is there a milestone, like a predictable milestone where you go back and you review this memo.
And now you've owned the business for a while and like what can we learn? Yeah, we actually do this quarterly.
So every single quarter.
We have um
We call'em baseball cards.
They're like one pagers, maybe a little bit longer than one pagers.
That explain the overall strategy, the overall purchase price, the rate of return so far.
Where we've done well.
For the wrong reasons where we've done well for the right reasons, vice versa.
So it's like the entire memo is a constantly updated living document.
Of every single investment we've ever made and how we're doing.
Almost like value line for your businesses. Yeah.
For sure.
And like but here's the thing is how would we do it any other way? Yeah. Like if we're in the business of
Investing of buying small
private companies.
Trying to make them better.
We've got to learn. We gotta get better.
Like w how would we know if we
We were getting better or not? How would we know
How would we learn if we weren't doing a look back?
So I mean to me it's just of course obviously
And
I mean, look, if we're not good at what we do, we should do something else.
Like don't waste this life doing things that you aren't good at.
For God's sakes, like that'd be terrible.
Do the CEOs make that baseball card or does the cause you guys, what's your structure? You have a almost like a portfolio manager who's in charge of multiple CEOs. Yeah, we so right now our structure is we have a dual hook in structure post close where our financial team and their financial team hook together. Okay. And we're constantly getting feedback loops of what I would call information from that. So our
Our goal with our financial team is
Keeping scores the easy part. The hard part is getting actionable
Real time information to all the stakeholders to make good decisions. So that's their primary role is to help those companies, which by the way, this idea is completely foreign.
We come into most of these small businesses and they're like Yeah, we give all our stuff to this accountant and the accountant tells us how we did.
We're like, sure, that's not what we're talking about at all.
What we're talking about is on a day to day, week to week basis, what are the metrics you're looking at?
How accurate are they? How updated are they?
How can you make decisions?
Right. So we've got that group that's working with them to try to increase the quality of those feedback loops. And then we've got, you know, what I call like a board of directors and a box model.
where there's one point person for permanent equity that that accesses all the resources permanent equity kinda is the Sherpa, the guide for the person internally. So oh you got an issue with marketing or you need help with that. Like we got external internal resources, recruiting, external, internal resources, legal, external, internal. You know, so we got all these
these sort of um helpers that we have, and that person's job is to help direct them as well as
govern the the business. Those are updated based on the constant feedback loops.
of the business over that quarter, uh in concert with the leadership teams, but but we're mostly doing the authorship of them.
And then you don't step in and like start issuing directives. You want the finance plugged in.
And you want the metrics that they're looking at, or you want specific metrics for you or both? We want information
every which way, the more high signal. We're trying to separate the signal from the noise, right? So there's tremendous amounts of information being thrown off by these businesses that doesn't matter. We're trying to get down to a handful of metrics that we can agree on that the leadership team and us that we're
Working in concert to understand what they're telling us.
Um, that's actually one of the most difficult things post close is just getting on the same page about what matters. Totally. And when does it matter. And and again, we're coming in.
Hopefully with high humility saying
You all are the experts we're not. Yeah but we're asking questions like okay, well
If that's the business model, wouldn't it make sense that this would be like a leading indicator?
And then sometimes they'll be like
No.
Oh interesting.
Tell us why.
Right. We try to come at it from that perspective as like instead of just telling them what we want to see.
Like
Do you think this would be helpful? Are you looking like what are you looking at and why?
Yeah. Why aren't you looking at this? Why are you looking at this? How does this work? Again, this is not rocket science. Like this is like treat people as humans, be humble.
Be kind, be long term.
Things usually work out.
Do you uh do anything within the business from otherwise from the first day or you're just sort of
What's the reporting cadence back to you? Is it is it
Weekly, monthly, quarterly
Yeah, so we are usually in touch on a weekly basis.
Um, depending on if if we're going through periods of
negative change or positive change, then we're more active.
And helpful, being supportive.
uh being corrective maybe if we need to be.
If things are
In the box, smooth sailing.
No storms on the horizon.
then we can be a lot less hands on.
Uh, we we always tell our
Leaders like we're always available, everyone has your cell phone like
Yeah.
You can get in contact. We're the easiest people in the world to get in contact with. Yeah. Running a business is lonely.
Yeah. If you've never run a business, if you've never been in the CEO spot.
You can look up.
From in the organization and it looks rosy.
Oh look, that person gets paid a lot more with all the freedom they have. Oh, I want to be the one to set vision and whatever.
Looking down from that position,
I there's usually no one to share
Sorrow with there's no you know frustrations like you you you're isolated. And so one of the things we do is just try to be relationally connected.
And offer to be a release valve for the very natural human tendencies we have to be seen and heard and
blow off steam and consult on difficult situations. Um
You know, again, uh it's interesting going back to like the personality typing.
You know, we try to understand for our CEOs if they're internal or external processors. That's a really important piece.
If your CEO is an internal processor.
Then you can you can go away with your thoughts and be fine.
If you're an external processor and you're the CEO, you have no one to externally process with, or you end up creating
inappropriate relationships with people who work for you.
Yeah.
So that's fraught. So that's one of the things that we can do is if we're adept at that and understanding the people.
then we can say, Hey, that person's next to a processor.
Hey.
They need somebody to talk to you.
Come talk to us. Let's work through things.
The only things I would say is we're aggressive about
post close in the short term is if there's just any laws being broken.
Um, which is sounds funny to say.
My guess is
Eighty percent of the small businesses out there are are
either knowingly or should know that they're breaking some sort of rules. There's a lot of government regulation, depending on the state you're in. And often, by the way,
Federal regulation, state regulation, and local regulation will oftentimes conflict with one another.
And it requires a tremendous amount of background and understanding to know
how to be in compliance.
Um
I wish they'd simplify this. I mean it's the the amount of stuff you have to keep up with is just is astonishing.
Yeah. Why don't you do a totally hands off model like Buffett?
Just because it would miserably fail.
In the scale of business you're dealing with, why would that fail? People get divorced.
People have health issues, people die.
Um people lose interest.
Things are constantly changing.
the ability to self replicate
is unbelievably rare.
the reason why we are in the position we're in to be able to buy these businesses is because
We are the best option for the business to transition.
Um
Oftentimes there isn't
A family member who has the capacity.
Uh or
either financial capacity or talent capacity to be able to do it or some combination of both. And these businesses are not ones that you can just like leave alone. Like there's there's no passive income in working in small business land.
Another way to think about it is like, you know, sort of buying an index of small businesses, right? I mean, uh from time to time is like people come up with this idea of like, oh, what if you just put like a thousand dollars with, you know, a thousand of these small businesses and created like a index.
The reality is over a longest period of time that index is zero. Like it's really hard. The governance of these things is difficult.
Like the the norm for most small businesses is entropy.
is decay.
Is dying slow death and being wound down. Like that's that's a norm in the small business world. You have to fight to grow.
It takes dynamic leadership, it takes vision, it takes risk taking, it takes capital.
Takes mitigating risk.
It you're doing all these things.
And so yeah, the the the ability um to do that
Is
is non existent in our area of the market. And by the way.
Having spent time with both Buff and Munger.
They would say the same thing.
Go deeper on the
So when you look at them early on.
in their journey. So this is like let's go back to the Buffett partnership. Let's go back to actually when
Buffett first met Munger. Buffett was invested in Sandboard Maps and Dempster Mill. Those are the two primary investments. I think this represented seventy or seventy-five percent of the assets of the Buff Buffett partnership.
One of the things that Buff and Mugger connected very early on
about was struggling
Businesses.
was struggles he was having with those two businesses.
Um the story I think it's been told a number of times, but it's you know, not often
Remembered because
Where they are now, there's been like five seasons of Berkshire. Yeah. And where they are now bears zero resemblance to where they were in the early days.
Where they were in the early days is where we are, where we like to play. And this is where, again, by the way, they said they generate the highest returns.
Right?
smallest amount of capital, highest returns, being able to access small companies.
But
Uh Dimster Mill was a
Disaster.
Like
Buffett had gotten sideways with relationally with people.
Um, and he was
Kind of.
Desperate.
Yeah.
And he met
This guy Charlie Munger, who we started to develop a relationship with, I mean it's they actually talked about the annual meeting this year.
Um
Of how they got together, and they had a family that brought them together, and when they met each other, it was like kindred spirits, they stayed in touch. And one of the things that Munger asked Buffett was
You know, what problems are you facing?
And Buffett was like oh
I've got this business that like
I don't know what we're gonna do. It's it's upside down. Sameware maps is a whole different story, and it was kind of upside down in a different way that worked out.
But Dempster Mill was just a
Mess.
Like he needed somebody to go to the middle of
Iowa? I think it was Iowa.
And
Fix this company and get it.
fixed up and make money at that business. And he's like he didn't have anybody.
'Cause he was a you know
stock investor, pass investor, and become activist and active in that business by the nature of how much stock he bought. And again, this is where, you know, look the balance sheet was stuffed, like they had a lot of resources, low free cash flow yield, all these things that we get access to as well in our area of the market.
he got access to than in his area of the market, right? Things just don't work out.
And so you get sideways operating issues, the value of the business, it starts to go pear shaped.
Um, and so he got in touch with Munger and Munger said, Hey, I know this guy, Harry Bottle.
Yeah.
This is the famous Harry Bottle story.
They convinced Terry Bottle to move his family from Los Angeles to the middle of nowhere, middle of the heartland.
Harry Bottle fixed the business.
They ended up selling it.
And
That I mean.
Buffett said.
Without Harry Bottle.
Without Charlie Munger.
Without a few of these things going a different way early on, there is no Berkshire, there is no Warren Buffett, there is no institution the way it is today.
One is it's good to acknowledge just how much luck plays.
a role in all the stuff. Totally. Right. I mean like
A big part of humility is just acknowledging like we're far less in control than we really think we are.
Also
When things do happen and you do see a need.
Talk about it.
Voice it.
See how you can
Access.
People and resources.
And so um I would I would just argue that um
No one can
Take a business that's small.
loosely functioning, sometimes makes money.
And leave it alone.
Uh, these are highly variable assets with very difficult
attributes about them and it's a knife fight.
The other story is like Berkshire Hathaway, right? Like if you think he was hands off
And not talk I think it was Malcolm Chase who took it over?
Yeah. Yeah. Like they were talking daily. Uh and he he re wouldn't let him reinvest in the business, but he knew the numbers better than
than chased it. He still knows the numbers better than I would imagine a lot of the operating CEOs do.
For sure. I mean Buffalo News.
Like
They were Buff and Munger were very, very active in
Many of their situations. Now, as they've gotten into massive businesses that are, you know, you're hiring really high-powered, really paid, high-paid operators.
But
they're gonna be better at the operating than they are. So I mean at a certain point, like
It flips and you have such an access to capital and such a need for size.
that some of those problems take care of themselves. Now you got the other problem, which is
The fact that Berkshire hasn't beaten
The market in twenty years, twenty five years now. Well, why? Because they're so freaking big.
Yeah. So you got I mean the there's problems either way and there's pluses and minuses either way. You just get to choose which one you want to engage in. Where do people go wrong doing what you're doing as they scale? They try to go too fast.
Uh too soon, assuming they know too much.
So we
Uh, from the time I f bought the first business to the time I bought the second business was four years.
Four years.
Of
Toiling away.
and correcting and learning and trying to get a good foundation of capital and
in the position to do the next deal.
Now we were looking for deals in between.
But it's hard. Buy one business.
One small, medium sized business, negotiating it, documenting it.
Closing it.
operating it and having some sort of either thro distributions or through a sale.
Positive outcome?
One time.
is brutally difficult.
is a brutally difficult thing to do. Now get you to do that again.
And again and again. And oh by the way.
This is an interesting dip that happens.
Where
So now you've got let's say you've done this three times. Three brutally difficult and you've you've you've just now cash flowed them. So you you still retain them.
So now you've got a portfolio of three companies.
Well now you can't be CEO of three companies, I guess unless you're
Elon Musk and
You know.
Somehow he's figured out how to do this, but
Most normal people can't even operate one business well, let alone two or three.
So you gotta make a choice. Okay, well now I'm gonna take my free cash flow from
Three of these companies and I'm gonna build a layer.
Of overhead.
to be able to then scale and manage. So somebody's gotta be out there looking for deals.
Interacting with capital partners.
Diligence really matters, legal due diligence, financial due diligence, technology due diligence. Somebody's gotta be managing all of that.
documenting it, negotiating that process all the way through, and then of course postclosed operating these things.
Right.
A lot to worry about. Oh, and by the way, you got regulators.
All mixed in there as well.
There's a lot of places to hit a pothole.
And so you say, Who
I'm working a hundred hours a week, every week.
And yeah, we're making a bunch of money, things are going great, I'm making up a scenario.
Um, but now you gotta basically take all of your earnings.
All the free cash flow of your business and and go to zero again.
So you start at zero or with very little, you invest it, you do well, you do well, you do well, you run the gauntlet.
Two or three times.
Now you gotta go back to zero.
Because you gotta take all your free cash flow and you gotta reinvest it in that in that next layer.
That's brutally difficult.
Now you've got a whole nother set of issues. Now you've got meta problems at the
Head level.
Now you've got personnel issues. Now you've got
culture problems. Now you've got technology issues and
Now you've got an operating business that's trying to operate businesses.
And you've got the same issues in
The operating business, the parent co, as you do in all the
Smaller businesses.
It's brutally difficult.
And then you go through another phase where you're like, okay.
Now we got a tight group of people, it's a small group.
Now we've got three or four or five companies, maybe six.
Well now you've got to build a much larger organization. You gotta go through this whole cycle again. So every time on the way at the cycle up.
You gotta pass through this gauntlet.
Of over and over and over and over again.
Амі, із миракл.
That
Permanent equity.
has fifteen companies. It's a miracle.
It's a miracle that we have a team.
that for the most part loves each other and cares about each other and wants to do good things. Like it's a be I literally not a day goes when I don't think it's a miracle.
And by the way, the future's not
Secure.
Like we might screw up.
Badly.
And so
There's always work to be done. There's no free lunch.
Nothing's easy.
It's why do you do what you do?
Given all of that.
I think I have the best job in the world.
I get to
Um
Meet.
Extraordinary people.
From very different cultures.
Around the United States.
Um
One day we'll be doing a dinner in New York at a Michelin Starred restaurant, the next day we're eating at Hardy's in the middle of Ohio.
Um, we will go from Oregon to Florida.
To New Mexico.
It's the cultures are different, the food's different, the people are different.
The
The businesses are all different. I mean, I can't imagine I mean we have a blast.
Doing what we do.
And it's hard and stressful.
It is tiring.
Um why do I do it?
Because I feel called to help.
Families transition.
I feel called, I mean like
Um
You know, in in my paradigm
As a Jesus follower, work is pre-fall, work is for our good. Work is something we should engage in deeply.
Um
This is our co creation.
That we get to do.
Um, and I feel that. Like I feel that on a daily basis, and there's thistles and thorns, and it's difficult, and it's fallen, and it's broken, and it's messy. And so
That's life, though.
Like that's what we get to do. And like I can't imagine a better job than getting to serve the families and the institutions that give us capital that trust us with their capital for 30 years.
The amount of trust that they have with us.
To give somebody
capital for thirty years. There's nothing you can get back thirty years.
I don't take that lightly.
That's incredible.
I feel honored that somebody would trust us that much.
I want to serve them.
I want to serve them well.
The families that sell us their life's work.
Sometimes generational work.
That is it.
Heavy burden in some ways, and what an honor in other ways.
And then all the people who we get to work with.
Who are
Trying to be as excellent as they can at their craft.
Like I I I get to interact with so many interesting uh people and we get to do such interesting things and
I don't know.
Like I said, I think I have the best word job in the world.
We always end on the same um question.
Which is what is success for you.
Uh success would be to be an ambassador.
Uh
The kingdom of God. My life transformed.
Uh when I became a follower of Jesus.
And
I
Uh I've been rescued and and the thing that I wanna do most is to
We're called uh.
love and serve people around us. Um we
Worship a god who
condescended himself into the physical realm who's the author who wrote himself into the
ultimate book of reality and
Came to serve, not to be served.
And to um
To rescue. I want to
With that same love that I've been given, give that to other people.
And
Serve them well?
What a beautiful way to end this conversation. Thank you.
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