BRENT BESHORE – BUILDING AND GROWING A COMPETITIVE ADVANTAGE AT PERMANENT EQUITY – EP. 76

My guest on this episode is Brent Beshore, the founder and CEO of a lower middle market private equity firm called Permanent Equity. Permanent Equity acquires family-owned companies and has 11 in their portfolio today. They have also raised two 27 year funds, a $50 million fund in 2017 and a $248 million fund in[redacted]Permanent Equity is probably the most experienced, systematized, and well-known acquirer in the small business world and I’m excited to finally have Brent on the podcast.

During this episode Brent and I talk about their marketing strategy, what competitive advantages they’ve built and are building for tomorrow, how businesses can build a margin of safety in their operations, and lessons learned from buying and improving family-owned businesses. I recently moved near Brent’s headquarters in Columbia, MO to Omaha, NE and we also spend a few moments discussing life in the Midwest. Finally, I will be attending Brent and Patrick O’Shaughnessy’s conference Capital Camp in Columbia at the end of August and I hope to see many of you there. If you’re going, please reach out and let’s connect beforehand. And now, enjoy the episode.

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If you are under LOI, please reach out to August to learn more about how Oberle can help with insurance due diligence at oberle-risk.com. Or reach out to August directly at [redacted] in sponsoring? Send me an email at [redacted] Transcript:

Thanks for coming on the podcast. It’s been a long time in the making. But I’m excited to finally have you, and also to be within a four-hour drive of you now that my wife and I are in Omaha, Nebraska. Most people are going to be familiar with you. And so we’ll skip most background and I’ll add some in the intro. But I’d be curious, what surprises folks the most when they visit the Midwest for the first time?

What surprises people, I think that is legitimate area to live in. I have people come from the coast of Colombia quite often to visit us and everyone’s reaction is like, “This is great. I understand now why you’d want to live here.” I mean, it’s not like this barren wasteland that you think between LA and New York.

No, it’s certainly not. I was talking about earlier the thunderstorms surprises the most. In Omaha, there was a storm recently where the winds got above 70 miles an hour, which triggers the tornado sirens even if there is no tornado. And so that triggered in the middle of the night. And so, I find it like this the first time this has ever happened. Not really sure what to do here, but that was a bit of a frightening moment. I heard that happened on Capital Camp last year or two years ago?

Yeah, yeah. We had two tornadoes during Capital Camp. So, one that got pretty close, we’re just trying to get people authentic Midwest experience. So we released the tornadoes and had all the Europeans go outside and try to take photos and had to shush them back inside.

Yes, absolutely. Your background is in marketing, of course. I’d love to hear how that has influenced your work at Permanent Equity where a lot of your work is published. You publish papers. You’re on podcasts a lot like this one. You have written a book at this point. Can you talk about the goal of all that content and then how you organize each piece of it, the book conference, writing, Twitter, all these other pieces?

Yeah. I’d say haphazard would be that short way of saying it. I mean, I think that maybe from the outside looking at all what’s organized, I would say when we have something to say we try to say it. Our goal in every piece of content is to educate and then repel the wrong people and attract the right people. Whether that’s potential partners, employees, sellers, leadership teams, intermediaries, lawyers, accountants, whoever it might be, we always try to be thoughtful around what are we trying to help them understand about us and about our perspective that then would lead them either to contact us or say, “Heck, no, I would never contact them,” which, by the way, both are equally good and in our eyes.

Is there any piece or type of content that you put out that has been the most productive in just getting folks to reach out to you?

Honestly, we have no idea why people reach out to us. We try to ask them and it is usually a pretty convoluted answer. They say, “Oh, I think I read something a couple years ago that you guys wrote or said, and then I just followed you ever since.” And when the time was right, they reached out. So, I would say probably the piece of content that we get told about the most is our no a-hole policy that we put on the front page, which is ironic because there’s plenty of people who are a-holes who identify with that article and still reach out, but that’s a separate issue. No one thinks they’re a-hole as we’ve learned. And as the article actually says, I mean, everyone’s either an a-hole or a-hole in recovery. So, we just try to be more in recovery than not.

I love it. Do you worry about giving an advantage to any competitors of yours for any company by writing about how you work through a deal process or talk with owners, how you communicate with your teams? Do you worry about giving anyone advantage over you?

No. I mean, look, the world is a big place. There’s a lot of businesses that need to be transitioned. Our philosophy has always been that it’s far, far better to just help people and expect nothing in return. And so, genuinely, we try to put things out there that we think would be helpful, would be great if they had been around when we were first getting going. Are there competitors? Of course. Have we tried to encourage and help people get into the space? Absolutely. Will we continue to do that? Gosh, I hope so. Does it maybe create more competitive dynamics? I guess, but I think in the long run.

I mean, look, I think we’re going to have what God wants us to have. And I’m not too concerned that we’re going to launch 1,000 competitors and then somehow we’re going to put by the wayside. I mean, the irony of what we do, and I think you know this, Alex, is that it’s actually pretty simple and straightforward. It doesn’t take very long to learn how to go about doing what we do. There’s just a lot of judgment. And that’s what takes years and years, if not decades. And the judgment is at every stage of the game.

I mean, unlike public equities where you can poke a buy button or sell button and think great thoughts during the day, most of our interactions are with people. When people are messy and complicated and trying to design a system that allows for the systematic moving along of these processes all the time is incredibly difficult. I mean, usually private equity firms have a partner model where how do you expand, you just hire more partners. We really try to take an assembly line approach, which is very different. It’s very intuitive to me and to us. The partnership models seemed really hard to find people who could do all these things excellently. It seems a lot easier to be able to find somebody who could operate their specific area of that deal process well. So anyway, that’s what we think about.

Yeah, it seems a very different model from most buyers. Most of the folks I talked with are individuals buying companies. And so, the owner, broker, whoever, has one point of contact with the buyer that they talk with throughout the entire process. Is it challenging sometimes handing off an owner to different team members at Permanent Equity as the deal process goes along, or has it been not that difficult and it’s been a fairly straightforward process?

I think if you talk about it as a team, I mean, what the value is and this is not just one person, we have a whole group of people that surround the sellers and leadership teams, and we think that provides a much better outcome, a much more varied and diverse perspective. And so, when we bring people into the process at various times, we say, hey, this person is amazing at, fill in the blank, and that’s why they’re here. And it turns out, I think, that the sellers realize that they are really good at that part, and that we defer to each other and that we think highly of one another. And I think that’s a pretty attractive thing to them to gain a group of, I don’t know, where we had 16, 17 people now that care deeply about their success. And we’re going to try to bring our expertise and our talents to bear on the company.

You mentioned judgment earlier and how it just takes years of reps to have a good judgment on how a deal is going or how a company looks. How do you institutionalize that knowledge and get it out of your head, so to speak, and into some process or documented guide for others to follow and take advantage of that judgment that you’ve honed over the years?

First of all, I would say that in terms of my judgment, I’m close to functionally irrelevant these days at Permanent Equity. I mean, it’s not my judgment anymore that is really dominant. I have judgment maybe around the deal-making deal design aspect. And then we call it deal rescue, which every deal has to be rescued at least three times and are experience is close. So, those are the two things I probably specialize most in these days. Other than that, it’s really the team is incredible.

I mean, I admire our team greatly, enjoy being around them. I feel so blessed to be able to work alongside them every day. And I know a lot of people say stuff like that and don’t mean it, they’re trying to be falsely humble. I’m truly serious. It’s incredible. It’s awesome, the team that’s come together here. Yeah, in terms of how do we institutionalize judgment, I mean, I think that’s the thing about judgment is you can institutionalize it. I mean, you can create checklists of processes to make sure that the person’s judgment doesn’t run astray or you don’t fall down some hole you didn’t notice there.

But in terms of judgment, I mean, the only way to get it is to experience. And thankfully, we have a rule around here that we don’t hire people who haven’t been operators, because we think that operating skill set is far more important than investing skill set, especially for what we do. And so, everyone has been an operator, everyone’s gotten their teeth kicked in and hit their face on the pavement a number of times. And we certainly have an atmosphere of collaboration around the office where when somebody’s dealing with something difficult, they verbalize it and communicate around and say, has anybody seen anything like this before? And more times than not, somebody says, yeah, look, we’ve seen that movie before, and here’s how we think that plays out, but maybe not this time. So yeah, I would say it’s more of a hiring thoughtful, intelligent kind people that then collaborate with one another is how we’re all going to get better over time.

You mentioned how a-hole sometimes get through your no a-hole article, and still make it through your filter. How do you start filtering from, okay, now we have this group of operators who are excited to work at Permanent Equity in some way, how do you begin to filter them by kind-hearted people work well with other people? What kinds of questions or things do you tend to look for in folks when you’re thinking about hiring them?

Yeah, I mean, we really just try to get to know people. I mean, you ask them a lot of questions about their family, about their background, about how they approach different things at work, what their colleagues would say about them. I mean, Graham Duncan wrote this incredible white paper called What’s Going on Here, with this Human? I don’t know if you read it or not, but he does a great job of talking through how do you get to really know somebody and how do you think through the mindset of, okay, maybe they’re not interviewing for a specific job but they’re interviewing sort of your job is to see where they could fit. We very much take that mindset around here.

In terms of just trying to screen, I mean, we all have pride issues, we all have anger issues and frustrations and anxieties and fears. And so I think that the question is not are we trying to screen for people who are somehow inhuman? The answer is, of course, no. We’re trying to understand what is the person’s predictability and how do we expect them to act under a fairly wide band of outcomes and making sure that those ways that they would react and the way they would act up with this band of outcomes matches with how we would expect others to be treated here at Permanent Equity. And so, it’s really just a matter of just getting to know them and seeing how their behavior matches up with their words. And we take a pretty long time to get to know people.

Is there any question that you love to ask folks or a scenario like to paint the picture of to see how they might react?

We’d love to ask a lot about power dynamics. We’d like to ask about what are examples when somebody who was in a position of power above you acted in a way that you didn’t appreciate. How did you react to that? How about somebody who’s kind of appeared to you? How about somebody who was underneath your authority in the organization? Oftentimes, you can’t disguise it enough where people don’t really know where you’re going with it. So you got to ask and poke around a couple different ways.

Ultimately, what we’re trying to figure out is there are certain people who punch up but most people punch down. And we don’t like people who punch down. If you’re going to do anything, punch up. Meaning, I’d rather somebody get aggressive with somebody who’s their boss, who feels like they’re in position over them, and aggressive in a way that is respectful, though, behind the closed doors and say, “Hey, that was not good.” I mean, people will call it transparency, but we would appreciate much more people who, when you’re leading others, you do so in a kind encouraging way, not in a way that tries to control them or manipulate them into behavior that you think is best.

Do you have any examples or stories at Permanent Equity over the last year where someone has, not aggressively, but someone pushed back upwards within your team on some key issue that they were passionate about or really strongly believed in?

Yeah, that’s about every day around here. I mean, literally, we have a culture that I’m not sure how normal it is but where I think everyone on the team feels comfortable walking down to anybody else’s office and saying, “Hey, this is something that has risen to a level that we need to talk about it. I’m uncomfortable with this or I don’t feel like that we’re doing this the appropriate way or there’s room for improvement here,” I mean, literally, it’s all the time.

It’s anything we write, it’s interactions with sellers, it’s interactions with portfolio companies, it’s how we go about trying to institute change, I mean, it’s everything. And we try to set things up to give a forum to that on a pretty regular basis. So once a week, the executive team is getting together and really talking through what are challenges we’re all facing, and how can we help one another in those challenges, and what are things we need to adjust and change. And then once a quarter, we’re all getting together for at least one day, if not two, or three days and really hashing things out.

I’d be curious as you have now raised to funds and you’ve had previous experience owning and running companies as well. When you started with fund one, what competitive advantages did you expect to have, and then today, have those panned out, and then perhaps what other competitive advantages emerged that you maybe didn’t expect?

I think our competitive aim is always been… This is going to sound like very basic but it’s true. It’s just we do what we say we’re going to do when we say we’re going to do it. We just try to practice extreme reliability. And it’s an accruing advantage because the more people know that you’ll do what you say you’re going to do, you’re going to treat them fairly, react quickly, be honest about things, the more people want to work with you.

So I think that’s where we’ve developed at least a sub-segment of intermediaries and lawyers and accountants and people out there who helped the sellers and leadership teams transition that know us and I think respect us. And we try to treat them well, serve them well. And that’s certainly been an occurring advantage over time. I would say that that is a brand. I mean, if you think about what is a brand, that’s basically what can people expect. And I hope that the brand we put out there, it’s certainly not perfect, just like we aren’t. And I would say that that fits well. But I would say for the most part, I think people expect us to do the right thing, I think we far more times than don’t do the right thing.

What goes into being a reliable person in your eyes?

Well, everyone’s reliable in the moment to what they prioritize most. So I mean, this is the idea that no one acts irrationally ever in the moment. If you think somebody is acting irrationally, it just means you don’t understand their time preferences or their biases or I would say general preferences. In terms of being reliable, it’s having a heart to serve, having a heart to play the long game, knowing that at the end of the day all we have is our word. And that really matters. And so, when you say you’re going to do something, you do it, and you don’t think twice about fulfilling that. And if for some reason something comes up you can’t do what you say you’re going to do, you immediately say to the person, “Hey, here’s the situation. Here’s why we can’t do it and here’s why.” And just let it play out.

What kind of tactics go into that? So is it good writing, just being open communicator, setting agendas beforehand? What sorts of best practices have you developed around working with third parties and being a reliable source of information or being predictable as an organization?

Well, I mean, communication is just you’re communicating what you are and who you are. I would say, certainly, hopefully, in our writings, I mean, we’ve been consistent. We’re writing a lot less these days just because we’re busier than we’ve ever been. And something’s got to give. I mean, we’re human. But I would say what goes into it is just trying to be consistent in every interaction they have. So whether that’s on the phone, or whether that’s through a piece of writing, or whether that’s somebody who hears something that somebody said to them, I mean, that we try to be consistent in all the touch points, I mean, certainly, we don’t do it perfectly by any means, but just try to be us.

I mean, it’s interesting, because I think people maybe sometimes have this idea that we’ve crafted an image or whatever for Permanent Equity. It hasn’t been intentional. I mean, I joke those haphazard. We’re just trying to be us. And I think that we’ve gotten comfortable in our own skin that we are who we are. We’re not right for everyone. In fact, we’re not right for most people. But for a certain group of people that care deeply who buys their business and don’t want to see it sold in a short period of time and want to be built over a long period time, I mean, I think that we’re pretty good option. And that’s who we want to be.

And for those businesses that you’ve acquired over the years, this is switching gears more to operations and running companies, what improvements do you most consistently make at new portfolio companies as you acquire them or after you do?

There’s what we call the everything-tastes-like-chicken layer to business where whether you’re in the glass and glazing business, or pool construction, or manufacturing, or military recruitment, or matchmaking, I mean, all the different things that were involved in these days, there’s a layer to it where if you don’t have good feedback loops and information, you can’t make decisions. There’s not much more to it. So, what do we do? We try to get in there and improve the quality of information, the timeliness of information delivery, while at the same time trying to be mindful that where are you trying to get to.

Ultimately, if you can get pretty quickly to X and it takes another 10X to get to Y, is that 10X effort worth it? And oftentimes the answer is no. So we’re trying to get up to where we feel like the optimal speed/quality ratio is ideal for that organization and for what needs to be done. And some organizations need a lot more information feedback loops than others. Sometimes it’s obvious, sometimes it’s not. It really depends on the situation. So I would say that, I mean, I would say is we’re looking at sales systems, we’re looking at the marketing and advertising, we’re looking at the technology stack. And then we’re just looking at general operational efficiency is probably not the right word. We’re looking culture, we’re looking at how do we treat our people, how do we create incentives, all those things.

And by the way, we never come into a company that’s done all those things well and it takes forever time. I mean, we’ve owned companies now for over a decade. And I would say that they’re still on all the way there. And they’re still continually getting better. And so, hopefully, all you can do is just try to be conservative financially, try to build a lot of trust within the organization, and then just keep getting better and let the chips fall where they may.

Is there a company that you might be able to use as an example and talk about some of the feedback loops within this company that you’ve improved since owning it?

A good example of that is our pool business. We started working that business cash out, pushing six years now. Like any growing business, they’d grown a ton, systems were breaking. And so, we have worked with them a lot to figure out what are the feedback loops, and so, what’s the dashboards, what are the key performance indicators that we need to watch to see, and how are we tracking each one of those. And so, I’d say it’s certainly still not perfect, and no company is, but made huge strides, and that company has grown three times the size in six years. And so, I think the only way you can do that is if you do any work on your systems and give people the information they need. And hopefully, we continue to grow from there.

What feedback loop within the pool business needed the most help?

I think that margin. So if you think about building an industrial pool, it’s a construction project. And we’re going to do over 2,000 construction projects this year. So if you think about each one of those construction projects, gosh, depends on how you define categories, but called 80 to 100 inputs. Each one of those inputs has a separate cost structure to it and margin into it. And then you add up all of those and that gives you an individual job margin.

And so I would say, over time, we’ve really tried to figure out how do we watch subcomponent margins and how do we make sure that we’re pricing things appropriately, to make sure that we don’t get ourselves in trouble. I mean, certainly, recently, costs have exploded in the construction world. I mean, I’m sure you’re aware of it. Not just lumber, it’s everything. All inputs to construction have gone up dramatically. And so, just trying to make sure that we’re staying on top of that, and it’s hard. It’s really difficult. If you think about running 2,000 construction projects a year, it feels somewhat like a miracle.

So you’ve obviously had tons of experience running companies and improving them. What are some of the most interesting ways you’ve seen companies build a margin of safety into their operations?

It’s all going to come down to people. I mean, the margin of safety is down to the trust and reliability of the people that are involved in it. You can have the best processes in the world. You can’t have a great product if your relationships are terrible. If there’s not much trust amongst your team, it’s eventually going to come crumbling down. And so, again, everyone wants to find the secret. The secret is people. And the secret is how do you treat people really, really well and be kind and generous to them.

And, I mean, everyone wants the same thing. Everyone has to be fairly treated and fairly compensated and given autonomy and be seen. And so, how do you do those things? People can tell if you actually care about them or if you’re trying to fake it. And so I would say the secret, again, is there is no secret. Just treat people well and truly care about them and try to do good by them. They’ll try to do well by you.

I loved your tweet, the 10 big life lessons that you’ve integrated into your life over the course of your time. And the one that sticks out to me a little bit is the nonlinear thinking where we think linearly, but oftentimes, unexpected things happen to the upside compoundedly and downside. I’d be curious what moves or changes within a company have you made that surprised you the most to the upside.

The challenge with the question, though, is it implies that there’s this one thing that you tweak, and then everything just goes through the roof. And there’s not. That’s what most people don’t realize. It’s like when you see a company exploding upwards, it’s a combination of a ton of different things that happened years before. And the table was set and then the compounding took over. And so, in terms of how we see that, we’ve certainly seen companies that we’ve gotten involved in that have done extraordinarily well, but it feels unremarkable.

That’s the irony of it. It doesn’t feel like there’s something dramatic that happened that it’s like this “aha” moment that the light bulb went off and everyone was like, well, if we just did, fill in the blank, if we just discovered the secret recipe or the secret sauce. It’s like, there is no secret sauce. It’s just getting the right people and the right places and the right systems and doing the work. And then over time, all of a sudden, you see the fruits of that come about.

And so, we’re doing far better than we deserve, let’s put it that way. And so the success just comes from just the daily grind and trying to be faithful on daily basis to what you should be doing and just keep doing more of it. It’s really boring podcast answer, though. It’s not a clever thing. One thing that I love about your podcast and I think that one of the things I like about the space to take a slight digression is that it’s not magic. And it’s not like you feel like you’re coming into some secret.

I mean, there really is no secret. It’s just how do you serve your customers well, how do you be good partners to your suppliers, and how do you create a culture of everyone trying to win together and do the right thing. And then at the end of the day, those things will shake out over long periods of time, usually in the right direction. When those things are on shaky foundations is when you get detonations. And, I mean, thankfully, we’ve never had a detonation in our portfolio. I mean, it’s felt like at times that it could have happened, but we try to be very disaster-resistant in how we do things.

When you’re acquiring companies at the size range you’re currently working at, do you look for companies that have… There’s more than just five but there’s five basics of running a business well, do you look for companies that have all five? Are you okay if companies have gotten three out of five or four or five, but if a company has one out of five, you’re not really interested in? Where do you draw that line typically?

So the way we think about the ideal acquisition target for us is the people do the thing that they do really well. If it’s glass and glazing, they’re incredible at building buildings. Everything else we’re pretty flexible on. And we talked about the everything-tastes-like-chicken layer business earlier, but the more of those components that are in order and the smaller the company, the more you have to question the business model. Because if you’re just excellent at the everything-tastes-like-chicken layer of business and the company is not growing and is still pretty small after a long period of time, then you really got to look to the business model.

And so, for us, if this company’s been existence for 20, 30 years and it’s still relatively small, then one of two things is happening. They’re incredible business and they have a terrible business model, in which case we certainly don’t want to buy the business or the business model is fantastic and they’re probably not great and all those other the business of business. And so, for us, we’re trying to evaluate it’s almost like a Goldilocks. We don’t want them to be excellent at the business of business because that means that probably their business model is not ideal. At the same time, we don’t want them to have no infrastructure in place where it’ll take a really long time, and usually a regression in the numbers to rebuild the company into a state that you can actually grow. So, it’s a little bit of Goldilocks.

What common problems do you see folks with good business models that work, what things they tend to struggle that in executing that business model?

Yeah, I mean, that is the business of business. There’s no marketing effort. There’s no sales effort. Their sales incentives are all off. They’re still doing everything through a series of spreadsheets. They have no good HR policies. They can’t recruit talent. They don’t want to incentivize people the right way. I mean, it’s all the things that would limit how a company wouldn’t sort of organically grow if the demand was there. And so, we try to come in and just look for bottlenecks. I mean, the question we keep asking ourselves is, okay, what’s limiting us from growth?

And everyone will always say, oh, we wish we just had more customers. Okay. Well, how do you get more customers? Well, we got to go find them. Okay. Well, who’s going out and finding them? Well, no one. Okay. Should we hire somebody and find them or could you go out and find them? I mean, I could. I don’t want to. Okay. Well, I mean, maybe that’s the bottleneck. Or, hey, we have incredible demand, we have people coming in knocking our door all the time, we can’t find labor, as an example. I mean, labor is a huge issue in a lot of blue collar areas right now. Well, how do you get more labor? Well, you got to find people and train them. Well, how are we finding people? Well, we don’t really try to find people. Okay. Well, maybe we could try to find people. Again, there’s no magic to it. It’s just asking questions to try to get to what do we think the bottleneck is and then what are the ways in which we can uncork it.

Yeah, recruiting has been a huge focus for a lot of companies. And then, especially with Permanent Equity, using your new Orbit program, I’d love to hear about how you design that program for recruiting to not only just your portfolio companies but at Permanent Equity as well. How have you designed the Orbit program to continually find great people to work with you?

Well, first of all, Kelie Morgan who runs that, she’s just phenomenal. She does nothing every day other than try to connect with people who are interested in working either directly at Permanent Equity or one of the portfolio companies. And she’s done a great job. The Orbit is basically an opt-in system where you tell us what you want to do and where you want to do it and what your ideal job would be, what you feel like you’re qualified to do now. And then when something fits that looks like what you said to us, then we contact you and say, “Hey, do you want to come evaluate this opportunity with us?” And so, we hire almost exclusively through that program now. I would say the last, yeah, probably the last 20 hires have all been through that program.

So at that level in a portfolio company of yours do you hire through the Orbit program versus directly through the company?

So, the way we think about what we do at the Permanent Equity level versus what we do at the portfolio companies levels, if you want to think about it, it’s like a two by two matrix. And the less frequent, so frequency being the x-axis, the less frequent, the more likely we’re going to do it at the Permanent Equity level and then the more important the more likely bring to the Permanent Equity level. So if it’s highly infrequent and highly important, that’s going to be situated then at the Permanent Equity level.

And so, executive recruitment would be a good example of that. I mean, if you’re doing executive recruitment well, you shouldn’t be doing it often. If you’re doing it often, that means you’re probably not doing it well. So, we want to do that probably at the Permanent Equity level. In terms of hiring whether like a line worker or day laborer or something like that in one of the companies, that would certainly be done through the company and not at the Permanent Equity level. So, when it comes to things like ERP integration, hopefully you’re not doing an ERP integration very often, really, really important. It could be hugely valuable if you do it or hugely disastrous. So the more important, the less frequent, the more it’s located here.

How do you handle context switching when you’re hiring different executives for different companies where there’s different cultures in place and perhaps entirely different HR practices or systems, how do you switch between those when you’re making these hires? Like you were saying, perhaps it’s infrequent enough that it’s not a huge concern, but I’d be curious if it’s frequent enough that you’re switching fairly frequently, how do you handle that switching?

I mean, it’d be a great question for Kelie. I mean, I’m not the one doing it. Like I said, I’m functionally irrelevant these days. So I mean, I think what she would say would be that we’re not often hiring three, four, five executives at any given time. She’s usually going through a week or two period of sprinting on one position and she’s able to get into the company and get to know the leadership and she’s working very closely. It’s not like we’re hiring them in a vacuum here at Permanent Equity and then gifting them to the portfolio companies.

I mean, we’re trying to really come alongside the company and she’s an extension of that company in many ways. And so it should feel very organic and natural that they’re involved in the process and how they are. And so, I doubt that contact switching is a hugely important issue. Although, I’m sure she has days where she’s interviewing for three or four different types of positions at any given time, and she’s got to pop between different types of companies and different geographies and different styles. And I’m sure it’s not an easy job, but that’s why she’s awesome.

Yeah, sure. It sounds like it’s a pretty good job and she’s doing a great one. It almost sounds like you’ve developed an executive search firm underneath Permanent Equity. I’d be curious, are there whatever terms to the project been since you started Orbit compared to how you recruited prior to Orbit?

Yeah. I mean, it’s been a huge godsend. I mean, I think that at the end of the day, there’s money, there’s opportunities, and there’s talent. And if you don’t keep them all in balance, then you’re not going to have a firm. And so thankfully, with the fundraising, the most recent fundraising, as Forrest Gump said, “Don’t worry about money no more.” And that’s good, one less thing to worry about. And opportunities have been plentiful. That’s been great to be able to see so many different things.

And so, really, now, it’s just to focus on talent. And that’s going to be the biggest bottleneck, and it can get this sort of cookie-cutter mentality. And we’re trying to find people who care deeply about what they do and are fantastic. And so, the bar is really, really high. And that work has been just a godsend in terms of getting to know people over long periods of time. Anytime we travel to a city, we typically try to host an Orbit event, get together, get coffee with people, get to know them, just develop relationships. So much of the world comes down to relationships. And the more I think about it, the more that I think that’s true. And I continually underestimate how much it all comes down to relationships.

Yeah. The Orbit program definitely seems like a compounding advantage for Permanent Equity over time. Also, be curious, what advantage are you working hard at today to eventually attain five years from now?

One of the things that we’ve talked a lot about is doing outbound well. So we’ve been pretty lazy, to be honest. I mean, we’ve done mostly inbound marketing. And when you start to feel like the zoo animal, the lion in the cage with the steaks just kind of get fed to it, you start to not want to hunt very much. And early on, when we were just getting going, we did exclusively outbound because no one knew who we were and we had no brand, no inbound, and we just didn’t have much success.

And so, as inbound started to ramp up and we found success in that, we just really didn’t make an effort towards outbound. And that’s been a big change that we’re really trying to work on is what does it look like to have the best data, the best business intelligence on the lower middle market, and know who they are and know what they want and know when they want it, and be able to get in front of it at the right time, and not be annoying, and be thoughtful and start meaningful conversations. And so, we’re very early on in that process, but we feel pretty good about the steps we’ve taken and try to keep going down that path.

So you’ve also created DealTeam, Capital Camp, Orbit, what products or services, communities do you want to see created over the next five years?

I mean, I don’t come from the investing world. I’ve never taken a finance class in my life. I’ve never worked at another firm, a joke that I’m the Forrest Gump of Private Equity for a reason, because I think it’s pretty true. One of the things is I get more and more into this world, it seems to be just massive inefficiencies everywhere I look between how investors communicate, how LPs and GPs communicate with one another, and what does it look like to have community amongst people who are trying to do really difficult things and try and do them at scale. And the support structure, it’s pretty lonely out there, let’s put it that way.

I mean, especially in private equity, you’re not exactly known for our warm and fuzzy community. It’s pretty cutthroat. And so, I think that one of the things that we have tried to do is through Capital Camp, now through deal team, is create community, real community where you can form meaningful relationships and trust. And that’s mutually beneficial for everyone. And so, I think that there’s a lot of value to be gained for everyone through collaboration and not through intense zero sum competition.

So that’s my hope over the coming years is that we’re able to continue to foster those types of communities. And I think personally, for me, my career feels very haphazard. It feels very random. And if I hadn’t met Patrick through Twitter, I think my life and my career and a lot of people’s lives and careers around me would have been very different. And so, how do you create on ramps for people like me from five, six years ago where we had a niche expertise, we knew we were doing kind of in that area, certainly didn’t have access to capital, didn’t have the relationships to get access to the type of resources that we needed. And hopefully, over time, it doesn’t take some sort of random stroke of luck to coincide to get somebody like me up and out of what we’re doing.

So I think those are things over time that we want to build on. And look, I mean, Permanent Equity is my primary focus. It’s my job, I love it, as we have these things, I mean, finding people who are passionate about them, too, and being able to help get them off the ground and then really let them lead it is the model that both Patrick and I work on most stuff together these days, that’s kind of our models. He’s got his day job, I’ve got my day job. And for fun, and we try to get these things off the ground and have it come to fruition.

We’ll move into closing questions. What college class would you want to teach if it could be about any subject you wanted?

I feel like I’m not very qualified to teach on hardly anything. I mean, one of the things that I think probably I have expertise and that’s pretty difficult that I think would be it’s a valuable skill set is deal-making. So the art of understanding two positions or more, two or three or four positions, having all the stakeholders around the table and understanding what do they want, what are they able to get done, and where are the pain and pressure points, and then trying to craft a deal that works for everyone for the long term. That’s something that I just love.

I mean, when you talk about creating value, when you can take people who… Anytime somebody does a transaction, it’s good for them and good for the other party. And if you were giving somebody a check is because we value that asset more highly than the cash that we’re giving them and they value the cash more highly than the asset they’re selling to us. If you think about it in terms of all the stakeholders, whether it’s employees, leadership teams, communities, certainly the vendors and the customers, how do you think through lenses that you look around and can see everyone’s interests and then over time craft something that works for everyone for the long term? I think that’s pretty valuable skill set.

What would be your textbook or resource of choice working through that class?

I don’t have one. I mean, it’d be some combination of a bunch of different articles on psychology and negotiation. But I’ve never seen a book that’s written on that topic.

Got you.

If there are books out there and somebody listens to this, please, for God’s sakes, tell me. I would love it.

We’ll see if we can get somebody.

Yeah.

What strongly held belief did you used to hold that you’ve changed your mind on?

I mean, the dominant one has to be the… I mean, I used to be an atheist, a pretty hardcore atheist. And over time, God just pulled me and won’t let go. And I became a follower of Jesus, probably you’ll see seven years ago, transformed my life. It’s unbelievable, the difference that I feel, night and day now versus before. I’m so grateful.

Is there any particular moment that changed your belief, or was it a series of moments or maybe one year in particular had a lot of change in your life that forced you to reconsider your position?

Yeah. I mean, I would say in my late 20s, from the outside looking in, I mean, I certainly was on a trajectory that I think looked pretty good. I mean, I have a beautiful wife who loved me, business success, I had friends and healthy family and had my health, and I would wake up every day and just be in the sort of existential dread. I actually remember thinking myself like, this is it, this is the thing that for the rest of my life I’m just going to keep trying to earn and gain and eat and drink and be merry and that’s it, seemed very hollow to me.

And so, about that same time I started meeting people who just lived differently, just thought differently, lived differently than I did, I had no idea they were Christians. I was very condescending towards Christians at the time, and met these people who just loved and lived freely, and they seem to just really enjoy their lives, and were just created happiness wherever they went. I mean, certainly not perfectly but they look very differently than I did and very differently than my friends and thought differently.

And so, over time started getting to know them and I was like, “Hey, what are you guys on? What’s the thing?” And I wouldn’t say reluctantly, they were quick to say, eventually they would say, “Well, the love of God, I’ve been shown the graciousness.” And I was like, “Yeah, that’s ridiculous. So what else is it because you clearly must be on something else because that can’t be it?” I mean, just really, over time, got to know them. And I thought that religion was for the weak and the stupid. And honestly, I think I didn’t realize how weak and stupid I was at the time. And just understanding, really, the difference between what following Jesus is really like versus what the movies made it out to be, as what I would call it. And over time, just started learning more and more and growing in faith, and it’s been wonderful.

Yeah. And your interactions with religious folks or of any religion, as you went through this journey, what do you think the most humbling experience or interaction was?

Well, the most humbling interaction, I mean, was constantly being wrong about my positions on everything. I thought I was smart and well-read and well-educated, and I would say just really things that were just incorrect, and they kindly and gently correct me on those things. And so, it was a lot of just misunderstandings, misperceptions that I had about who God was and what it meant to follow Jesus and what we were trying to do. I mean, the biggest one is just what was the gospel? What is the gospel? The good news. And I always thought the good news was that he did these things that God called you to do, then God would give you health and wealth and happiness and prosperity and all these things and that we’re trying to earn it.

And I remember, one day, a buddy of mine said, “Brent, that is the opposite. That’s not it. The gospel, the good news, is that you get to receive by faith alone. All these gifts it’s freely given.” And once your faith like there’s nothing you can do to go outside of God’s love and nothing you can do to earn it, and so you’re not doing good works to try to earn God’s favor. You’re doing good works because of the things God’s given you and that you’re doing it out of love, not out of trying to earn. And so that was a big lightning bolt in my life. And it’s so counterintuitive. It’s so countercultural. And it takes a long time. And oftentimes I still forget it to today and I try to get up and earn my salvation almost every day and have to remember that it’s already finished. It’s already but not yet.

What’s the best business you’ve ever seen?

I mean, it’s going to be software. Let’s be honest. I mean, in terms of business models, if you have an unlimited supply, you build it once, you sell it a million times, oftentimes it’s recurring revenue, I mean, software is an incredible business. I think that organizations like Constellation Software figured that a long time ago and built really massive businesses based on that. I think there’s a lot of people who have caught on and figured that out. And so, I mean, look, if you’re going to go big, I think software is a pretty good place to go big. If you’re going to acquire, I think it’s pretty brutally difficult place to find value in it.

To be completely honest, I mean, I think it’s pretty picked over. There are still, I think, pockets, I think there’s really smart people out there doing it. But yeah, in terms of if you think the best in terms of quality of business, and I think that would that be it. In terms of probabilistically, if you were starting from zero and said I just want to do well financially, being a plumber and running a plumbing company.

I mean, the economics are enduring. And it’s pretty straightforward how you do it, and there seems to be pretty low bar for competition. And that’s also pretty good business model. So I don’t know. I mean, again, I’m attracted to things that are high probability, maybe lower overall return that you’re going to be able to consistently generate above average rates of return on.

Yeah, I’m a big fan of plumbers. We’ve had several on the podcast. So I’m definitely with you there. Maybe instead of acquiring a software company, have you thought about building one?

Well, deal team software. So I mean, we’re been actively building for about 18 months now. And I would say it’s hard in different ways. Certainly, I haven’t been doing the primary work on it. But it’s been a real education in learning how software gets built. And it’s been fun.

That’s awesome. We’ll close here. But thank you so much, Brent, for coming on the podcast. Listening to you on Invest Like the Best was a huge moment for me to identify with the micro PE and search fund world and realize that it existed. So I credit you in large part to Think Like an Owner’s existence. So thank you for doing that. And thank you for sharing with us today.

I appreciate it, Alex. I encourage you to keep up the great work. And it’s a wonderful service you’re doing to the micro PE small business world out there. So keep up the great work.



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