My guest on this episode is Robert Graham. Robert worked in management roles at Eaton prior to attending Harvard Business School, after which he worked in investment banking and private equity. Eventually, he decided to search for a business after seeing his HBS classmates do it, and today Robert is Managing Partner at Pillar Health Group, the holding company for four healthcare businesses he acquired together as a searcher.

He’s also a partner at Search Investment Group, which advises searchers on finding and acquiring their dream business. Search Investment Group also invests in self-funded searchers and has launched a new funded search program that functions as a hybrid between self-funded and traditional funded search.

We discussed this program, its goals and feedback they’ve received from searchers in the episode. During our conversation, we also talk about what managing large manufacturing facilities with hundreds of employees is like, why Robert didn’t want to acquire a manufacturing business as part of his search, running two businesses at once with Pillar Health and Search Investment Group, and time management as a CEO.

Episode Link

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Hood & Strong, LLP — Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. Hood & Strong is highly skilled in working with search funds, providing quality of earnings and due diligence services during the search, along with assurance and tax services post-acquisition. They offer a unique way to approach acquisition diligence and manage costs effectively. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at

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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 Or reach out to August directly at in sponsoring?

Full Transcript:

Thanks for joining us, Robert. It’s good to have you on the podcast. I would love to hear all about your journey through Pillar and Search Investment Group and all the different work you’ve been a part of. I would love to start just by asking you a little bit about how’d you get into search? Like what made it appealing and interesting to you?

Robert Graham: Yeah, that’s a great question, Alex. I think that I always knew I wanted to own my own business, and I probably wanted to buy a business rather than start one from scratch. I didn’t really have the risk tolerance, I think, to do a startup, or really, I didn’t really want to wait five or ten years to have a business that was large. So, I always kind of knew I wanted to buy a business. I learned about the search fund model while at HBS and then decided actually not to go down that route immediately but to learn all about mergers and acquisitions at HBS, and then, did an internship in investment banking and went into private equity after HBS to learn how to buy and sell businesses and did that for about a year. And while doing that, I learned that I had several classmates who did search funds who didn’t have any M&A background and they did it successfully. And so, I got kind of jealous and decided to do my own search fund, or not search fund but a self-funded search actually. And I did that and bought a group of health care companies in 2019 that I have been running since. So that’s kind of how I got here.

Alex Bridgeman: Do you think you could have launched a search fund straight after HBS?

Robert Graham: Yeah, I do think so. I’ve seen folks launch search funds without having an MBA. And I think if you’ve got the right background, and the most important being leadership capability and the ability to manage people and processes, I think you can do a search fund without having much M&A background and without having an MBA and definitely not an MBA from an ivy league school. So, I encourage people without those backgrounds, and you don’t need to have a background in PE or consulting or investment banking. I think the biggest thing is management. If you’ve managed a business, that’s going to be the most important thing to you being successful. And 90% of being successful in a search is not finding the business, it’s what you do with the business after you find it. You just have to be good at finding a business for six months. So yeah, I definitely don’t think an MBA is necessary. I don’t even think transaction experience is really necessary if you partner with the right advisors and potentially investors.

Alex Bridgeman: So how do you feel like your previous experience prior to Harvard Business School helped prepare you for searching?

Robert Graham: It definitely prepared me for running the company post search. It didn’t help me really with the search itself. So, I was in operations management type positions and led large groups of people, which has been very helpful to me post-closing and really managed processes and people like I mentioned. But the search piece is very much transactional in nature. It’s quite a bit different. I mean, it is in some ways, there is some project management aspects to it. So, I was a project manager and got like the formal project manager designation, went through the training, all that stuff. That was helpful, I guess, in kind of running my search because it allowed me to do it in a structured way. Other than that, searching for a business to acquire is a lot different from working in an operations role for a large company.

Alex Bridgeman: So, what did a typical day look like for you in being a part of some of these huge manufacturing facilities that you worked in?

Robert Graham: It all depended on the role I was in, but in the operations management roles, oftentimes, it could be- In the ways that it’s similar, I think, in owning your own business are that you really, in some of those positions, are responsible for whatever happens to the operation that’s under you. So, for example, we had situations in plants that I was managing where we would have a safety issue happen at the same time. An employee would get injured, that would happen at the same time the plant paint line was going to go down, and at the same time, we’re trying to get a rush order out the door. And it was my responsibility to make sure the factory didn’t shut down and also that the employee was taken care of and that the order went out. And so, you kind of have to do what you have to do. You have to really think on your feet and move quickly and be decisive. And those are the types of things you have to do as a business owner. Sometimes you’re in very difficult situations, and if you don’t fix it, nobody is going to, and you could be in a really dangerous position if you don’t fix it immediately. So, you have to be decisive, and you have to take action. You have to be action oriented. And so those are all things that I learned in my operations roles. And it was everyday walking into work and in a factory, you don’t know what’s going to happen. You can create a plan as to what you’re going to do and what you’re going to improve that day, and a lot of times, that plan just flies out the window completely. So that’s kind of the nature of the work and you’ve got to be really comfortable with that.

Alex Bridgeman: How big were some of these factories?

Robert Graham: The biggest factory that I worked in was a million square foot factory. I was not over that factory; there was a very senior plant manager over that factory. But yeah, that was a million square foot factory in Upstate New York. And the factory had been around like 150 years. It was pretty neat. It was a foundry too, so they would actually like melt metal ingot into massive metal parts. And the building was just so cool. I mean, some parts of the building looked like a factory you’d see in a picture of like Henry Ford’s original factory. It was pretty neat. Most of the factories that I was in were smaller than that. So, the factory where the situation happened I just told you about, it’s about 300,000 square feet. It’s about three times the size of a Home Depot. We think of factories in terms of how many Home Depots they are.

Alex Bridgeman: I was about to ask you because I can’t even visualize what a million square feet looks like. Like how many Costcos or Home Depots is that?

Robert Graham: So, an average Home Depot is like a hundred thousand square feet. So, I always do in my head, I’m thinking multiples of Home Depot. So that factory where we had the situation I told you about was like the size of three Home Depots. And I think 400 people worked in that factory. The factory I told you about in Upstate New York, a million square foot factory, so that’s ten Home Depots. And at its peak production, I think there was like 3000 people working in that facility. So, that was a massive one. The biggest factory I’ve worked in, I actually don’t know how many square feet it is, but I worked in a Lockheed Martin factory in Fort Worth, Texas. And that factory is over a mile long. It is massive. It’s really kind of cool because you go into the factory and they have- the really efficient way to get through the factory if you are on the floor, on the production floor at the time, is you go in a go-kart. And they have like lanes setup. It’s really funny because it’s like a mini town inside the factory and there are stop signs and intersections, and they enforce you stopping at the stop sign. It’s kind of crazy. But it’s like a little town inside the factory, and they have like a barber shop and restaurants and all kinds of stuff. So, there are massive factories out there depending on what you are manufacturing, and if you’re manufacturing jets, your factory is going to be massive.

Alex Bridgeman: No kidding. Have you visited the Boeing factory up in Seattle?

Robert Graham: I have. Yeah, it’s amazing. Have you been there?

Alex Bridgeman: I have a long time ago, probably ten years ago when I was a kid. But it was one of the largest buildings I’ve ever seen. And this was when the 787 was just coming into production, and you could see lines of ten 787s all lined up, kind of in like this snake chain on their way out the building. And each one was progressively more built than the one before it. And it was just this unfathomably large building with all these different hallways, and the tour guide took us down these hallways where you couldn’t see anything, and then, you peek through a window and there’s a 737 there. And you keep going and there’s all these different engines or parts that are getting pulled in and assembled on planes. It was just such a huge, huge building.

Robert Graham: That’s what’s so amazing I think about manufacturing large capital goods like that. It’s amazing that we have facilities like that. And if you think about everything that has to come together to get a jet off the runway at that facility, it’s amazing to wrap your mind around. That’s why I kind of got into manufacturing. When I was pretty young, I was just amazed by- it seemed like magic that you have a building where parts come in, parts and people and capital come into this building from all over the world and out comes a jet or whatever, a train, a car. It’s unbelievable the amount of coordination that that takes and how intricate of a process it is. So, I mean, that just kind of early on in my career, just really caught my interest and that’s kind of why I went in that direction actually.

Alex Bridgeman: Yeah, it’s really amazing. And even within those planes, there’s entire companies that only make the lights or they make the wing tips or the radar system, and all these parts. Sometimes like the tiniest parts are made from this one tiny SMB in Pennsylvania or something, and it’s flown into Seattle so that they can put it on the 787. There are just really cool businesses surrounding that. Have you found a few like that through Search Investment Group that you’ve been a part of or are perhaps downstream of different large manufacturing projects or business?

Robert Graham: Yeah. I mean, that’s a great question. One, I did want to mention something that’s kind of interesting I think, one big argument for not allowing the automotive companies to go under during the Great Recession was, like what you just said, Alex, there are suppliers, direct suppliers to the big automotive companies, but then there are suppliers to the suppliers and suppliers to the suppliers to the suppliers. It’s unbelievable how many companies are required to support a company that’s already massive. And I will say to your question about whether we found any companies like that with Search Investment Group, we tend to stay away from- even though it’s my background, we tend to stay away from capital goods manufacturing and also companies that manufacture goods that go into capital goods manufacturing for a variety of reasons. Number one, I mean, if you think about it, if you’re making parts that are aerospace parts and they’re not consumable parts, well, yeah, generally, if they’re not consumable aerospace parts, you’ve probably got two or three customers that can buy your product and that’s about it. So, you are, by definition, almost definitely going to have customer concentration. That goes for the automotive space too and a lot of other large capital goods manufacturing. And those in markets tend to be somewhat cyclical. So, what we’re trying to do generally, we’re buying small businesses and they’re usually leveraged investments. We’re oftentimes using the SBA or some other form of debt. But we don’t like cyclical customer concentrated businesses because that doesn’t work well with this model, unfortunately. And that’s just kind of the nature of small business leveraged buyouts. We like really stable companies that have diversified customer bases. Also, I’ll say we like service businesses because they have a highly variable cost structure. So, if you think about a manufacturing business versus a service business, service businesses usually have a lot, in terms of a percentage of their cost structure, it’s much higher weighted toward variable costs rather than fixed costs. And manufacturing companies, generally speaking, have much higher fixed costs, which is difficult if you have a lot of leverage because if you have a reduction in revenue, you have a much larger reduction in profitability. And that makes it hard to cover your debt payments. Where, if you look at like service businesses, for example, if you have a reduction in revenue, well, most of your costs also are reduced because of the variable cost structure. So, we like service businesses, really, that service companies in non-cyclical industries that have, like I said, diversified customer bases.

Alex Bridgeman: And you’re also running your own company on the side of Search Investment Group. Can you talk about that company a little bit and how you found it and what business it is and different customers. And I think it was three different companies, if I remember right from our conversation, right?

Robert Graham: Yes. So, we bought the three healthcare providers in###-###-#### They are in the Dallas Fort Worth area. And the holding company is called Pillar Health Group. And what we provide is skilled nursing and therapy, so physical therapy, speech therapy, occupational therapy, and then also palliative care and hospice care to patients in their homes. And we provide that across the DFW area and then in 13 surrounding counties. We recently made an acquisition in Oklahoma, and then in addition to that, we’ve got an acquisition that’s in process right now in Arizona. So hopefully, we’ll be in three states pretty soon. We’re growing through acquisition and also organically. So, when we bought the business originally, there was only one physical location in Garland, Texas. And we about a year ago added a Fort Worth branch, which has grown great. The team over there has done a great job. And right now, we’re trying to add more branches in the DFW area. So, it’s both an inorganic and organic growth strategy. It’s been a lot of fun, really enjoy doing it. That’s most of my time. I do Search Investment Group in the extra time that I have. But most of my time is focused on that, building that business, which we’re really excited about. I think it’s got competitive advantages that few other others in the industry have. We’re able to provide a level of care that very few competitors are able to provide. And there’s a ton of I guess what you’d call just self-fulfilling kind of feelings from doing that type of work – we’re helping people that are the most vulnerable in our society, especially during the difficult time of the pandemic. Helping them receive the care they need in their homes has been a really meaningful thing to be a part of. So, I really enjoy doing it, and it’s been a great experience.

Alex Bridgeman: Which of the three seems to be growing the fastest or having the most interesting growth evolution since you’ve acquired it?

Robert Graham: Definitely I’d say the hospice division. Although the home health division has grown very fast as well. So, I’ll tell you just kind of numbers. When we bought the company, we had a home care census – this is back in ’19, the original three. The home care census was 300. Well, it was actually about 280. The home health census was 75, and the hospice census was 5. And today the home care census, which was 280, is now 320. The home health census which was 75 is now 250. And the hospice census was 5, and today it’s 50. So, on a percentage basis, the hospice is growing the fastest. It’s also, probably, I think the area of most interest for us. I think it’s the place where we can do the most good, also. A large percentage of folks in the United States pass away without receiving hospice services at all. And then when they do receive them, a very large portion are only on hospice services for a couple of days, which is really pretty tragic because hospice services generally are available to folks for six months or even longer. And there’s just a lack of education in the industry. And because of that, the US population is underserved right now with hospice services I would say. There’s a lot of folks who are passing who aren’t receiving the services that are actually available to them. So, I think it’s an area with huge opportunity for the right providers to help folks who may not even realize that the resources are out there.

Alex Bridgeman: Yeah, certainly. How similar are those three businesses? Is there a lot of context switching that you have to go through throughout the day? Or is there a similar theme to all of them and that allows you to focus on all of them fairly easily?

Robert Graham: Yeah, that’s a great question. There are a lot of differences between the three, but they are complimentary services. So oftentimes we get patients- home care is unskilled assistance with daily living in the home, so cooking, cleaning, medication management, unskilled attended type care in the home. That’s one portion of our business. Generally, that’s for folks who would meet the definition of a geriatric patient, so a senior. And then home health is skilled nursing and therapy in the home, also mostly focused on geriatrics in Dallas-Fort Worth anyway. We do intellectual and developmental disabilities in other markets. I’m just talking about Dallas-Fort Worth right now. And then the third division is hospice and palliative care, which is end of life type care. And a lot of patients need more than one of those services during their time with us. And it’s a great business model because rather than them having to go find another provider, we’re right there, and we already have a pretty good idea of if someone is going to have trouble and is going to need additional care. Rather than having them go to the hospital or go without that care, we can be there to help them so that those things don’t happen. When folks really run into trouble, geriatric patients in particular, is they have something go wrong and they don’t get the care they need, and then, it gets worse, and then they end up in the hospital or they end up with some type of a worsening of their condition, which wasn’t necessary. And that’s kind of where we try to step in. Now the three businesses are managed by the same management team, which has done a fantastic job. Even though they do have some differences, we manage them in many ways as a family although they are technically separate providers.

Alex Bridgeman: It sounds like you’ve found an effective way to delegate your own role, the fact that you’re able to run Search Investment Group and even be on this podcast in the middle of the day. What does your day-to-day task list or set of responsibilities look like? And how have you- perhaps you’ve delegated more of it over time, but I’d just love to hear more about what does the day-to-day look like for managing those three businesses and Search Investment Group.

Robert Graham: So, after doing some reading, I found out that a lot of folks who are really successful at managing their time, they block out a time on their calendar every week to read or do non-operational type work. So, I block out a block on Fridays where I’m not in meetings for the healthcare roll up, where I can actually do long-term thinking, strategic planning, read, do things like this. And so that’s kind of what I’ve done. I’ve set my schedule up like that. So, my Fridays look a lot different than my Mondays through Thursdays. So, Monday through Thursday, starting at 8:00 AM until about 5:00 PM, it’s really meetings. And I live in Houston. None of the healthcare businesses are in Houston. And so, we do virtual meetings pretty often. And then I go up to Dallas-Fort Worth pretty often too, call it once every two weeks, just to visit in person. But the management team does a great job. And what we do is we have meetings with all the different departments during Monday through Thursday and we’re going through- we have a billing meeting, we’ve got a compliance meeting that we do, we have specific department meetings, we’ve got a marketing meeting that we have, a management team meeting that we have every week. And folks come prepared to those meetings, and we talk about roadblocks that are being seen and different key issues that we need to discuss with the full team and with management. After that, usually, call it five or six at night during the week, I get to have a lot of fun with Search Investment Group. And that’s where we advise searchers or acquisition entrepreneurs on how to buy and then close on- find and then acquire a company for themselves. So, we have a ton of fun doing that, and I have two partners in that venture as well. So, I’d say my day job is running a healthcare company or really helping run a healthcare company because we’ve got a fantastic leadership team, and then, my night gig is Search Investment Group, my night and weekend gig. So, it’s a lot of fun. I really enjoy it. And it gives me some variety. I always really valued variety in my jobs in the past because a lot of jobs don’t provide variety. I’m the type of person, I think a lot of people are like this too, you just have to have some variety, so you don’t get burned out. And this setup has worked really well for me.

Alex Bridgeman: Yeah, no kidding. In 2022, what kinds of adjustments are you looking to make in your role? Are you looking to reduce number of meetings or make time for more reading throughout the week? Are you going to do any Bill Gates Think Week where you go off to a remote location for a week and just read books? Like what’s your 2022 kind of CEO in a day plan?

Robert Graham: I think actually probably more strategic long-term thinking. When we started, running these businesses was like the factory situation I told you about, Alex, where it was a fire to be fought every day. We didn’t have a strong leadership team in place. And now we have that, and we’re doing much better. We’ve grown, so there’s not as much worry about things like meeting debt payments and things like that. We’re just in a much more stable place as a company; we’re much larger. And because of that and because I have a team that now supports me, I can focus rather than working in the business, as the common saying is, rather than working in the business, working on the business. And so that requires quiet time and strategic long-term thinking. It requires working on acquisitions and strategy rather than fighting fires and day-to-day operational things that our fantastic leadership team is doing a great job of handling. And that’s going to allow us to grow significantly, the ability to focus on working on the business. I think a lot of small business owners can’t even grow their business because their day is full of serving the direct customer and fixing the direct operational issue. And so, they can’t even step out, I think, a lot of times and think about the bigger picture. And so that’s what we’ve kind of tried to solve for. And so, I anticipate spending much more time this year on strategic thinking, strategic planning, acquisition, and continuing to grow our organization. So, I think that’s kind of the biggest change.

Alex Bridgeman: Yeah, one helpful thing I’ve found for figuring out what I can delegate is making a list of tasks that I do throughout a week and then figuring out which ones am I absolutely necessary for and which ones could I probably get out of it, and then which ones can I definitely get out of. It has been fun to piece together what roles or what pieces of the podcast and the Handbook can be sent off to other folks. But do you do any similar exercise or some other exercise that kind of clues you into what parts of your day or parts of your role over time need to be systematized or handed off to somebody else?

Robert Graham: Yeah, I absolutely do that. And I always kind of have a philosophy about thinking about the value of my time. And every hour of my time is an investment, and I want to invest those hours of time in high returning investments. So, if I’m going to have a bigger impact spending my time on item A then item B, I’m going to try as hard as possible to spend my time on item A rather than B. And that goes into like all parts of my professional and personal life. So, for example, we have someone to help clean our house, just a small example. And the reason for that is instead of spending three hours every weekend cleaning the house, I can spend those three hours on the weekend working on strategy, our business, and growing because that’s a more efficient use of my time than cleaning. I’m in the very lucky place to be able to do that. But that makes a lot of sense. And many other chores as well. I can do home repairs and things like that, which a lot of people enjoy doing, but I’ve specifically structured my personal life around doing as few activities – I obviously, take time off – but as few activities that are non-value added to the business side as possible. And whether that’s picking up groceries, cleaning around the house, anything like that, I’ve tried to outsource as much of that as possible.

Alex Bridgeman: Have you had groceries delivered before?

Robert Graham: Oh, absolutely, yeah. Mixed results on that. Same for you?

Alex Bridgeman: No, we haven’t, I’ve never tried it. I’m fascinated by it because one of my dreams is to not have to own a car, even though that’ll probably never happen. But one of those key pieces or key errands that you need to remove if you don’t want a car is groceries, either somewhere where you can walk to or somehow getting delivered. So, I’m curious about that, although I’ve never tried it. Perhaps that’s an experiment for me this year.

Robert Graham: So, what we do mostly is we do pick up from the grocery store, so they’ll like bring it- you can order ahead of time and then go pick it up in your car, which does save you like 20, 30 minutes of walking around the store shopping, which overtime, that’s a lot of time. We also have had groceries delivered. The issue we have had is they don’t always arrive in the best quality. And I think the incentive may be not there to find the product with the longest away expiration date or the fruit that’s the least bruised. So, mixed results on that experiment, but we do some of that and definitely try to minimize that.

Alex Bridgeman: Yeah. You almost need to get extra fruit just to make an allowance for some spoilage, perhaps.

Robert Graham: Yeah, definitely.

Alex Bridgeman: So, talk about the Search Investment Group. If I remember right, it’s not a fund, it’s something a little bit different, right?

Robert Graham: I would probably categorize us as in some ways partners for acquisition entrepreneurs. So, for folks, and you don’t have to be a search fund, you can just be a mid-career executive or somebody who wants to buy their own business, we help advise them all the way from finding that business to closing on it and running it. And it’s in many ways like a partnership type relationship because we’re not like other advisors where we’re charging an upfront fee or anything like that. We do get compensated for our work but only if the entrepreneur acquires the company. And then, we’re pretty aligned because we do get compensated in some equity. So, there’s a really good alignment of incentives there. We’re trying to get the searcher or the acquisition entrepreneur a company it’s very much in our interest to have them acquire, and then it’s also very much in our interest to have them acquire a good business that’s going to provide good returns because that’s our incentive. And so, we work, really, pretty hand in hand with those entrepreneurs to get those deals closed and help them hopefully achieve their dream of owning their own business.

Alex Bridgeman: Yeah. And a month or two ago, you announced this new initiative you’re going to do with Search Investment Group where it’s kind of a funded program for self-funded searchers, where you can get a- there was a $2,000 monthly stipend, you pay for quality of earnings deal fees, and you get support from SIG. Can you talk about that program a little bit? Why did you create it? What’s been the reception so far from investors or searchers? How’s that gone so far? Can you tell us a little bit about that?

Robert Graham: So, we found that, and kind of looked at some surveys online, like for example, through, and found that a large portion of people were not taking the plunge, quitting their jobs, and going and finding a business to buy because they were worried about covering day-to-day expenses. And so, $2,000 a month is kind of an arbitrary number, and we just figured that it can probably cover most of someone’s mortgage or rent payment. And so that’s kind of the number we came up with. And what we do is if a searcher comes on board with us, we cover $2,000 a month of their monthly expenses to try to help them until they are able to acquire a company. In addition to that, we work with the same M&A attorneys and the same QV or forensic accounting firm on every deal we do. And so, we just cover those costs for the person who’s trying to acquire a business, which I think is a huge help. Where I think entrepreneurs run into a lot of trouble is they decide to go by their own business, and they think that the company that they found, they maybe sign an LOI, an intent to purchase, they think for sure it’s going to close, and they spend a bunch of money on due diligence costs, and they waste six months on a company that ends up they couldn’t even buy. I mean, it happens all the time. I’d say less than 20% of businesses that get under LOI or contract actually close in the lower middle market; that’s been our experience. So, what do we do? We try to reduce that risk. So, number one, instead of having $200,000 of due diligence costs and then having the deal collapse and being stuck with $200,000 of bills, we just cover that expense for the searcher. So, we’re going to just pay for your accounting and legal expenses. And we know how to do it in a smart way because we’ve done this so many times, when we need to look for certain things and how to really efficiently use those third-party advisers. And I think a lot of entrepreneurs don’t know how to efficiently use those advisers because they probably never bought a company before. They’re probably an excellent leader and they’re going to do great with the company after they acquire it. But they’ve never bought a company before, so they don’t know what to look for. They don’t know how to efficiently flex those services which are very expensive. So, we help cover that and reduce the risk to an entrepreneur that they’re going to end up with a bunch of debt and not being able to cover their mortgage or whatever during their search for a business, we try to reduce that risk so they can focus on finding the right business to acquire and achieving their dream.

Alex Bridgeman: So, is there a similar step-up basis in any expenditure you make with a searcher in their eventual company?

Robert Graham: Yeah, we do get compensated a little bit more for that, and we think that it’s more than- that compensation that we get is minimal in comparison, I think, to the value we bring. So, we’re not like the traditional search investors or the accelerators in that we’re taking a giant chunk of your company away. If you go that route, you’re probably going to only end up with- the average traditional searcher from the Stanford study is only ending up with like 20% ownership in their company. Our average searcher that we work with is ending up with between 70 and 80% ownership in their company. So, we’re not – what’s the word – we’re not nearly as costly as going down that route. We’re also a lot cheaper than having a partner. So, we kind of view ourselves almost as we’re in some ways similar to taking on a partner, for an entrepreneur to take on a partner to search for a business with. But the problem with taking on a partner is it’s extremely expensive. It costs you 50% of your equity usually. And while it’s probably a wise thing to do, we believe we can, in many ways, fulfill a lot of the benefits that a partnership brings without having to give up 50% of your upside.

Alex Bridgeman: Yeah, it’s definitely a good trade off. What’s been the reception from searcher so far from this program?

Robert Graham: Very positive. So, when we launched the program, and even before then, our thesis for this space was that folks wanted to own their own businesses but didn’t know how to buy a business necessarily, didn’t feel comfortable leaving their jobs to do it. There were some barriers there, and we believed that there was a place for an advisor to do what we do. And it’s proven to be, we believe, very true. I think our thesis has been proven out because of the inbound interest. At this point, we do have pretty high standards of who we decide to work with. We have to have a multistage interview process. And also, we do even like a work personality test, it’s like a personality test around your work habits. And we check references, everything like that. So, it’s not a, hey, I want to work with Search Investment Group, okay, we’ll work together. It is a pretty – what should I say – selective process. And unfortunately, it just has to be. Search isn’t for everyone. And we want to partner with the people who are most likely to be successful, obviously

Alex Bridgeman: Right. On the personality test side, I’m kind of curious about that, what tests have you found to be most effective in accurately assessing someone?

Robert Graham: We use several different methods, and what we found to- there’s not like one test in particular we’ve used, we use a few, but they’re all based on work habits. So, we like people who are really the fit of what an entrepreneur is, someone who is comfortable with a lot of autonomy and wants autonomy, somebody who’s comfortable with not having black and white answers to everything, someone who’s okay with ambiguity, and then, we do like folks who have high attention to detail because it is important in this type of work, and folks who are conscientious. We’re investing in these people and so are other people. And I think we all want to probably partner with other partners who are conscientious. We don’t want folks who are really just in everything for themselves and kind of not concerned with the ethical and moral and group concerns. So, we look for a few different things that are important to us. And it’s been really I think effective in that we’ve done some of these professional personality tests, and it’s not like personality – when I say personality test, it’s not like really how- it’s not like a personal personality test, it’s like a work habit personality test. Does that make sense? Like how you are in the workplace and how you function as a professional rather than how you function in your daily life. And we found it to be very effective because we started working with people obviously after they filled the test with different results on the test. We don’t have to have somebody fit in a perfect silo. And we’ve noticed just anecdotally after they’ve taken the test and started working with us that they seem to fit the profile that was created through the test, which is pretty interesting. And it does help us work better with them. We know where their strengths are and where their weaknesses are. So as their partner, we can adjust really how we spend time with them and how we guide them. So, it’s a really effective way to help us work together better also.

Alex Bridgeman: And do you share your personal personality test results with them as well so that they know how you all react or you all behave and how your personalities work?

Robert Graham: We have not done that, but that’s a great idea, Alex. And we should absolutely do that because it would help with both sides. I will say this, I think that the three partners within Search Investment Group have very similar personalities. If you took our work personality tests and put them up next to each other, there’s almost like complete overlap. There might be a problem with that, not sure, but that is currently how it is. And so, we’re very much like the typical personality test pattern you’d see for an entrepreneur. And so, I think that the searchers that we work with kind of already know how we how we interact and things like that. But showing our personality tests is a great idea. We could probably just share one because they’re so similar, but we should probably think about that. Now that I’m saying that, we need some variety there probably.

Alex Bridgeman: Yeah, let me know if you try it, I’d be curious what kind of results you get or what feedback is. Moving into closing questions here, what college class would you teach if it could be about any subject you wanted?

Robert Graham: Yeah, that’s a great question. I’d probably say economics. I really enjoy reading about and learning about economics, and I feel like economics is a nice intersection between kind of an art and a science. It’s pretty much as big picture as you can get. I like big picture and just love the subject of economics. I have a passion for it. So, I probably have to pick economics.

Alex Bridgeman: Excellent. What’s a strongly held belief you’ve changed your mind on?

Robert Graham: I would have to go down an area that we talked about before, and that’s manufacturing. So, my whole background before doing a search was manufacturing. We talked about it, I was in a bunch of different plants. I love manufacturing. I worked for a manufacturing focused private equity firm. I worked in the industrial group at an investment bank. It was as industrial as you could get. And then when I did my search, I started out my search just looking for manufacturing companies. And I felt like my background suited to that, that’s where my network was. And as I got more and more into it, what I realized is it’s not as important to have a background specifically in the industry that you acquire a business in. It’s more important that you have general leadership and management skills. Most entrepreneurs or searchers who acquire a business acquire a business outside of the industry they’re in, at least the ones that we work with and the ones that we see and interact with. That tends to be the case. And it really isn’t a hindrance. I think just having the basic operational and leadership skills are what’s important. So, I transitioned my search away from being a manufacturing search and went into healthcare, and it was an excellent decision. Healthcare is, for the most part, an industry that’s more suited to the search fund type micro leveraged buyout, and most service industries are. So, I totally changed my perspective on that. And every searcher I talked to who wants to go buy a big manufacturing company or something that makes widgets, I get where they’re coming from because that was my background too, I was so interested in it, but it’s really not a great fit, honestly, for micro leveraged buyouts.

Alex Bridgeman: Have you found that there’s, just in your deal experience, that there’s very little or maybe even- is there none or a little bit of correlation between a searcher’s experience in an industry to the results that they achieve in that industry?

Robert Graham: Yeah, that’s a great question. I don’t have enough data points to tell you that that’s true. I’m a statistics guy, because that’s kind of what my background was, like operations research almost. And I just don’t have enough data points to tell you that. Now what I will tell you is really interesting. I went to the Stanford Search Fund CEO Conference in December, just a couple months ago, and one really interesting takeaway from that was that there is a correlation between the historical performance of the business and the performance of the investment. So higher growing businesses tend to continue to be higher growing businesses. And more profitable businesses tend to continue to be more profitable businesses. What was a really interesting takeaway from the conference for me from the statistics that were discussed and presented by professors was that actually there’s probably a higher correlation to returns. It’s probably more highly correlated to the industry that a company’s in and how the company has performed in the past than it is to the searcher that goes into the business, which is really interesting. And there’s a really famous Warren Buffett quote about how when the reputation of a manager is put up against the reputation of a difficult industry, almost always it’s the difficult reputation of the industry that survives rather than the reputation of the manager. And I think that’s really true in many cases. I mean, you could put the best manager in the world in a company that made horse carriages 200 years ago, and it just doesn’t matter. You could be Elon Musk manufacturing horse carriages, and you’re still not going to be successful. It got replaced. Yeah, leadership I think is fantastic and a core requirement for this, but it cannot always overcome long-term trends in an industry and also the business fundamentals.

Alex Bridgeman: Yeah, certainly. Speaking of Warren Buffett, I’m in Omaha, Nebraska, and the annual meeting this year is April 30th. Have you been to that meeting before?

Robert Graham: I have not. Have you?

Alex Bridgeman: I have not, no. I’m going to make sure I keep my shares so that I can go this year. But this would be my first time going, and his office is three blocks from our apartment, so it’s pretty easy to get to. Although I think the meaning is at the- there’s a larger auditorium type location more downtown that we’d have to go to. But I’d love to host some sort of SMB get together for folks from the search world or operating small companies who are coming to Omaha for that event. I’d love to have some sort of happy hour at a local bar or a cocktail bar or something like that. That could be really fun.

Robert Graham: That sounds awesome. Yeah, I’d love to do that. And I’d love to catch up with you after you go for the first time because I’d love to hear about your experience. I’ve always wanted to do that. That’s pretty neat.

Alex Bridgeman: Yeah, it could be really neat. I know there’s folks who line up at like 4:00 AM or something outside the auditorium, just waiting to run in and get a good seat. I might have to put myself in that line just to experience it.

Robert Graham: It’s like a new iPhone launch or something.

Alex Bridgeman: Exactly, yeah. Except there’s peanut brittle and Coca-Cola. What’s the best business you’ve ever seen?

Robert Graham: Let me answer this question within the blinders of focusing on what we do. Because I think the best business, I mean, there’s so many, and any business that occupies kind of a monopolistic type space, like an Amazon, that’s probably the answer. But yeah, I think I could give you a more interesting answer by answering within the silo of a lower middle market leverage buyout, what’s the best business. So initially I thought the best business was a business like ours, healthcare. And the reason why I really like healthcare and the type of healthcare we do is it’s non-discretionary. So, it really doesn’t matter what’s happening in the economy, people still have the need for that service. So, I love non-discretionary businesses. The one thing that isn’t great about healthcare is there’s no market price mechanism, which a lot of people don’t know if they’re not in the healthcare space. So, in a normal business, a large portion of the benefit of having a competitive advantage or providing higher quality service or higher quality products is you can charge higher prices. In a very large portion of the healthcare industry, you can’t do that. Prices are set by large insurers or by the government. So, that does kind of I think hamper the way that businesses can operate in the space. Other than that, I love healthcare because it’s mostly non-discretionary and pretty recurring in nature, usually, not all of it. So, I’d say the best business I’ve seen in this space is we’ve looked at some companies that do maintenance of large industrial equipment, like refrigeration units and things like that. And I love that type of business. So, a business where you are repairing critical equipment, love that type of business, and one that requires regular maintenance. So, think about for example, like a boiler maintenance or repair, large refrigeration equipment maintenance and repair. Those are the types of businesses that we’ve seen and think are pretty awesome business models. I just love that recurring critical nature where you do have a pricing mechanism, and for example, they tend to be pretty high margin services because they’re critical in nature. And they’re not going away. They’re non-discretionary, and also oftentimes business to business in nature, so I like that better too. So, I’d say that’d be my answer.

Alex Bridgeman: Back to your days where you were running factories that are ten Home Depots in size, what types of recurring services did you have to manage with vendors that maybe looking back on it now are like, wow, that was actually probably a really amazing business, this guy who repairs my crane or my elevator or something like that probably had an amazing business now that I think of it?

Robert Graham: Yeah, I’ve done a lot of thinking about that. And I have to clarify, I’ve never managed a factory that was ten Home Depots in size. The biggest factory that I was operations manager for was like two Home Depots in size.

Alex Bridgeman: But you worked at the ten Home Depot factory, right?

Robert Graham: I worked at that one, yeah. So anyway, there were a lot of things like that, where you have a key piece of process equipment in a plant where if that piece of equipment goes down, it can shut the plant down. Industrial elevator repair and maintenance is potentially a pretty interesting place to be. I actually almost bought one of those when I was doing my search. But the problem was it was used for coal facilities. And I couldn’t get comfortable with that because I didn’t know the direction that coal was going in. Well, I had a pretty good idea it was not going in a good direction. So, I almost bought one like that, and there’s a lot of other examples like that, companies that repair any kind of big capital equipment. Just make sure they are repairing and maintaining it and not manufacturing it because companies will continue to operate those pieces of equipment even in a recession or when things go kind of bad in the economy. But they won’t buy new pieces of capital equipment that cost $3 million most likely. So, that’s kind of how I think about it. I’d rather be the company repairing a piece of equipment that always has to be used rather than the company that manufacturers the piece of equipment.

Alex Bridgeman: Yeah, certainly. Well, thank you so much for coming on the podcast. This has been really, really fun to chat with you about manufacturing and search and a little bit of aerospace nerding out. So, this has been really fun for me. Thanks for coming on and sharing a little bit.

Robert Graham: Thanks so much, Alex. I really enjoyed it.