The Pomp Podcast - #1188 Brent Beshore | Millionaire Shares Secret To Buying Businesses

Episode Date: April 17, 2023

Brent Beshore is the founder & CEO of Permanent Equity. In this conversation, we talk about the types of businesses that he buys, the structure of the firm, how macro environment plays into investment decisions, operating businesses, nuances behind transactions, family relationships, and balancing the success of businesses in the local environment. ======================= Pomp writes a daily letter to over 200,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. We have no advertisers on this podcast, so it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Brent Beshore is the founder and CEO of Permanent Equity.

In this conversation, we talk about the types of businesses that he buys, the structure that he set his firm up with, how macro environment plays into his investment decisions, what it's like to operate one of these businesses, and what are some of the nuances around all of the transactions from different family relationships to how they work in their communities. After you get done listening to this episode, get on Twitter and let Brent and I both know.

What do you like? What do you not like? What do you agree with? And what do you disagree with? The feedback always helps us make these better and we enjoy the conversation. Here's my conversation with Brent Beshore. This episode is brought to you by Accenture.

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Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment

or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I've got Brent here with me. I thought a great place to start would be you are somebody who is pretty well known with tech entrepreneurs, with the investment community, and with what I'll call boring businesses or traditional businesses.

How do you decide where to allocate capital in terms of those different buckets, but also in terms of where you think that you can gain an advantage or somehow drive outsized returns? Yeah. Well, when you look at our firm, Permanent Equity, it looks like we're a generalist firm. So we've got investments in manufacturing and construction and business services. We own a military recruitment firm. We own a matchmaking firm, which we can talk about, like really diverse group of companies. You look at these and you say, what could those all have in common? We consider ourselves specialists in what we call adolescent businesses. So too big to be small, too small to be big. These are businesses that are Main Street America. They're building

pools, they're building fences, doing real things. And we like to get involved with people who want to do things long term. So we have really long term capital. Typically, we're involved in three plus million dollars of earnings, so much higher revenue than that. So these are not like small businesses, at least what you know, like the bagel shop, but it's, these are legit companies. And we to be good long-term partners and good long-term stewards so typically buying them with no debt no intention of selling them and um trying to treat people really well long term so before we get into how you guys do this let's talk about some of the businesses uh we maybe we can start with the pool business which is one of the older businesses that i think that you've been for a

while now describe a little bit as to like what that business does and why that fits the mandate of what you guys are looking for yeah so we always have these uh kind of short ways of thinking about these businesses so we said people have been dipping their bodies in water for pleasure for thousands of years we think they'll continue to do so so we're not worried about some new app or ai you know adjusting the market in such a way that's going to cause people to not want to to throw a pool party in their backyard so that's kind of the baseline uh we think phoenix arizona and tucson which are the locations of the businesses we think they'll probably grow and it's only getting hotter so out there you know you think about a pool in wisconsin it's a luxury

item right you're typically going to use it pretty short period of time a year get further south you're going to use it more often phoenix arizona it's like a utility i mean you have people who uh you know have fairly small homes who still want to pool because it's the only way to cool down in the summer keep their kids entertained make memories around pools right so um yeah we got involved with that business in 2016 um and really just helped them continue to grow the business and and modernize it. You know, we think a lot about, we call like quality of earnings and not just quantity of earnings. So you can look and ultimately the quantity will show up, you know, as a function of the quality over time, but in the short term, it's kind of hard to tell. And so

with all these businesses, we're trying to get in there and think about, you know, how do we create stability to serve their customers, to be a great place to be an employer, to serve our suppliers really well and be a good long-term partner to the community. And so that's what we try to do. And when you talk about modernize the business, is that like a technology and tools type thing? Is that like, hey, we want to go in and train, whether it is the management team or their employees, like how do you modernize it? Yeah. So there's a layer of business we call the everything tastes like chicken layer, right? Which it doesn't matter if you're doing match making or pool building or recruiting for the military, it's going to be the same set of tools

that you need across the firm. So marketing, advertising, lead generation, sales, technology stack. So what's your software that you're using? Accounting, finance, HR, and then kind of benefits the back office type things. So if you look at all those, no business has ever been good at all of those things. No small business at least. And as we like to say, small businesses don't stay small on purpose, right? There's a reason why they're small. So what we like to do is get involved with businesses who are great at the thing that they do and maybe need help in these other areas. So for the pool business, we were able to institute a really robust online lead generation program. When we came into that business, basically weren't generating any

leads online and they just weren't high quality leads. We were able to come in and help them build that new program. And now, well, online leads are the dominant way in which they get business. So things like that. I mean, of course, reorganization of the management team. When we came into the business, there was a lot of people doing kind of overlapping jobs. And we said, hey, totally reasonable when you're smaller, as you start to get bigger, you have to specialize. So we're asking people about, you know, what is the next in line succession planning look like for the business? You know, can we separate roles? Can we get more specialized talent in different roles, things like that. Really proud of that team. They've done a great job of building out

the leadership team over time and really building the business. So on a business like this, you all come in and obviously there's a capital injection into the business. And there is a very unique alignment for long-term growth and kind of continue to compound capital for that long period of time. But how much of it is like spreadsheet analysis and understanding of the business and like, let's move these numbers versus there are the people components and the ability to, you know, work with a management team. You aren't there every day, right? And how do you kind of balance between like what I'd call like the spreadsheet versus the people? And how do you guys evaluate which one's more important? Maybe as you initially look at a company that you might

want to actually buy? That's a great question. For us, and this isn't probably true for most of the industry, for us, it's 99% people, 1% sort of the math. In fact, we've joked that if you can't get the math to work on the back of a napkin, it's not going to work in a spreadsheet. I mean, literally, because we're not using any debt typically in these transactions. So the math is super easy, right? It's what do we think the business is going to generate in free cash flow? What multiple are we paying based on that? What type of yield are we starting from? What do we with the cash if there's cash that's generated how do we reinvest it at what types of rate of return can we reinvest it but that math i mean literally we could get a piece of paper and model it out

in about 30 seconds on the back of the napkin the people are infinitely complicated i'm messy you're messy turns out when you get a bunch of messy people together it's a mess right and so we really try to spend time if we're going to partner with these companies for decades which is our intention it's going to take a lot of life to be lived together and we want to make sure that we're starting from a really good foundation a good place and so you know oftentimes those discussions will start with the seller what are your goals you know one of the questions we like to ask is if you could wave a magic wand and create the perfect scenario over the next 5 10 15 years what does that look like some sellers will say look i want to be out in a year okay great

let's all work towards that that's a goal that we have let's all work towards that goal some will say you know i think i can give it three to five years like let's kind of keep talking um maybe i can step into an executive chairman role maybe eventually just be an advisor to the business fantastic what we say is there's no right or wrong answer to any of these we just want to know where the truth is and we all want to be on the same page and make sure that truth doesn't change over time and if it does like raise your hand and make sure to tell us um we promise not to surprise them because they promise not to surprise us most of the time works out pretty well yeah it's uh what is it like happiness is really just expectations in reality and uh the

closer those two things are ends up actually uh increasing happiness same thing here with success of the business correct yeah um so that is a business that i think most people would look at as uh you know an atoms-based business it is very much in the real world as tangible you're building physical pools etc um you have another business which is matchmaking which i don't think most people are like i bet you brent is going to get into the matchmaking matchmaking business talk a little bit as to like why this business specifically is unique and how you guys think about the similarities and differences between pool building and then the matchmaking business yeah it's a fascinating business um i in a million years i never would have guessed we would have

been in the matchmaking business um in fact uh emily who leads our deal team i remember coming to my office and saying okay hey i need to sit down shut up don't say a word i'm going to tell you some stuff about this business you're going to come to conclusions they're incorrect right She, she sits down and she's like, all right, all right. What could she be? You know, she's, she launches about three sentences and I'm like, stop, no way. She's like, I told you. And I was like, that's for sure a hooker business. Like, that's for sure. There's no way that this is a legitimate thing. Right. Not at all. It was absolutely legitimate. It's actually, it's actually turned out to be one of those businesses where when I think about what the work they

actually do, it is an incredible net benefit to the world. They are helping people find the love of their life and you know it's not a dating service so this is not like hey set up a bunch of dates for me this is a matchmaking business which again when i first learned about it i was like i didn't know the difference what could it be think about executive search so if you're in business you've typically retained a search firm to go hire you uh some specific role typically it's going to be an executive role so how does that process play out you identify what you're looking for what are the roles responsibilities all these different things you then out go out you source a bunch of candidates through a firm right that goes out

find so much people that contacts them they say hey how do you how do you like your job what are you thinking about all that the corollary is not exactly same here but for the most part they go out and do the exact same thing so they say hey you know what are you looking for what what's interesting to you and some people are very broad with it they're like look i'm looking for a man between the age of i don't know 35 and 50 who is a professional who lives kind of within 300 miles of my home now that's it right like great um some people are very specific we had a gentleman who had lost his wife tragically um wanted to remarry down the road uh he was an excellent golfer so he said hey not only age and all these other things but i want her to be an under seven handicapped

golfer literally and you think about it it's like for his lifestyle right it's something he loves it's a deep passion of his he loves playing golf he loved to travel the world to play golf so how do you find somebody who not only has all these other things but also is a seven handicap golfer under right well you partner with country clubs and you partner with golf digest and i mean a bunch of these publications to try to go out and find this person you place ads literally saying hey, if this sounds like you, come out of the woodwork, right? Sure enough, he's happily married. No way. It's amazing, right? So what they're really trying to do is they're trying to find the right person for you. And that can either be relatively easy. I mean, it's always

going to be as an executive search kind of program. It's always going to be a higher level of touch and service and interviews. And there's only one introduction at a time. Both have to opt out before you can move on to the next one. So this is not, again, like a dating service. It's not, I'm going to go to a city and set up a bunch of dates. It's not at all what they do. This is an in-depth process to try to find you the right person. And I mean, I haven't seen the stats recently. I know it used to be 60% of the time, the first person they put in front of you was the right one. That's how much work is done. Wow. 87% of the time, if you sign up for the service, it's called selective search. 87% of the time, you end up in a long-term committed monogamous

relationship. 87% of the time. I mean, that's incredible. If you think about that for a second. So yes, it's expensive, just like executive search is expensive. Is it worth it? Yeah. Our clients are thrilled with the results. How much is it? Well, so it sounds shocking when I first say it. Let me sit down and be quiet. Exactly. Sit down for a second. So it starts at about $50,000 and our largest contracts go up over a million dollars. And you say, what in the world to find a spouse? Like, can't you just go on Tinder or go to a bar? Sure. I think there are plenty of uh people out there who um that doesn't work for and the people who we work with are busy professionals um people who travel a lot people who have a unusual lifestyle um and people who

some of them are well-known celebrity types who just really frankly can't meet somebody without wondering if they're with them for them or with them for what they have and so um you know the price for them is well worth it and we'd love to serve them when there is somebody who is well known whether it's a business person a celebrity whatever uh is there some masking of who they are at first or is there just like you know hey somebody contacts you and they're like by the way uh do you want to talk to celebrity a yeah no type thing yeah it's incredibly masked i mean until the very end i mean the person's really not going to know um because what they say is it doesn't matter who the person's name is we're going to tell you about them everyone's interests

are aligned to make sure that there's a good match there so they're going to talk about you know they have an unusual lifestyle they're traveling a lot maybe they have requirements for their job that aren't uh typical those types of things um they'll describe the lifestyle they'll describe kind of the personality they'll talk to them about uh generally what they look like and then ultimately if they end up being a match i mean there's only one person at a time that's matched so the only person who knows about that person is the person who's matched yeah it um it traveling all the time as an example is one of those things that i think a lot of folks like oh yeah that sounds amazing and then if you have to think about it you're like you know what i don't know if i

want to travel 300 days out of the year like actually i may want to just be at home and so maybe that lifestyle isn't for me and so uh there are little things like that that i'm sure i'm sure end up being a great filter uh for the different folks so we have pools with matchmaking you also have a fence building business yeah yeah talk about the fence building business i think this is like a good example of like literally you guys look at businesses across different industries but What's going on with the fences? Yeah, so fences. So it's Ace Fence in Dallas, Texas.

Incredible team started 40 years ago by great family. And we think they're the largest fence builder in the country. So they build wood residential fences. They'll do some metalworking. It's a great team. I mean, they do exactly what you'd think. They just do it at incredible volume. I think they did average like 88 fences a day last year.

So huge volume in the DFW area. and um they put your fence up make sure it's sturdy so 88 fences a day sounds like an absurd number right um are they like speed fence builders is dfw area just so large and so many fences are going up that they have like one percent of the market like how do you get because a couple things probably have to happen there to get to 88 fences a day right what's it's incredibly difficult right you have to build this business over like said 40 years to get to that so they're going in and finishing whole neighborhoods typically at a time. So they'll work with a builder and the builder will have, they're putting up say 500 or 800 or a thousand homes in this big area. The fences are

typically the last thing to go in. So the nuance of it is you could probably try to save money by hiring a cheap fence builder, right? The problem is if that fence builder is delayed, you don't get paid for the house, right? So actually being the last thing, our working capital is almost nothing because we finish the fence the house gets done boom everyone gets paid right so it's a really interesting that's in in evaluating these businesses there's a lot of businesses that look one way on the surface they look similar and when you dig into them the dynamics of the underlying economics the working capital really the business model in general is completely different right so we're actually we'll do a little bit direct to consumer but hardly any um most time we're

working with big builders and trying to really service their needs to finish out these uh big neighborhoods. When a business has been around for 40 years like that, what are some of the dynamics as you guys come in? I'm assuming there's family dynamics. There's probably people who have been there for a long time who aren't part of the family, but they see this as an opportunity to grab power, cause problems, like all kinds of the people stuff. What have you experienced in trying to mitigate as much of those risks as possible? Yeah. Well, broadly, Ace Fence in particular the the deal um the fence company um really great family we didn't run into many dynamics there um we have over the years though i it's it's funny i have uh i don't know how many

hundreds of site visits i've been on at this point i mean i had one where um a guy invited his entire family for over for dinner because uh i offered to buy him dinner and he was like well how many people can come and i was like i thought it was just maybe you your wife we could talk about the deal and he was like well do you mind if i bring a few family members and it was like thanksgiving dinner he hosted on my tab you know things like that that was so kind of him yeah it was it was i was like oh that's an interesting interesting way to get a free dinner how many people do you think showed up oh it was like nine i think nine people there you started arguing about uh you know about family stuff and i kind of was there just like eating my food and i was

like all right guys well did you do the deal later no did not do the deal no um yeah uh it there are a tremendous number of dynamics i mean you can imagine after 40 years um every business has challenges and like i said every business is deficient in some areas right i mean there's just no way that a business is going to be a 10 out of 10 in every one of the key areas you need to be if we do our job right the people we partner with and this is what really tend to suss out during the process is are they really good at the thing that they do and ace fence being a good example of that they are incredible they are the best in the market by a mile i would argue best in the country at building residential fences they have it down to science incredible well-oiled

machines still plenty of problems like anything else but they have opportunities to expand into new technologies to expand into adjacent geographies um to create a lot of efficiencies uh in how they work and um we're excited about that right uh we want to build for the long term so one of the things that always cracks me up about uh people who are like i'm gonna go buy some business is i can imagine let's take the fence business as an example uh somebody shows up and they're like huh you guys build fences you ever thought doing it in the town next door as well right crazy new strategy yeah like the owner's like i've been doing this for 40 years i literally have thought about all of that you know what i mean like i've literally obsessed over fences

i can tell you you know the uh uh degree at which if the fence post is off what the you know uh the hill correct uh you know degree or whatever like How do you avoid kind of being the person who shows up and is like, I got the good idea versus like, hey, you guys actually know what to do. Like, we kind of want to be support maybe to some degree. Where's the balance there or how do you think about finding that balance? Yeah, we just try to take an incredibly high humility approach. And what we say to them, people will ask us, like, what are you going to do for us? We say nothing.

They're like, what do you mean nothing? Like, count on nothing from us. nothing other than just being a good long-term steward of the business will be great partners to you. We'll write you a check, check will clear and we'll show up and we'll try to be helpful to you. But we can't tell you what we're going to be helpful on, right? Like until you get behind the curtain, you have no idea. I mean, due diligence, you know, the phase before you buy the business where you're trying to really explore what, what am I really buying? What are the challenges with it? What are maybe the opportunities? I don't care how much due

diligence, you can be in due diligence on a deal for five years. I mean, honestly, and you would show up day one, you start learning new things. It's just different once you aren't in the owner's seat than before. So what we try to do is we don't have a 90 day playbook. We don't have a goals for the company. When we come in, we ask the leadership team, Hey, what do you think we should learn? We don't know what you do. You're the experts, not us. So we're coming in with the exact opposite mentality. I think the traditional private equity, which is like, Hey, we know exactly what we want to do this business, get on board. We're going to try to ramp this thing up And then we're trying to sell it within a short period of time, right?

That's the exact opposite of us. So we're just trying to get to know the business, trying to get to know the people, trying to develop trust. Because look, if I bought your business, right, and we didn't know each other, it would take you a while for me to say something and for you to be like, is this guy full of it or not, right? Does he know what he's talking about or not? And vice versa, right?

I don't know where the edges of your knowledge are, edges of your competency, right? So it takes a little while to kind of get to a rhythm. There are exceptions to this, but for the most part, we try not to touch the business for the first six months maybe even up to a year get everything resettled everything's fine everyone realizes we're not you know terrible people are gonna come in and bulldoze the company right and then it's like okay what can we go to work on and the way we think about that is the lower the frequency and the higher the impact the more we want to operate in that space so if it's low frequency and high impact example would be uh rebranding a company building a

a completely new online lead generation program, maybe re-incentivizing the sales team, hiring a new chief technology officer. These are things that are very low frequency, hopefully, if you do them right. A business shouldn't have that competency in-house. So the more that we can see across a portfolio, we have 13 portfolio companies, we see a lot over them and we can locate talent on our staff that is unusual to have in any one of the businesses, but that's helpful to all the businesses at various times during the life cycle of the business. So we have a full-time executive recruiter on staff. So all she does day in and day out is help find talent. It's incredibly valuable for her. It would make no sense to locate that at any one of the companies. Yeah. When you think

about incentives, one of the things that I've seen you talk a lot about, I know that you think deeply about incentives is something that Warren Buffett, Charlie Bunger, Charles Koch, all these people who built these huge huge you know businesses whether they are single companies whether they own a bunch of subsidiaries whether they're acquiring businesses like incentives drive so much of what happens in business how do you think about maybe we can go top down right the incentives of your organization in terms of you have some outside capital but you've done some unique things with the life cycle of the fund uh the management fee etc like how did you kind of design the incentives where you felt it put you guys in the best position yeah it's a great

Great question. The goal that I've always had is to align incentives as much as you possibly can up and down the stack, right? So if you think about it, we want the portfolio companies to be focused on long term cash generation, right? How do you develop long term cash generation, you have a good quality and quantity of earnings, you establish a great culture, and you incentivize them, hey, if there's a great thing to do with a dollar to reinvest it, if you can invest it at a high probability and a high return, absolutely keep the dollar. we don't want it right if you can't the worst possible thing you can do is to hold on to it so same thing at the permanent equity level our level um you know we take no fees of any kind no reimbursements of any kind there's no cash that comes from either the portfolio companies or from our investors to the gp so the general partner being permanent equity the people that do the work on the deal um outside of we take a percentage of free cash flow above a hurdle once the cash of the business starts generating out. Now you might say, well, doesn't that incentivize you then to strip the companies for as much cash as you possibly can? No, because if we think

there's a great opportunity to take a dollar and get a 25% return in every subsequent year, we'd be insane to take that dollar out, right? We want to continue to compound that in the businesses. So up and down the stack, right? We're aligned with our investors. They want cash ultimately out of the investment we want to get paid and our our portfolio companies want to make money too we're all incentivized to basically reinvest when it makes sense and to not reinvest when it doesn't and because we're not in it for the fees right we're not getting that you know two and twenty you know we're not getting the two um we don't have feet you know we don't have a incentive to raise more and more capital um the interesting part is uh when you actually and maybe

this is a little bit of a digression away from like sort of the capital stack um i agree very broadly with buffett munger coke all these all these people who are you know big advocates for incentives and of course we believe in it we want the right incentives we don't want the wrong incentives the thing i think that a lot of um employers and business owners get into hot water with is they think they're like okay i want my sales team to sell more well i clearly if i just gave them better incentives they would sell more right the question you got to ask yourself when you're changing incentives on somebody is, okay, what are the things that they're currently doing that I don't want them to do? Okay. And am I incentivizing them to do those things that I

don't want them to do? And what are the things they're currently not doing that I want them to do? And am I not incentivizing those things? When you strip it down like that, a lot of comp changes, because I've seen, you know, a lot of business owners will tinker with all kinds of compensation structures, are constantly adjusting all these things. And turns out that people just keep doing what they've been doing for a long time it seems like you can't crack that nut it's because they like what they're doing the employees are focused on what they're doing they're working hard and doing a good job right there's not much more you can turn somebody right it's only if you see something in the capital structure right in how you're incentivizing

them that would cause them to do something you don't want them to do so it's like i would say incentives are wildly important at a very high level um and at a micro level often are not as important as you might think or at least in the the way to incentivize people isn't going to create the most change the way you think it will yeah it's this weird thing where uh i have seen sales teams specifically people will try to change some of those incentives but it's almost like time is being wasted talking about all the incentive changes rather than just getting out talking to more potential customers right exactly and so like yes you could get another point or two uh when it comes to the commission but if you just had spent that time selling maybe you would have

actually made more on an aggregate dollar basis because this the original commission would have actually reaped more because you had more sales yeah yeah yeah i mean like an example that we we like across our portfolio broadly to um have sales people incentivized based on uh gross profit and not based on revenue for obvious reasons like that's just something when we look at uh look at sales team we're like okay is the sales team incentivized based on revenue if so we probably want to make a change right because there's all kinds of things if you if your incentive is based on revenue right and you cut the price five percent it doesn't really matter to your commission right it's a five percent it's not like that big a deal you'd rather get the sale if by cutting it five

percent you're eating into 25 of the margin that matters a lot more so you again always want to just align the incentives between the parties to make sure that there's no heads I win, tails you lose or vice versa. So when you do something like that, like that, I think it's a very tangible example, right? So you go in sales team is incentivized on the revenue side. You now are going to say, Hey, we're actually going to do it on this kind of gross profit type metric. Do you have to switch the team out or have you found that usually you could go in and you explain it and they say, okay, cool. I got it. I understand why this is happening. And you have to maybe explain to them how they can make more money doing it or something. But like the existing team

usually can weather and be okay with the incentive change or is it something where you go in and you're like look no matter how hard we try we're gonna have to find new people because they're just so anchored on this other system or this other metric that uh that their compensation is based on which is an emotional thing yeah of course what's been the experience there yeah the experience is um if you're not changing magnitude of compensation people are very flexible if you start changing magnitude is when it gets really weird right so we've not come into a company frankly and said oh the amount they're compensating people we just need to slash that because we think we should be able to retain more of that profit for ourself that's not something we do we don't

think that's a really kind thing to do we don't think that's long term so oftentimes what we're doing is we're coming in and saying okay look here's how much you made based on what you sold here's the amount of revenue that you um you you know sold last year we're going to move you to gross profit this would have been the amount of gross profit you was sold and by the way it's about in the same ballpark as the amount of money you would have made last year if you do this year what you did last year. But here's the upside for you. If you can sell more in gross profit, here's how this works out better for you in the long term. And so we're always trying to show them you're basically not going to go backwards from where you are. And there's upside

from there because we think that as you understand more about the gross profit profile of the business, we understand that we think that it'll be better for you and actually, to be honest, better for customers oftentimes. We've seen that a number of times in the business where we change the incentive structure for a sales team and actually sales go up. They don't just stay flat. They actually go up because everyone understands what's going on. So we violated one of the rules of the tech industry. We've been using the P word, profit. Obviously, that is something that doesn't get talked about a lot. I heard somebody recently say that in San Francisco, everyone talks about growth rate, not EBITDA, right? And maybe actually on the opposite, on Wall Street,

everyone talks about EBITDA not growth rate um but in the midwest we talk about cash in cash even better even better but what uh i remember reading at one point um early on uh the cook brothers when they took over uh cook industries and they were going to grow it uh there was a specific data point where they basically made i don't know if it's a legal agreement but i think it's more of like kind of a brotherly agreement we are not going to take uh more than 10 percent of profits out of this business basically reinvest at least 90 percent every single year and we're to compound this thing now that is like a very strict kind of mathematical formula they came up with how do you guys think about uh reinvesting and then also it's interesting because you can

reinvest in the individual businesses right so if your pool business is generating a lot of cash or the fence business generating a lot of cash but you also have the ability to pull up it into the gp and then either redeploy it into new opportunities maybe into other companies that you already own or pull it out of the business like there's a couple of different layers to reinvestment versus maybe kind of harvesting that profit. How do you think about that? Yeah. Well, so the nice thing is we're incredibly long-term and we typically don't use debt in our transactions. So all the free cash flow is truly free, meaning we can do whatever we want with it. That's an amazing starting point. We can talk about examples of how that really

helped. I mean, owning an aerospace business as an example in COVID, I don't know if you know this, but aerospace doesn't go down as an industry. It just never goes down. And when you buy an aerospace business in 2019 which is what we did for an industry that never goes down and then all of a sudden the industry's down 85 90 percent wow right massive shockwave through the system thank god we didn't use debt and we had free cash flow it's truly free to be able to well do whatever we wanted with which in that case allowed us to grow a ton what did you do there in like in that situation yeah well so in that specific one so pacific air Industries and Aircert are two kind of sister companies. They work hand in hand, led by Jason

Harp out in Los Angeles. Incredible business. They are, we joke, they're kind of like a hedge fund for airplane parts. They buy large lots. So, you know, let's say FedEx is changing out their platforms. They're going to switch from one type of plane to another type of plane. Well, you're buying tremendous number of parts to constantly be replacing, right, in different life cycles of these uh aircraft and so they'll take all those parts spare parts that they had used for the old platform and instead of like doing a you know yard sale with it and be like you know that wouldn't make any sense they bulk it all together and they say okay who wants to buy it right so we're a liquidator of large lots of airplane parts uh we'll sometimes hold we actually i i was with the

ceo a couple days ago and he said that we recently sold a part that was uh we had in our warehouse for over 30 years. Wow. Over 30 years to a group in Africa that's flying DC-10s. So incredible how much diversity of airplane parts we have. In that business, because we didn't have any debt, all of our competitors were loaded up with debt. So the model was not only do you have operational debt, but you've got huge lines of credit to buy all these airplane parts. You're trying to, especially when capital is cheap, you buy with very little cost of capital, and then you're trying to churn them as fast as you can, which is great until there's a massive slowdown in the business and cost of capital starts going up. So that would never happen. That would never happen.

I mean, again, the airline airplane parts business just never goes down, right? It always either stays flat or goes up. And so, yeah, we were in this really interesting spot where we said, okay, we are one of the few people in the industry who has the ability to make reinvestments. Do we want to try to cash flow this out? Do we want to try to be conservative and just kind of hunker down? Do we want to do what everyone else is doing and lay off a bunch of staff and sort of, you know, go into a wintry state? Or do we want to go hyper aggressive, you know, zig when everyone else is zagging? And what we chose to do is that. And so we got aggressive in this little tiny airplane parts business, started hiring some of the top talent in the industry and said, hey, come join

our ragtag group of people and let's go try to change things. Implemented a brand new ERP system, basically did like 10 years of modernization in 18 months. It was incredible to see. And now coming out the other side of it, I mean, the airplane business is not back to where, as an industry, back to where it has been. It probably is going to be another year or two, I guess would be before it's back fully, but we're up tremendously because of the changes that were made and the talent that we've added. So having that flexibility, this is where we get a lot of crap from the industry about how can the world, can you guys generate, you know, even market returns when the, you know, three turns of debt, right? Having a balance sheet that's at least 50% debt is kind of the

norm in the private equity business. I mean, that's conservative 50%. Some balance sheets have 80% debt. You know, how are we thinking about generating returns when we're not using any debt? It just doesn't make sense. Except for if you look and say, okay, what if the optionality of that, not having that debt provides the cash to be able to reinvest back into areas of the business so what we say to our portfolio companies to answer your original question was if you've got a great place to put cash we want you to put it there so high probability high return opportunities we absolutely want you to retain the cash generate those investments right because in every subsequent out year we're going to be benefiting from that investment if you don't have a good place to put

it for god's sakes don't keep it right send it back out and so it's really that simple we just a high bar in the in the portfolio and we say you can if you can generate better than that with a good probability go for it if you can't send it up and out you all look at some of these businesses that are tens of millions of dollars that you're gonna have to write a check could be single digit millions i'm assuming if you found the right one given the capital partners you guys have you could go after a really really big opportunity or whatever how do you spend your time looking for the businesses right so you know i was telling you earlier that like i think a lot lot of folks, when they go look for a home online, it's like, okay, I want 1,000 to 2,000 square

feet. I want two to four bedrooms. And it has to be within this geographic location or a 30-mile radius or whatever. There's a lot of sites where you can go look at buying businesses online. You can do the exact same thing, kind of filter with these preset kind of constraints. For you all, the constraints seem a little bit less rigid. And so that means that you could look at literally thousands of companies how do you know where to focus yeah uh we do look at thousands of companies and uh to be honest this is one of the hardest parts we have to we have to get up to speed very quickly on a lot of different industries um we've seen a lot through the years right so i mean there's rarely a business that comes to us that we say we've actually never looked at the specific

sector um although a business that we're getting ready to buy we had never really looked at it prior to it um so it does happen i it sounds daunting honestly how do we find opportunities that come to us at this point so we have an incredible network that we've developed over time and we're kind of one of the only players in the industry that does it the way we do it so we say to an intermediary right broker investment bank is look if you're going to show this to 500 people and they really don't care who buys the business don't don't bring it to us um you know our tagline that we kind of we talk about a lot is you know we're for business owners who care what happens next.

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The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. entire, essentially generations of family members are working there. The name is on the door, right? These are community employers. These are people who care deeply about way beyond the dollars. And if we've done our job right, we have a joke that we like to say, which is,

if you haven't gotten rich doing it, we're not going to, right? So we want to buy a business from somebody who's probably already wealthy. So if money is the top thing, then we're probably not going to be the right fit no matter what. And so that mentality gets the right people to come inbound us. Now we pay market prices where we wouldn't get a deal done, but we're probably, if you're going to put it out to bid to a number of people, we're probably not going to be quite the highest bid, but the quality of what we're going to offer is a lot higher. When you think about buying something from somebody who's already wealth, and it's a great kind of heuristic, right? Of like, Hey, look, if you made money, we have a shot at making money.

But if not, then obviously not. How is it dealing with the wealthy business owner and buying their business versus if you were buying it from someone who i'll use wealth maybe as a proxy for sophistication but maybe that's the wrong way to think about it yeah um it's really like a no it's really not it's funny because um we've met some incredibly sophisticated sellers who are to be honest i mean have made good money i mean we're talking about here in the range of like for normal america good to great like i mean these are sort of the low end would be like the chairman of the country club right i mean these are like very very wealthy by any standards nationally internationally to like extremely wealthy right um because if you start a business

and you know the business we just bought like they started in their garage it was nothing for decades i mean they slowly compounded so this is not somebody who was like you know born with a silver spoon in their mouth i mean these are hard-working construction people these are blue-collar businesses typically we're getting involved in for the most part. And look, the rewards are great that if you can compound something for 40 years, treat your customers well, treat your employees well, be a great community member. Yeah, good things happen. You know, it just takes 40 years. So if you've got 40 years and a lot of grit and willing to endure a lot of pain, you can actually start a pretty big business, right? So yeah, some of them are very sophisticated and small. Some of

are not sophisticated and large i would say they're all if you're gonna start a business and you're gonna operate a business for that long you're all sophisticated in in some ways i would say some are more sophisticated like you know book smarts versus street smarts um we just love working with people and the difference in geography i mean we've got business across the country differences in culture amongst those it's so much fun so what's interesting about this is um i think it was forbes recently uh had kind of a 15-minute video uh profile and when they interviewed this guy. And if I remember correctly, I believe that he lives in Arkansas. He's the only billionaire in Arkansas, which immediately you think billionaire in Arkansas, right? People

start saying, well, what does he do? And so this gentleman, if I remember all the details, it was like his wife's family had a plot of land. And the way he described it was the accountant said to them, you're land rich and cash poor, right? And so they got in some trouble. They basically sold everything off except for this one little six acre plot of land, which happened to have a wood treatment facility on it. And this wood treatment facility, he decided that he was going to try to run it, but he was a lawyer. So he was going to work. He'd wake up super early, 435 o'clock in the morning. He'd go out there. He had one employee. He would help him get everything ready for the day. He'd then go home, shower, go work his job as a lawyer, do that till about

435 o'clock. Then he'd go back, help the guy finish the rest of the work. He did this day and day out for years. I had a very hard time getting the business off the ground. Long story short, you fast forward 30 years or whatever it's been. And this gentleman is the owner of Yellowwood, which is Y-E-L-L-A, Wood, which is the number one wood treatment products and facility in the entire country, if I understand it correctly. The reason why it's so interesting is because he is now the only billionaire in his state. And so if you're the only billionaire in a state, immediately, most of America would think, well, this guy must be balling. He must be driving a Ferrari. He has a private jet and a yacht and all stuff. I don't know if he does or

not, but he has stayed in that same 2000 person town. And a big piece of this was him and his business have basically helped to redevelop and kind of make the entire main street, all of the buildings and small businesses, make sure that they're sturdy and that they kind of look nice. They've helped employ thousands of people of people in surrounding areas. They're bringing them into the town. Even though only 2000 live there, they took over like an old plant that went out of business. And now they're using it for all sorts of other businesses they're starting, et cetera. And all I kept thinking about the whole time I was watching this, I don't, maybe I'm a weirdo for thinking this, but I was like the day this guy dies or sells his business, does that

town fall apart? Yep. Right. And so you, you mentioned earlier kind of treating your community well, you're an employer in the community, all these things. When you all come in, sometimes the management team stays sometimes you bring in an external ceo or uh maybe the seller's like hey i want to be the advisor we need to bring in a new management correct how do you balance like the success of the business maybe because they were such a good steward of in the community and there's such a great participant but this new person coming in like maybe they don't have a connection to the to the town like like how do you think about some of like the nitty-gritty really weird details of these businesses that don't fit in a spreadsheet yeah well one there's

there's a lot of magic to these businesses where you start picking them apart and you're going to get some some really weird results which is what i think your intuition is pointing towards right like like let's say that you know business has 50 major decisions you can make about how you're going to where you're going to place it and how you're going to run it and all these things you don't know kind of which ones you're you're pulling on when you start making these changes which is why we are for the most part pretty change averse right we want to make sure we fully understand um sort of the analogy i think in my head is like you know a ball of yarn and You start pulling on a thread and you think all of a sudden you're just pulling on a thread.

Then like half the ball of yarn drops off the other side, right? Same thing with the business, right? Enough stuff starts to break and all of a sudden you get this weird compounding in a bad way that occurs. Yeah, we're very biased towards keeping businesses. In fact, I want to think of this. We've never moved a business, I don't think. You know, we buy businesses in small town America. Some are in large cities, but some of them are in small town America.

And we love it. We want them to be there. We think that's a huge advantage for the business because they're so deeply embedded. There are families that work at these businesses, right? And to get up and out, it would require a tremendous amount. I mean, I'm not saying we would never do that, but we would think really long and hard about it. And by the way, we try to be part of this. What does it mean to win, right?

Maybe we could just kind of take a step back and like all these decisions are kind of put through the lens of in order to win long term, everyone has to win. there's literally no way if you actually think about the game theory of it for anybody any one actor to win at the expense of everyone long term in the short term you can absolutely do that right so this is kind of like the idea of like one-time games very finite games if you're playing a long game it's really has to become an infinite game and everyone around the table has to win all this all the key stakeholders have to win or it's not sustainable any one of those key stakeholders drops out it's not sustainable right so you think about that and it really forces you to to put yourself in the shoes of everyone around you and say all right what are we going to do that's going

to help everyone win over a long period of time and make sure that they agree that that's the way they want to win so i mean that's part of what we do we get to know these businesses we have these types of conversations we try to talk to everyone you know what are your goals what are your aspirations what are you going to be doing yeah how can we be a part of that we've talked a lot about maybe what I'll call like peering into the business, right? So they're running it. You've got the management teams, et cetera, there. Peter Lynch famously, I think said, if you spent 15 minutes on macro, you spent 13 minutes too long, right? And many people who will watch or listen to this, they're very interested right now in what the federal reserve is going to do or interest

rates or inflation and, you know, kind of name your macro data point that they're paying attention to. How much do you guys think about business cycles and kind of external things that are happening, which may or may not have an impact on a specific business, but seem to have a lot of attention from the finance or business world? Does that play into decisions that you guys make? You know, interest rates on debt don't really seem to make a difference because you don't take debt. So how do you think about the intersection of some of the businesses you own and macro? Yeah. What I would say is the macro is always going to affect the micro, but we're not going to make decisions based on macro. We're going to make them based on micro. So what I would say to you is, especially like 2021 was a good example of this. We saw a ton of business models that all of a sudden had these giant spikes, right? What happened? Oh, it was just the business models. Great. Just compounded. It's like, no, it was like, you know, very, very level and moderate growth.

And then all of a sudden a giant spike. And now you're trying to sell the business based on, you know, two times the earnings you experienced in any previous year. What could have caused that? Could have been COVID, you know? And they're like, oh, no, no, no, no, no. It couldn't have been COVID, you know? It's like, of course. No, we sell medical masks.

Right. Definitely had nothing to do with this thing. Yeah, had nothing to do with that. Right. Nothing to do at all. I mean, honestly, we saw a tremendous amount. Now that can actually happen on both directions, right? So you've got to be able to look at it and say, it doesn't matter what the past of the business is.

It doesn't matter what's happened in the past. It's only helpful in being able to predict the future. And what we're trying to do is we're trying to say, okay, look, from the time we buy it, what do we think, without our involvement, the trajectory of the business is on? And so we are very interested in what major shocks to the system, what, you know, we're going to look at different events. Let's say we looked at the events industry and we looked at the, yeah, personal protective equipment industry, right? And we looked at that same thing and we said, okay, what do we think 2020, 2021 is going to look like for those two businesses? Do we think there may be some abnormalities associated with it? So it's important you get to know what the major macro events are and kind of how it would affect these different industries so that when you go into them and you're looking at valuing them, you certainly don't want to overpay.

And you don't want to short people when it's like obvious that, okay, look, there was a stumble because, you know, you were throwing events or you were supplying equipment to the event industry or whatever it might be. Of course, there was like, you know, a year where no one had an event. So it's important to think through it that way. I mean, even interest rates, even though they don't directly affect us because typically we're not using debt in our transactions, our companies are using lines of credit to grow the business. So it affects us there. Our competitors are all using debt. right? So when we think about like, look, there's a lot of times in 2021 that we looked at each other and we said, how are we so off? I mean, we would be outbid by 50%. Well, when capital is

basically free, right, you can bid some pretty crazy numbers and make the spreadsheet work. We thankfully never got there, but it was tempting at times. So as you're kind of looking at some of those aspects of the macro environment, how much are you all pushing information down to the companies, right? Like I'm assuming that you and your team are better suited to evaluate macro than the average small business owner in America, right? They may pay attention to it. They probably read the news, like all that type of stuff. But we've talked a lot about things that you guys could do, change, you know, incentives, do branding, help with like online lead generation. Like there's very tactical things,

but is there any element of like, you're just pushing information down? And I've seen you start to do a lot more content online yeah some of that seems to be aimed at you know hey if you're a business owner you want to sell your business here's kind of how we operate and kind of inbound deal flow but also it feels like man some of this information that i've seen you guys post i've listened some of the episodes etc like this could be pretty valuable actually for even the companies you already own so how do you think about kind of information that you all have and getting it out to either future you know sellers or even the companies you've already bought yeah we think about it a lot um you know one we think that content's the only way to scale conversation

so you know we want to have 10 000 conversations with sellers and business owners like there's no possible way we can actually do that one-on-one so we think that having conversations that we can record things that we can write that we can then share is a really helpful thing um in our portfolio we try to share quite a bit i mean depends on the person it depends on the cycle the business right if it's just heads down execution we can share things here and there but like actually very little is going to adjust from a macro perspective is going to adjust the micro now i can tell you during covid when no one had any idea where this was going to go i mean example our pool business we thought for sure that pool business was going to go down a ton kind of

say march april may and i remember you know we were in touch with that team a lot and and you know it's like let's start cutting prices maybe we can pull some demand forward maybe we can fill our pipeline to get through you know we had no idea is this pandemic going to last three months is it going to last six months no no clue and then all of a sudden the craziest thing happened which was demand completely reversed and went through the roof and was like okay cut the price cuts like get get the price cuts off and like how are we going to then deal with inflation so it was like okay the exact opposite problem so there was a lot of information sharing around okay what do what do we think other businesses are doing in terms of price increases?

How do we think about material availability? How do we think about labor availability? You know, we had this whole issue where, I mean, the government incentivized people not to work in the blue collar trades. I mean, we had people come to us and, and it's no fault of their own. They said, look, I can make more money staying at home than working. What would you do if you were me? You know, he said, well, we'd prefer you to work, but you know, totally understand if you,

if you feel like it's not something you want to do. So there's a lot of these macro headwinds and tailwinds that you've got to kind of adjust to. Those do, we are in a better position than our portfolio companies to kind of monitor that. And there's a feedback loop. It's not just one directional. They're constantly sending us stuff too and saying, hey, we read this or we saw this or an industry event that we were at. They did this. What do you all think?

Yeah. One of the things that as I invested in more and more companies, the portfolio got larger. I always struggled with was I didn't know where the balance and kind of the right way to do it. When you buy a business, people probably want to talk to you. Brent, I want to talk to him. He's the leader of the organization that is buying my business. You all are probably still at that stage, I would think. Maybe I'm wrong. Steve Schwarzman or Sam Zell or whoever who's been doing it for 50 years, they've probably escaped that. And now it's like, Hey, if, you know, Blackstone is going to come by your business, like not very many people are going to demand to talk to, you know, whoever, uh, they're probably just gonna say, Hey, you know, what's your offer? Who am I going to be working with? And kind of get the deals done. But on the same side, like the support of the businesses, you have the same 24 hours as everybody else. How do you think about, okay, you want to kind of be the leader that goes and, you know, shakes the hand of the person you're buying the business from, but also you can't answer every single phone call or email. like how do you scale yourself like how have you at least thought about this and then also from an organization standpoint is there like a threshold that you kind of cross into whether it's size of team or number of businesses or something where you go look we got to now have you know a portfolio

manager and like they're your point of contact how have you handled handled yeah we've actually already crossed this okay amazing yeah so even better because now you can tell me how you did it yeah this this was this is actually it was a big change i mean i remember getting the point where there was no way that I could go on every site visit, have every phone call. I mean, this is by four or five years ago. And so now, I mean, the goal of any business, I think, is to replace yourself with people who are more talented than you are. You know, we have a little bit something different about our model. And this maybe kind of goes to something a little bit zoomed out than even with the question you asked, which is how you scale a normal private equity firm is you

hire more partners. So partners are what I call like private equity firms in a box, right? So you you hire another partner to find more deals, to be able to negotiate more deals, to do diligence on more deals, to negotiate the paperwork on the deals, and then to ultimately operate them, sit on the board of directors post-close, right? So if you and I owned a private equity firm together and we said, okay, we're kind of maxed out, like how do we grow? Well, we got to find a third partner and then we got to find a fourth partner and then we got to find a fifth partner. This is the same thing like how law firms grow or accounting firms grow. So that's the traditional way of doing it. That's how almost everyone else does it. I don't come from a finance background.

We haven't really talked about this. I've joked in the past that I'm like the Forrest Gump of private equity. I fell backwards into this. I don't have any of the muscle memory of how a private equity firm should be built. I looked at it and said, well, why in the world would you do it that way? It seems really hard to find people who can do all these things exceptionally well. These are all these jobs that I just described. They're very difficult jobs. They're very different skill sets. What I said was, why would we run this like a manufacturing operation, right? You wouldn't expect the welder to do all the woodwork, right? Like that doesn't make any sense. You'd say, hey, we want to go out and hire the guy who's amazing at welding. And then we're

going to hire the guy who can do carving, right? I mean, those are very different skill sets. Same thing in our business, how you talk to a seller or a leadership team when you first get in touch with the business, what you ask, how you ask it, how you pursue it, what you push on, what you don't is completely different skill set than how you operate the business post-close. Now, you want a continuity of information. You want to make sure there's not disincentives or wrong incentives along the way to pass the buck that something's bad, right? But we have specialists in each area. So we have partners, but those partners are over a specific vertical, right? So somebody who's only over the intake of the business. Once that business gets

to a letter of intent, they fall off. We have a new team that comes in. So we're constantly moving them between these things, which makes it really much easier for me. So instead of being the partner that's in charge of leading a deal, we actually don't have a partner that's in charge of leading a deal, right? We have a whole team of people that comes around your business. Everyone's kind of like, I don't know, it's like the League of Extraordinary Gentlemen or the X-Men or something, right? Like you don't want Cyclops to go underwater, right? It's not going to be a healthy thing, right? We got each person's got their own powers that they are really, really good at and what we try to say is hey here's the kind of an array of people around you at any given

stage you're going to know who's kind of the lead person but that lead person is going to change depending on the stage we're in and then how once you've bought the business is it the same thing where uh you basically use that manufacturing analogy now all of a sudden you're the owner you have somebody who hey they're going to help you with marketing if you need help they're going to help you with finance whatever and there's not really one single point of contact that's supposed to oversee everything? Yeah, so we actually have two points of contact that help resource the company beyond that.

So we have an operating partner and we have a financial partner. They're creating feedback loops in those companies. So the financial partner's interacting with their financial team, creating financial reporting, reviewing things, providing feedback,

trend spotting, all these different things you'd want them to do. Then the operating partner's really becoming the advisor, kind of more of the board of directors in a box, if you want to call it that, for the company. And then their job is to then, between the two of them,

to resource the company besides kind of the things that they directly offer, right? So it depends on the person, the operating partner, they're gonna have different skill sets. But let's say that they want to recruit an executive, right? They're gonna say, hey, let's get Kelly involved. Here's how Kelly works. What do you think? Yeah, great. Let's get Kelly involved. Then Kelly, who's our lead person on recruiting, she comes in and helps on recruiting. It's a very specific talent that she's adding to that. So their job is to kind of understand the strategy, do the governance, oversee the company's developer relationships succession planning all those things and then resource the company either from within or without you've been doing this now for 15 years 13 years

15 years 15 years okay so 15 years uh you are not old which is uh unique well here's why you because i haven't been called not old in a long time so that's good well i was recently reading something and uh i don't remember the exact age but i believe that uh bernard on no who lvmh yeah um i think that he finally got control right around 39 or 41 somewhere somewhere in that range yeah which many people when i was 21 i was like oh that's real old right now i'm like hey chill chill out right exactly but he then went on a 30 year run and when you think of doing something and doing it well and being obsessed and focused with it for 30 years, you can accomplish some pretty incredible things.

When you think about what's ahead of you, is it just more of the same? Or is it, hey, we want these businesses to grow in size and use the free cash flow to buy more business? How do you think about what's the next 30-year plan? And you may tell me, actually, in five years, I'm going to retire and never talk to anyone again. But how do you think about the next 30 years? Yeah, I recently turned 40.

so it's been a uh i wasn't gonna say that i was gonna let people think that you were somewhere between 25 and 55 yeah yeah yeah yeah well i i feel like it's to to put a flag in the ground and i mean bezos didn't start amazon until he was at 39 40 uh i think somewhere i think it's like mid 30s but yeah okay maybe he's a little bit younger than that but uh yeah so it means it's inspiring is the new 35 it's 40 is the new 35 40 is the new 20 no is that no it's probably not the case um yeah so in terms of the plan like i didn't have a plan for permanent equity 15 years ago um i had none of the stuff that we're doing now was on the radar even five years ago if you if you kind of go back we had just raised our first fund in fact we were actually in the throes

of raising the first fund weren't sure if we're going to be able to convert over or not i mean it was a it was a stressful time right and it's gone way better than i ever could have imagined And so I feel like that I'm always interested in thinking ahead of what could come next. You know, a clear path is to continue to raise capital, to continue to serve our customers. Well, it seems like everything, everyone's happy in the system. It seems like we created kind of a de novo new way to do private equity, which, you know, everyone does it one way and you do it something other way. It probably shouldn't work. Turns out it's, I think, working decently well.

I think the model I'd prefer our model to any other model. Right. So I think it's got legs to be able to continue to grow into the future. We get continually pulled into larger and larger opportunities. Ironically, our model works better even up market from where it is today. um but at the end of the day i have no idea where this is going to go and i think always planning and never having a plan is kind of like the ultimate uh combination so um i think our model works in other geographies uh worldwide i mean i think there's a real opportunity probably in germany and uh in england um canada we really not touched much um australia new zealand japan's got a really interesting economy for for something similar to what we're doing obviously there's a lot of cultural nuances to moving into those. There's a lot of baggage that comes with moving up market because that's what every other private equity firm has done. And really what we've just

tried to do is to say, we're going to do what makes sense. We're going to try to treat everyone exceptionally well. So we always want our investors to know that whatever we do, we're going to have their back. And the employees at these companies, whatever we do, they're going to have their back. So I feel like we can't lose. And tomorrow's not assured. So I have no idea. i'm uh trying to take it day by day everything you've done is in the private markets you talked about geography and industries would you guys ever look at public opportunities to bring private or take a permanent equity public like how do you think about public versus private markets yeah that's a great question we have looked at a couple take privates um ultimately we just don't have good

muscle memory for it um there's just a whole nother set of rules i mean we're highly regulated now we've come to a big enough size from a capital perspective where we're i mean we're regulated like the big boys are. Right. And, um, um, that is its own challenge and its own barrier. Uh, in some ways it's costly, uh, and it's kind of stressful to deal with regulation. Um, but you know, I think we're doing great in that department. When you get into the public market, it's kind of a different level of scrutiny and a different level of, of rules and what you can and can't do. Um, I actually, uh, looked at a, uh, uh, a take private at one point, this is way in the past and I just didn't know what I was doing. So I went and

met with the ceo and i you know i was kind of getting uh excited about the opportunity and and you know he he kind of made it clear that he was like i'm doing this out of a favor to a friend like i'm i'm not meeting with you because i'm interested in you know your firm helping us at all and i was like okay well great to meet you or whatever and he made like two or three comments i was like man that seems like oddly specific information he goes oh by the way son i just want to let you know you're now uh opted out of being able to do anything in the public markets Cause that's not a public information that I just gave to you. And I was like, wait, what?

And he was like, so if you were thinking about buying our stock, you can't buy it now. I was like, shoot. You know? So like, there's just a whole lot of different set of rules that you have to go on. And also it feels like, you know, if you're the newbie sitting down to the poker table and you're playing with

sharks, they, they know exactly what information to tell you. Correct. Yeah. So I would say not, not say that we wouldn't ever go do it. It's just an expertise that we haven't built up. And, you know, never say never, but, you know, we're not sure in terms of taking something public. I mean, I think the one thing that is frustrating to me, there's always opportunity cost to everything. You know, we would love to be able to help our employees compound their capital with us, right? because the way the rules are set up in the united states around um being a qualified investor and all those things like we can't take investment from hardly anybody right there's a very narrow

group of people we can take investment from and i understand why the rules are there and we can debate the merits of that totally get it um it would it would be interesting at some point to be able to offer the opportunity to work with us to a larger group of people but we have no plans for that yeah um so it's um interesting the name is permanent equity there are many vehicles that somehow i figured out how to get truly permanent equity with no uh kind of end life of the fund right when uh in the bitcoin world there is a uh a fund that is run by grayscale who's got about three and a half percent of all uh i think the supply uh circulating when the bitcoin went in or the dollars went in they're not coming back out yeah and so there's this permanent equity

component, but to your point, there's a hell of a lot of rules and also, uh, the day-to-day scrutiny, right? You know, I'm assuming you guys aren't sitting there trying to figure out, are you up, you know, uh, this multiple or that multiple on a day-to-day basis. Yeah. We don't have to worry about day-to-day with the, uh, with stock market a little bit different. Yeah, for sure. Yeah. Um, I asked people for questions and so, uh, I, I held off, I was going to email and text a bunch of our mutual friends and I was like, nah, I'm not going to subject him to that. and i have a couple sure the first morgan housel yeah you you and him that guy sucks you and him don't get along on the internet but i know you guys are good friends

he has no clue i'm gonna ask you this but at what point did uh the razzing of morgan begin he's just he's the he's my uh he's my fake fake twitter nemesis um yeah yeah morgan uh morgan's such a great friend he's a great guy we were actually texting back and forth yesterday it's hilarious um yeah people people who i just started going after him just because he's such a like he's such a lovable guy and he's so humble and and he's just hilarious to make fun of he's just like the guy that you're with like you know at a sports game that you just keep razzing on him right and he just takes it and do people think fireside people thought i was serious like i had multiple people i've read reach out and be like hey man i don't think it's worth it like you know

can you just like you tone it down a little bit like what do you have against morgan like what i'm like no no you don't understand it's it must be the the the worst kept inside joke yeah yeah yeah he uh he and i are great friends and uh i admire the heck out of him he's a great dude every time i see one of you say something it i don't know why but it just cracks me up like look at these two guys and i and i've always thought like i'm sure people think they're serious right so that's pretty good um twitter in general is something that you've used sometimes you're using a lot sometimes you're not how do you think about uh not just the firm communicating but you communicating um through whether it's social media or you guys wrote a book right and so that was a

whole process like talk a little bit about your communication with not only business owners but maybe that broader business and investing community yeah i mean i think um over time just twitter's has become a source of fun and enjoyment for me and something that i enjoy trying to help people through um you know i at one time you know it's like try to be a thought leader try to put out interesting content, try to do whatever. When I stopped doing all that garbage and just focused on like trying to help people and put out things that I thought were interesting. And, um, again, content's the only way to attract the right people and repel the wrong people. So, you know, every time you say something into the world, especially when you've got a megaphone, like a

Twitter can provide, um, you're going to lose a bunch of people and you're going to gain a bunch of people. And the people you lose are people who don't agree with you or don't want what you're saying and the people you gain are more in your tribe. Right. And so, you know, I've enjoyed it from that perspective. I mean, I met most of my good friends through Twitter. I mean, my life would not be nearly the same if it wasn't for Twitter. I'd used to joke that monetize Twitter better than Twitter has may still hold. And really, I would just, you know, from like an encouragement perspective, encourage people just be who they really are. I feel like that social media creates this inauthenticity that you want to put up a mask on and say, I want to present

myself a certain way and my life a certain way. And, um, it may work for a little while, but people can tell. And when that gets shattered, I think people, people don't care for it. I mean, I'm curious about you. I mean, you've got a huge Twitter following. I knew you before you had any love, hate, uh, relationship. Yeah. Yeah. I mean, I knew you before you had any Twitter following. Um, I think that you had more Twitter followers than me for sure. I didn't. Did you even have a twitter account when i first met you i think i had one but i hadn't used like a hundred you'd like a hundred followers or something yeah yeah so yeah how's it been for you i mean what's the it's amazing too i think your point about like monetizing it better than twitter has

uh i could sit here and rattle off a bunch of probably friends that i have and mutual friends that we have that they've built their business they've literally started companies with people they met on twitter they've got investors that way they've raised capital all these different things which is amazing from a business perspective i find the most valuable part is not so much um i think a lot about in life is like there's three groups of people that you can aspire to or or uh spend your time with which is like there's your heroes your peers and then like the next generation sure and i actually see most people on twitter they're trying to get in touch with their heroes or they're trying to engage with them or enter those conversations and if i'm honest with myself

I actually think outside of maybe guests for the podcast, because a lot of that has happened where I've just DM someone, they like responded to me or something and, and it kind of opened the door and you shoot your shot. I've actually probably met the most younger people. Yeah. And that to me is a place where like, I, you know, I've thought like, I don't know how I would have met those people. Otherwise the peers you meet, you know, in just kind of doing deals or talking to people or whatever, the heroes you can read about, see them do interviews, like all that kind of stuff. But it's actually like the younger people again, I'm getting to an age where like, I'm probably disconnected to some degree and so i meet these people and it always cracks me up because i

can tell oh you're from a different generation they'll hit me with like uh we have one person who works with now i met on twitter and he'll send me these text messages it's like deciphering a new you know a secret code yeah i can't do it the first time he hit me with the letter p good i was like pretty good okay i got like hey you know oh that's good i was actually like trying to see through it myself right and he like kept sending me his text messages and i was just like man i need to find more young people because like i hope that we're not putting this in you know like actual professional communication yeah like this is a whole different culture this is a whole different way they talk about whatever and one of the things that i started to realize was

like these young people were taking tiktoks that were being uploaded and they were putting them on twitter and so i'm not on tiktok but like i almost felt like i was getting you know a flavor of like oh that's what's going on there because i'm seeing content here so i think that's one the other piece of it is in whether better or worse like it is that megaphone i think you said earlier like content is the way you scale conversation i've never heard anyone describe it that way twitter to me is maybe one of the best ways to do that because yes a podcast or a youtube writing you can reach a really deep connection yep but man if you get a tweet that you know takes off it's really hard to write something that reaches a million people right it's hard to get a podcast with a million

listens and nuance is hard too of course and so i look at twitter a lot actually as like there's this output but maybe the response is more valuable yeah and you put things out there all the time and you're like oh i am an idiot thank you for reminding me like i didn't think about this or that or whatever so yeah no no i mean i have a love hate and i think that the the love is i love chatting with people and getting to know new people and it's been a great serendipity engine right if you want to think about it that way um the hate is just that uh when i'm at my worst it's like a really bad reinforcement of all the things i should not want from the world right it's like oh well i don't feel loved i don't have attention so i need to go and get

attention online right like that's a it's a very toxic uh cycle you can get yourself into so as someone who went through uh this um i now can see it playing out and i've sent messages to people privately said hey you're not gonna listen to me right because guess what somebody said it to me and i didn't listen to them but on the rise up just remember there's another side to the hill and that can be a forced error i could be an unforced error that can be a mainstream media thing where that literally can just be like hey you're you know you're the darling today because your company's doing well yeah covid happens right and you know that big event business you had nobody cares anymore so i think that's interesting another person that i was going

to message uh but did not because i knew for sure he definitely was going to give me too much dirt patrick o'shaughnessy yeah uh i think i've heard you guys talk about you talk multiple times a week for sure yeah i think maybe even multiple times a day all right yeah um he has built a whole kind of media empire of himself he's got his venture fund uh you all appear on the outside to come from completely different approaches to investing capital but you're great friends talk a little bit about whether it's him or other people like that that you spend time talking with but they don't actually do exactly what you do in terms of deploying capital well those are my favorite people i mean honestly i i don't have uh great contacts relationships um with other

private equity people um one i think is because what we do and how we do it is so weird and different than traditional private equity um i think in some ways we're kind of like the zoo animal in the private equity world um but yeah patrick in particular he we got we met online met on twitter he had actually put out a tweet he was like talking about capital allocation he's like hey can somebody talk to me who does capital allocation for a living and i was thinking to myself well I allocate capital like I don't know I'll reach out and I'll say hey sounds great so we got on the phone this is 2014 probably 2015 it's been a long time and um we got about three minutes in the conversation he's like wait stop what do you do and I said well you know we buy

these small companies like how much do you pay for them I was like well you know we pay like four or five times free cash flow he's like and these aren't like going bankrupt I said no no there's small companies you know they're hard to get access to hard to run everything's hard about him he's like all right stop i don't want to talk about i thought we were gonna talk about like capital location the public market i don't talk about that at all like tell me more about what you do so fire away whatever questions he asked me like 30 i mean incredible questions patrick's always been he's got a mind for interviewing and now the whole world can can see it um i still remember when he was like hey i'm thinking about starting a podcast and i was

like oh that's interesting like well wonderful turn into anything you know turns out it has um but anyway so he so we chatted and then he was like hey can i come visit you sure i loved having guests you've been in columbia missouri patrick came to columbia missouri i was gonna ask about the columbia missouri pill pill mcgridge uh because i uh when i tweeted and asked people for questions literally i think two different people i went and i had a steak with brent in missouri columbia missouri yeah i love having i love uh hosting people in columbia so anyway so he came into Missouri and I mean I don't know it's just you you you jive with certain people and he's just he and I have always just been like kindred spirits since the very beginning

he came in we talked for like 13 straight hours one day and at the end of it he was like okay look like I want my family to invest and I was like sorry to break it to you like we don't take outside capital and I remember when you came and visited me in Columbia this is again seven years ago probably six and a half years ago seven years ago um I probably said to you like we'll probably to never take outside capital because I really believed at that time because I thought my choices were either taking a traditional private equity structure, so two and 20 fee structure with a 10-year time horizon, which would have completely destroyed our business model, would not have given us the right incentives. It was just a non-starter. Or create a holdco, which has lots of challenges

with how you raise more capital. You have to value the assets initially if you've already got something started, which we had at the time. And so I just really felt like neither of them were going to be the thing. And we were doing just fine. Like we were making really good money and compounding. And, um, I felt comfortable that we didn't need to raise outside capital. And then I met Patrick and he blew up my life and, uh, in, in all the best ways. Um, but, uh, he also didn't take no for an answer. He didn't take no for an answer. So what he said was he's like, tell me what it would take. And I was like, well, what do you mean? Tell me, like, he's like, I said, we're not going to do it. And he's like, no, no, like you create a structure. You tell me

all the rules of the structure. What do you want? How do the fees work? Everything like that. Just make it work for you. And then I'll tell you if my family can do it or not. I thought, well, that's a challenge. I get to create a completely new system. Okay. And really he enabled that creativity. I mean, without Patrick, I wouldn't have had the creativity to do this. And anyway, so I got in front of a whiteboard for multiple days and basically sketched out what we have now and presented it to him and he took it to his dad and they talked about it. And he came back and said, a little tweak here, a little tweak there, and we're ready to go. And I said, what was the structure? It's the same structure we have today. I mean, honestly, it's so no fees

of any kind, no reimbursements of any kind. So we only get paid whenever we start returning cash back to the investors. They get a hurdle, then we get a catch up and then we split above that. typically no debt nor transactions uh and i asked for 50 years on a time horizon and actually got 50 years and then uh another family that got involved later their their lead attorney said i would never let the family agree to 50 years that's insane like no one no one gets to keep capital for 50 years and i said okay what's the longest structure you've ever seen because i can tell he was serious about this he was like look son you know it was like one of those like yeah this isn't gonna fly and we're serious we're serious right i mean he was a serious man like

they were a serious family he's a serious man and uh and he said i okay look one time i saw 27 years with three one-year extensions and i was like sold that was it that was it so anyway that's the structure we have and that's the structure we have for the first fund for the second fund worked out great um i got cold feet i think twice during that process of raising that initial fund so so patrick's family says yes we want to we want to invest and i said great like now what and he said well we know a bunch of rich people it's a great who knew you know um so he started making introductions and i mean literally like his team to his credit like he's like some of your numbers will actually create a deck for you like like they did a lot of work and we're just

incredible partners he and his father jim are just both of them gems of human beings and um multiple times through the process though i was like i'm giving up i don't know what i'm going into it's like I was exiting a phase of my life and my career where, you know, I had kind of made it right. I like, we had, we had a great team. We were on a great trajectory. The businesses were working, the strategy was working and we were kind of breaking the thing that was working to make something new. It was scary. And there was, you know, not everyone in my office was in agreement that that's the direction we wanted to go. There were a lot of heated discussions around what we were going to do. And multiple times I called him and I was like, I just don't

think this is worth it. And he's like, stop being an idiot. This is worth it. Here's how it's going to work. You're fine. Like, you know, kind of stay the course type thing. Literally talked me off the ledge twice. And so, I mean, truly there wouldn't be any outside capital. There wouldn't be a first fund. There would be a second fund without Patrick and his dad. And then we just developed a friendship. We created this event called Capital Camp, which is, it's kind of crazy how the thing, I mean, we just thought we'd get some friends together in Missouri and show them a really great time. The joke is that I run a food and wine festival and Patrick runs an investing conference, right? It's turned into this like really big international event.

Like last year, we had 400 people from 16 countries, a lot of capital in the room and just trying to make this experience. It's in Columbia, Missouri, right? Nothing cracks me up more than like people flying in, not only just from like New York, L.A., San Francisco, Dallas, you know, into Columbia. people are flying from like shanghai and singapore and south africa and switzerland to like columbia missouri so just have fun when you guys set up the structure yeah uh a family or a private investor have a lot of flexibility you also have institutions yes that have invested what was that conversation like this episode is brought to you by accenture when your advertising operations fall out of sync everything else follows spotify and accenture are working together to reinvent

the rhythm of ad sales using automation analytics and smarter workflows to simplify campaign delivery and access better data across the business the result less time spent on operations more time connecting brands with the moments and fandoms that matter most learn more at accenture.com spotify well a lot of institutions said uh just laughed us out of the room to be completely honest especially on the i mean the the last fund raise i mean we were we had raised one uh one fund but it was pretty small um the initial fund was 50 million we were raising 300 this last time and um you know they kind of counted that as like the first institutional raise so that kind of counts as your really your first fund in their eyes and a lot of them were just like look we

don't do first funds which i get it kind of to some degree but like if you're gonna wait until somebody's already like proven themselves like haven't you missed the like the real early opportunity to get with them and become like a true partner so but anyway there were a bunch people and also first-time funds usually outperform first-time funds do outperform um now there's also a lot of people who shouldn't raise capital and there's a lot of first-time funds that also don't perform at all correct yes so we should you know in all caveats there may be some survivorship bias um but uh but anyway so um yeah i mean a lot of people laughed us out of the room i mean we had a lot of people who said one you're not gonna be able to build this in columbia missouri like who

the heck would ever live in columbia missouri and we're like like you're what we do and we think it's pretty awesome um and another one was just like building any firm new is really really hard um and i said well yeah but we've been doing this for like a decade already so you got to remember like we didn't just like come up with an idea and say hey we're going to raise money to do this like we did it with our own capital for like the better part of a decade and you know the actually the the ability to go slow this is what you know i i have probably two or three people a month who reach out to me and say, Hey, I want to do what you do. Um, on the surface, the returns look fantastic, right? The math is not hard. If you're, if you're buying something at a four or five times

multiple and free cashflow, you're starting with a 25%, 20% yield on that capital. Right. And you can grow the business. The returns are incredible without any debt, right? Like that's just the baseline assumptions. So people look at that and say, well, that's better than I can get anywhere else. Like I should go move into this. I always tell people it's simple. Like there are no secrets. Like I happy to answer any question that anybody has. It's just really hard. And judgment really matters. If you'd given me $50 million, two years into what we were doing, I would have lost all the money. If you'd given me $300 million in five years, I would have lost all the money. It's just takes a long time to hone. You have to look at thousands and thousands

of deals to hone. What do you like? What do you not like? How, you know, how do you see these things play out over time? And if you're given a lot of capital, you can just short circuit a lot of that learning and you can pretend to be good for a while and you just got to get lucky and hope that it all works out. And, um, I gotta tell you, I'm, I, uh, I've seen a lot of people come and go. Um, there's almost no one who's actually been able to start and build with some, some exceptions, which have been fantastic. I mean, we always try to help anybody who wants to enter the industry we actually try to be helpful to them which sounds like a weird like aren't they quote unquote competitors to what we're doing the market's enormous there are just an ocean of

people out there who need to sell their business and there's not enough qualified people there's enough people who like sure you and give me your business but like you don't have qualified people who really can take that business and move it forward and so um i actually think it's a great opportunity if you're listening to this and you want to get into the space i would encourage you to try to get into the space. Just take it slow, like really learn what you're doing. And it's mostly learn about people. The people I think that have the worst time and have the most access are like the finance types. The people who, look, just graduated from Yale, Stanford, Harvard, wherever, big MBA program. They know a bunch of people with a bunch of capital.

They can raise the money. They've never operated anything. Or if they have, they've been at like big company or in sort of a bigger organization as like a low tier or middle manager right that training just isn't that valuable um to running owning and running a small business and also you know the way in which the deal process works and the operations post close are really disconnected in terms of value so if you're really really good at finding opportunities and selling investors on how to invest and all this stuff like you're probably almost by nature, not going to be good at the post-close operation. So there's all these like stumbling blocks along the way. The path looks so easy. Just find a business that's making two,

three, $5 million, pay four or fives, maybe six times for it, God forbid. And then you grow the business and you exit a period later and you make millions and millions of dollars and retire like, duh, just do it. Right? Like, of course it's easy. It actually is that simple. It's just the stumbling blocks of doing it are tremendous. And so, um, that's been something that's interesting over time to watch a lot of people that are frankly, way more intelligent, way more educated, um, way harder workers, I think than we are, um, that haven't been able to do it because they've actually gone too fast, too quickly. Somebody once told me that operating a business is like looking at a beach full of sand. And when you start walking, you have to try to figure out

where is actual sand versus quicksand because it all looks the same and if you can just you know go down the entire beach and avoid all the quicksand then you'll be fine but uh good luck yeah i've i've equated it to um being in a constant knife fight where you just get out of bed in the morning and try not to get knife that day and then get back into bed and do it all all over the next day i mean it's amazing like you know people look at successful business owners and and look you you can make millions and millions of dollars right have this incredible free cashflow engine that you can build over time. Like it's very attractive. If you make it the number of things that can happen to a business and the number of things that I have seen in my

career that just make no sense that you'd just be blown away by it's extraordinary, right? I mean, we've put so many people through rehab. We've had people who've done all kinds of crazy stuff, have embezzled money. We've had, I mean, you get weird stuff in the mail from the government. You're like, well, that law conflicts with this other law. Which law do you want me to follow? that's not our problem either way you're screwed right like you cannot do everything well and so that's where you just have to get into businesses where there's margin of safety you can't use as much debt i mean you know we haven't really talked about the philosophy behind debt but that's another thing was like we try to be humble and not only our approach but also in the price we

pay and the fact that we don't use debt because we're trying to set up these situations to be the most durable they possibly can because frankly these small businesses are outrageously volatile without adding any more volatility to the situation what i think a lot about is maybe in the more traditional tech industry it's always how high does it go you're in a power law game right and so it's literally uh you're basically buying these lottery tickets to a degree and now you try to if you're a good investor pick the ones that have higher probability maybe things you could help uh find the right founders like all the things that make you know the good lottery pickers good but you're still playing a power law game and so it's all about height and and velocity and

growth rate and all those things you're playing a game of like how bad can it go yep right because you're actually buying something you're paying based on how it's already going and if it degrades you lose money it was a lot of money right very quickly yeah and and what i always think about is like i guess in both scenarios there's a 1x downside the difference though is that when you're playing the power law game the rest of the portfolio can like easily make up for any losses you actually go into it thinking you're going to lose 50 to 80 percent of the time yep when you're playing a game of buying cash flowing businesses you're not uh hoping that you lose one percent of the time you're hoping actually that everything is you know flat to up correct and so you have

you know a very different kind of calculation because you don't have that power law yep and so debt obviously becomes a whole different game uh and it's understandable why people use it of course but at the same time some business models can handle a lot of debt right i mean the predictability of the outcome really is is indicative of the amount of debt you can use most small businesses are highly unpredictable so if you're running a business that has an incredible base of recurring revenue that's like you know let's say that hypothetically you could get a stream of income that we knew exactly how much money we were going to make for the next 10 years like like no questions asked backed by the us government let's say it's a government contract

or something that's locked in for 10 years guaranteed there's no outs the government's going to pay you for whatever your service or product you're doing for the next 10 years look you can you can definitely put debt on that business because you have high predictability of outcomes right now do you want to try to grow beyond that if you lever it up there's no capital to reinvest in the business so you can still get yourself into trouble even when things are predictable right if you've got a business that's like what i call a normal small business that's going to go up and go down and you're going to have people leave and you're going to have all kinds of weird headwinds and tailwinds and crosswinds and all this stuff.

Putting debt on a business only helps one of the people at the table, and that's the investor. Everyone else loses. You're the only one who wins. Now, in the short term, if you're going to play the short run, you can win at the expense of everyone else, and that's what traditional private equity historically has done. I don't want to paint the entire industry as that

because there's some awesome people that are very, very thoughtful and great stewards that are in private equity that have a traditional model. But traditionally, if you look at most of the industry, the leveraged buyout industry in particular, it has been how do we lever this thing with max debt so that we can put in minimal equity so that this thing works. Heads I win, tails you lose. And the tails, by the way, you being not only the debt holders, but also the employees and the executive teams and the communities they're in, the suppliers, the customers, everyone else loses at the expense of the investor. that doesn't seem like a game i want to play um we want to play again where everyone wins long term and we think that the actual volatility of these businesses where everyone else says that's a weakness right because we had a lot of investors you know go back to your question about

what did institutional investors say they were like you know i just don't think you can buy these highly volatile small businesses at scale and make money doing it we're like okay that's a bet right what they're saying is we don't think you can do it and to be honest on the outside looking in, I think that's actually a pretty reasonable thing to say. When you get close and you say, well, what if instead of the volatility being a bad thing, because volatility goes both directions, it goes up and goes down. If you don't use any debt and you can handle high volatility, then like our aerospace business, yeah, high volatility down. Now there's gonna be high volatility back up. What if you can use that cashflow to reinvest back in the business

and catch that volatility on the way up when no one else can? You sound like a Bitcoin investor. There you go. Well, I don't know about that. That's a whole other world for me. No, but it is true, right? I think that this idea of the volatility, but really what you're talking about is if you're durable as a business owner because of the way that you bought the business, it goes back to, and it's so funny because I think a lot of times when I talk to people who are doing something that appears to be new, it really goes back to the timeless investing principles. You make the money on the purchase, right? And so purchase could be the

price, but also could be the structure in which you choose to do it. So you guys figure that out. Price and structure matters. Absolutely. Last thing I want to talk to you about, the number one question I got was your kind of journey in faith and a believer in Jesus. Yep. I don't know when you kind of converted,

but my understanding is you're an atheist. Yeah. Now you're not. Yeah. Tell kind of that journey, what happened. Yeah. And what I found so fascinating is not only the level of interest when I asked for questions,

but also it was people who obviously didn't know who you were. they had never seen you on the internet or anything and so one of the people literally said i went to his bio and i saw this and asked him about it yeah i was like wow maybe it's something that's not brent specific as much as it is uh there's this um maybe human uh curiosity sure so talk a little bit about that journey yeah man um it has been has been incredible i um let's see here so i told my mom i didn't believe in god when i was nine i've always just been a hot start tough kid i was i was i was coming hot coming in hot um yeah i uh i actually asked my mom to drive me to the church when i was 14 because i set up a meeting unbeknownst to my parents with

the head pastor at a local church and i was like hey can you drive me to this church and she was like is there anything you want to tell me like is there a drug issue is somebody pregnant you know like what's going on i'm like no no i just have all these questions about faith and met with pastors, unbelievable guy, super thoughtful, kind, generous, sat with me for probably over an hour. And I just pounded him with question after question. I just could not understand what was going on. And I just said, after that, I was like, I couldn't get the answers I wanted. My heart was hardened at that point. And I just, I was done with it. So from like, you know, kind of 14, 15 through my gosh, mid to late twenties, I was just an atheist. Like I was

what I would call strict materialist, you know, this world is what it is. It's what we can see and touch. There's nothing beyond this. And, um, that was it. Right. In fact, I made fun of Christians. I was like, come on guys, like the big sky fairy. Come on. Like what, what is all that going on? Like, come on here. Like, let's not, let's not go through all that garbage. Right. Um, I thought Christians were dumb. I thought they were uneducated. I thought they, they didn't know what they were doing. And, um, I reached a point in my career, uh, where, um, was making more money I ever thought I would make and I had married a beautiful woman who loved me and everything was just gray it was dark um I didn't really care I didn't care about life I told my wife I didn't

love her um I didn't care about anything food didn't taste good best drinks didn't taste good it just kind of was all gray I was like this is it like you make money and then you buy stuff with it and then you just kind of then then you die someday and ultimately you're in the dustbin of history like that's it that's the world it's just like this this real nihilism that had set in for me just like nothing mattered right and and intellectually i just couldn't get to a spot where i could figure out like what is morality like if there's no ultimate authority then there is no objective morality like you can say i believe in this and i believe in that like so what like i believe in something different there's no ultimate arbiter

and so you know everything again just the beauty of everything kind of dissipated as i the more i got into this. And the only thing that would, you know, help me was just not to think about it. Then I was like, man, do I really want to live a life that's unexamined? Like, is the only way to live life in a way that I really don't explore the deepest questions that there are out there. And right around that time, I look at now as God calling me, started putting Christians in my life who are like way more educated than me. And they started really challenging me on like, you say that, do you actually know what that means? Have you read this? Have you thought about this? Have you done this and I was like well shoot I thought I was pretty well educated and I I don't know and

so I started just reading books and I went from like God being an impossibility I mean when I started my heart was so hard I was like there's no way and look I had all the things like I had all the the worldly things that you could want right my life from the outside looking in was great like I didn't need God like I didn't care right but there was just this deep longing right Um, C.S. Lewis, uh, C.S. Lewis was a major influence on me as I, as I came to faith. He's got these great quotes about like, you know, we yearn for food. There's for, there's something called food, right? We yearn for sex.

There's something, there's sex, right? Um, the things that we yearn for are reality. And so we all yearn for meaning, which means there is deeper meaning. Like the animals, they don't yearn for deeper meaning. We do, right? There's a difference. And so I started reading and slowly over time, like it went from an impossibility to like, oh, shoot, there's a lot of people who are deeply thoughtful and study this stuff to plausible. And then it really just centered around the resurrection of Jesus.

You know, so Christianity, just to take a step back, it's lumped in with all the other religions. I actually was I did quite a bit of religious studies in undergrad as an atheist. and um you know i would say maybe to define religion here is is there's a set of rules so some some higher power gives a set of rules about how the world works that some are unseen but if you do enough of these rules you get favor in this life in the next right would you would you say that was a fair a fair character every religion that i've ever looked at that's pretty much it yeah right and that's never been attractive to me like how could you know if you did enough of the things and like i do i don't want to live life like well like i don't know i

I didn't bow enough. I didn't pray enough. I didn't, I don't do the, I didn't do the right order of things. I gave 9%, not 10%. I don't know. I mean, like what, at what point do I, you know, click over it? There's even, I mean, you know, TV shows based on the good place, right? It's like, you know, this ultimate weighing machine is like all the good things and all the bad things. So all that just seemed like, it just didn't seem right. Then I experienced what I would call this big realization. I remember the first time I heard what christians call the good news so the good news is god loves you now as you currently are so therefore follow him not do all the things to earn god's love so it's the incomplete it's

a great reversal right it's a great reversal that's why i don't think that actually following jesus is a religion it's actually a really interesting like there's a whole philosophical debate on this topic well if you think about it every other religion says do these things and you'll get favor in this life in the next so do these things the doing the achieving is the key to the religion right in christianity it's reversed so i don't think there's anything i can do to earn god's love and there's no way for me to lose god's love right all god calls me to do is to follow him as the one true King, right? So I'm adopted as a son of the most high King. I'm royalty, which means a very odd thing, right? But you're royalty under a King who's crucified under a King

who preaches humility, who preaches self-sacrifice, right? So it is the great reversal. I'm not trying to give to charity in order to earn God's love. I'm not trying to, you know, not look at pornography or do whatever to earn God's love. Like I think I know now God loves me and therefore I want to follow him because I care about him because I'm in a relationship with him. Like if I'm friends with you and I have care for you and you say to me, Hey, will you go do this thing with me? Well, why do I do it? Am I doing it to earn our friendship? I guess that's one way to look at the relationship. It doesn't seem very satisfying. Well, how do I know if I go on enough trips with you or do enough of the things am I going to earn? Right. But this is a very utilitarian

approach to relationship. That is what I would call the religious approach to relationship, right? There's no achievement in following Jesus. The work's already been done, right? Like Jesus on the cross, it's conquering. It's actually the darkest day. This is what we call Good Friday, right? It was the darkest day when Jesus was crucified, looked like the darkest day was actually his enthronement, right? He was put onto the throne. He defeated sin and death, right and so what when i heard that for the first time i was like that is too good to be true that just can't that can't happen right because one my pride said my works matter like i want to be a good person have you ever struggled to be a good person i know i have i think every single

human everyone struggles to be a good person right right it's the whole idea of uh everyone is a sinner everyone's a sinner in need of grace right we need a savior i think as i got older i also realized when I was young, I didn't need a savior, right? I can save myself. I had this whole world ahead of me, right? When I was older, things were going to be better. When I was older, I was going to know all these things. I was going to be able to do all these things. And I was going to, I was going to not need help, right? I was going to be autonomous, independent. And as you get older, you realize like that's the exact opposite of reality. Like we are frail, future's not secured, right? I mean, I've had enough friends now die. I had a guy the other day, he emailed me

at 8 17 p.m and he died in the middle of the night he was 35 years old wow future's not secured right we are we are way more frail than we realized and so what it really came down to me was okay i heard this completely new way of looking at the world and there were people who believed it who were deeply thoughtful i can barely remember what i had for lunch yesterday how in the world could i know what happened 2 000 years ago it seemed like an impossibility to me mm-hmm so one of the friends that i had who's unbelievable phd and he said actually you should go and research that see what you think so i just started studying the person of jesus and i started okay what did he actually say because we got this movie caricature of this like lily white southern

church setting right which is like mildly racist and like you know people are all trying to earn things and you know be good don't have sex give money to charity do all these things right and then behind the scenes there's like this very cynical view of like everyone's indulging in all these sins and it's all terrible. And by the way, people are sinners. You know, one of the things that I, I heard, I think it was CS Lewis who said it was like, church is a hospital for sinners, not a museum of saints. So if you go into a church and you see a whole bunch of people who you think are like terrible, good news that they're there. Cause you should have seen him beforehand. Right. And by the way, when I started looking at my own heart and I realized how dark I

was, I said, Hey, maybe this is a place for me. But in the resurrection of Jesus, I actually found the answer. And so if you look at what Jesus said, Jesus thought very highly of the scriptures, the Hebrew scriptures that were before him. He said that he didn't come to abolish the scriptures. He came to fulfill them. So he thought very highly of them. So basically the entire religion of Christianity, if you want to call it that following Jesus hinges on the resurrection of Jesus. If you don't believe Jesus was God and you don't believe in the resurrection, you're just not a, you're not a Christian. Like I just don't know how to say it. Like you can be something you can be, you can be Christian. Like you can, you can be Christian curious. I don't know whatever

you would call it, but you're not a Christian, right? And I never thought I would get there. I never thought I would actually believe that Jesus was resurrected. I never thought he defeated sin and death, like the actual literal rising from the dead. If you go back, there is incredible evidence. We have more evidence for the resurrection of Christ than we do for any other historical event in history, literally. Wow. You just got to go and do the work. i did the work i spent years pouring over so i did not become it wasn't like i went from being an atheist to all of a sudden it was like some light like light switch flipped and i was a christian right like it didn't work like that at all for me i had to grind and grind and grind

and ultimately realize that the evidence became overwhelming do you know the founder of the aspen institute he did the exact same thing he did it in his 70s his late 70s this guy who started the aspen institute one of the most world-renowned uh institutes of knowledge right it's this this sort of um hall of ideas right and brings in world-class thinkers from around the world he he literally became a christian in his early 80s after studying the person of jesus he shocked everyone like aspen student not a religious organization shocked everyone because he did the work and so you know look i i can tell you that the freedom i feel the love that i feel the life that i have i can't even imagine what my life would be now without jesus

i can't even imagine when you went to do the work yeah what were the one or two things that somebody's watching this to say okay i want to go do that too that you would send them to yeah well first of all i'd have them read um so there's four gospels uh matthew mark luke and john um i would have them pick one doesn't really matter they're all kind of written to a slightly different audiences they have slightly different um details um in them but like just get a basis and just slowly start reading through the gospels and and find out who jesus actually was to start Because you're going to have to get a basis of knowledge, right? And you can't get it from like popular culture.

It's just so screwed up. And by the way, most people, if you ask most Christians, actually, who say they're like Christians, especially in cultural Christian areas, describe what Christianity is. They would actually probably describe it more closely to what we would call religion. Like I'm trying to earn my way to God's love. It is this very counterintuitive and highly offensive thing to experience the love of God because it levels everyone. There's no good.

there's no bad, we're all on the same level field, right? Which is highly humbling. I would say you start there. And then there are just a number of books about the resurrection. I think the resurrection is the key piece. Paul, who wrote most of the New Testament, used to be Saul of Tarsus, was a persecutor of Christians, actually killed Christians, and then had a experience with jesus and became um paul who uh was a devout believer and and like i said an apostle and wrote um a new testament so you can look at these different lives lives of um jesus's half brother james is a great example of james was it literally says it multiple times in in the scriptures like james was skeptical james thought like his brother was out of his mind right it's like you can

imagine like what if you're one of your brothers claimed to be god right he probably has when you know exactly punched them you punched them right that's exactly right right you come and you're like you're an idiot come on back home right well james did that to his brother jesus right well then james who wrote the the the book of james later says i am a servant of christ and by the way he went to his death professing the divinity of his brother his half-brother like there are just these lies and it's really hard to explain it um other than you have to make sense of jesus either jesus was who he says he was or he was a madman a lunatic and a liar and like everyone i think has to come to the conclusion of one direction or the other and

um i can tell you it's just it's been it's been incredible it's hard to even describe how how different my life has been i love that that's a great way to describe both religion but also i think your journey um where can we send people to find you on the internet find out more about permanent equity or if they happen to be listening to this and have a business they would love to to partner or sell to you guys? Yeah, we're available, permanentequity.com. There's a tremendous amount of information. I'm on Twitter, so at Brim Beach where my DMs are open.

I try to be active depending on what deluge, I'm sure you get the same thing. It comes in kind of fits and spurts. Yeah, those would be the kind of the two primary ways. On LinkedIn, if you wanna look me up there, but yeah. You can be reached for sure. I can be reached, yeah, for sure. Yeah, happy to connect with people.

Thank you so much for doing this. I always learn something every time we talk and I love just the approach that you guys take. The success is kind of the icing on the cake, but I think more people who could figure out how do you play kind of these long-term games, do things hopefully the right way is good for the world. So I appreciate it.

We'll definitely do it again in the future. Thanks for having me on, man. Good to see you.