Think Like an Owner

Latest Episodes:

Author's Chat: Walker Deibel & Searchfunder Apr 19, 2019

Show notes

This episode is unique and is a joint episode with Karen Spencer from Searchfunder, Walker Deibel, and myself, and is something I'm calling "Author's Chat." I recently sent out a survey to see what content listeners and readers might enjoy hearing most and many of them said that conversations with authors of books relevant to micro PE would be interesting to them. This is one conversation along those lines.

Karen and I's guest, Walker Deibel, is an acquirer of 7 businesses, author of the book and site "Buy Then Build", and is an active investor and advocate for entrepreneurship through acquisition. This conversation focuses on his book and lessons and stories from his investing and operating experience. I hope you enjoy our conversation and if you want more episodes with authors, please let me know!

I'm also the founder of The Operator's Handbook, a print publication where small company operators share their insights and ideas for building more effective and profitable companies. Articles focus on process improvement, sales, hiring and training, managing culture, and all responsibilities within operating a small company. If you run a small business and are looking for new ways to grow and improve, subscribe today and join your peers in the endless pursuit of better at theoperatorshandbook.com.

Nick Haschka, Cub Investments - Ep. 5 Apr 03, 2019

Show notes

My fifth guest of the show is Nick Haschka, an MIT graduate living in San Francisco focused on buying small private companies through his firm Cub Investments, along with two other partners. Together, they recently purchased a business called The Wright Gardner which provides interior plant leasing and maintenance services to companies in the bay area. One thing that is interesting about Cub's approach is their use of add-on acquisitions to expand the plant leasing business and part of our discussion is on how they view the risk with add-ons versus platform acquisitions, which was very interesting.

The more I read and learn about the micro PE and permanent capital space, the larger and more diverse it feels. Every investor invests differently and each story is different. Nick is no exception, and in our discussion we cover how his background has influenced his investing, his unique work experience, misconceptions he sees in small company investing, and his disagreements with the concepts of competitive advantage and Porter's Five Forces.

I hope you enjoy our conversation as much as I did.

Show Notes

Links

• Cub Investments

• The Wright Gardner

• Credit Parent

Notes

1:30 Brief overview of Nick's background

4:00 Strategy of focusing on local businesses, found The Wright Gardner

5:04 No external investment, utilizing SBA loan program

5:30 What experiences prepared you best?

6:44 How do you view add-on acquisitions at Cub and diversification?

9:31 Weighing buying a new platform business versus an add-on

11:32 Risk of investing in an add-on and integrating it into your existing companies

14:42 What is involved in the Cub Investment "car wash?"

16:46 Examples of new processes added to companies

18:18 Are there benefits to not having experience in the business you're going to acquire?

19:31 Misconceptions with buying small companies

23:34 What gets looped into the earnings number that you need to remove and how do you view that process?

25:22 Role of the 80/20 rule in due diligence and working with the seller

27:53 Role of the previous owner after acquisition

30:29 Is the size of purchase an indicator of the replacement value of relationships with customers?

32:28 Growth of Cub Investments

34:26 Change of valuations recently

36:39 Competition for deals

37:34 What class in college would you teach?

39:10 Most fortunate event that was completely random?

40:47 Best business you've seen?

Peter Bell & Justin Turner, Traction Capital Partners - Ep. 4 Mar 07, 2019

Show notes

Today I'm chatting with Peter Bell and Justin Turner from Traction Capital Partners in Tacoma, WA, just south of Seattle. Peter and Justin both reached out over Twitter and the more I learned about their firm, the more interesting to me it became. Traction is a small private equity firm that blurs the lines between a private equity fund and a permanent capital vehicle, which is what made them so interesting to me. They have a handful of long-term investors and seek to buy and hold great companies indefinitely, which gives them the unique ability to make long-term oriented decisions and wait for great opportunities.

We begin with Peter telling me about a content idea he has for Traction and move through the topics of starting a private equity fund, lessons learned, what they look for in both businesses and owners, and a few stories. Peter and Justin are both deep thinkers and have been fun to get to know, and I hope that shows in the episode.

Links

• Hodinkee

• GF Data

Show notes

1:25 Peter's video/audio content idea

2:50 Firms using content to attract deal flow and find business owners

4:28 Backgrounds and early days of Traction Capital

6:10 Justin's jump to private equity and general views on investment banking

6:45 Founding of Traction in April 2017

7:26 Peter's background and work in investment banking and BlackRock

8:38 Team at Traction, division of labor

9:28 Balance between using Traction as an investment firm and offering a service to the seller

10:20 Traction's operating philosophy compared to traditional private equity's perception

10:50 Group of investors and their philosophy

12:26 Evolution of Traction's source of capital

13:43 Benefits of being a permanent capital vehicle with closing deals

15:10 General discussion on current valuations

16:06 GF Data

16:44 Lessons learned in starting Traction

18:40 Lessons learned in operating companies in that first year after acquisition

19:25 Importance of people in small companies

20:20 Perception of private equity

21:34 Growth of Peter at Traction

22:22 Looking for intellectually curious people, private equity is designed for insatiably curious people

23:49 Frustration with deals not closing

25:38 How small can private equity funds invest?, Economics of investing in small deals

28:18 Traction fits between private equity and search funds

29:16 Backgrounds of Traction partners and benefits of having operating backgrounds

30:29 Differentiation of Traction

31:25 Optimum business owner and ideal characteristics

32:33 Finding passionate business owners who are focused on their people and business, rather than the highest price

33:50 Looking for businesses where the owners has effectively has taken themselves out of the day-to-day

34:41 Questions to ask during due diligence

35:03 Red flags that come up during research and due diligence

40:09 Importance of background checks on management

41:02 Relationships with intermediaries and the evolution of those relationships

42:29 Establishing credibility and a reputation at Traction

44:40 Will Traction go upmarket or remain in micro PE size?

44:57 What class in college would you teach?

47:30 Mental models used in private equity

50:09 Most fortunate event to have happened to you by chance

54:02 Best business you've ever seen

Team from Searchfunder.com - Ep. 3 Feb 05, 2019

Show notes

This is my first conversation on this podcast with more than one person. I'm meeting with the team from Searchfunder.com, an online community dedicated to search funds and the various parties involved. A search fund is the smallest form of micro private equity I've found thusfar and is typically one entrepreneur seeking out a company to buy and run as the CEO. The team consists of the two co-founders, Luke Tatone and Mark Yuan, and their COO Karen Spencer, all of whom are graduates of MIT. Luke is the first speaker, followed by Mark, and finally Karen.

During our conversation, we discuss what a search fund is, how they're structured, who participates in search funds, and how they've evolved over time. If you are interested in running/buying/or even starting your own company one day, this conversation is for you.

I met the team after signing up on Searchfunder only to discover all three of them lived here in Portland, OR. Mark initially reached out and invited me to coffee where we chatted about all things search funds and I quickly met the rest of the team. This conversation is the result of one of my most recent, and favorite, small world stories. I hope you get as much value out of this conversation as I did.

Links mentioned

Stanford Report
Asurion
Stanford 2018 Report
Housatonic Partners
Alpine Investors
Peterson Partners

Show notes

1:38 What is a search fund? Structure, goals, parties that participate

3:08 Harvard business school: Royce Yudkoff, Richard Ruback, Jim Sharpe

3:26 Search fund accelerators

4:18 What individuals create search funds?

5:38 Risks of launching a start-up vs running a search fund

7:20 Shift from finance professionals to operational professionals

7:47 Most valuable experience to have had prior to launching a search fund?

9:00 It is important to investors that you're able to lead a team

9:32 Number of searchers that Searchfunder.com has studied and had on the site

10:01 Strong growth in number of search funds launched and corresponding acquisitions

10:34 Number of search funds formed last year compared to five years ago

11:09 Reasons for growth in number of search funds

11:30 Who are these searchers buying from and why is the owner selling, normally?

12:22 Steps in creating a search fund and acquiring a company

13:30 Best thing to do to learn about search funds, intern for one

15:44 Importance of practice and repetitions

21:33 Average distance between the searcher and the company eventually acquired

24:19 Normal size range and multiple size of companies acquired

25:44 Why do these companies have lower multiples than larger companies?

26:30 A business is only as worth as much as someone is willing to pay

27:27 Lower bound of company size in search funds

27:51 What types of companies are these search funds buying?

29:00 Examples of companies acquired

39:14 Role of interns

40:01 How many companies close after signing an LOI?

40:40 Structure of deals

41:58 Using seller note

42:39 Benefits to self funded in terms of deal structure

43:09 What should a searcher do in their first year with the new company

44:35 Holding period

45:55 Search fund market on Searchfunder.com

46:15 Stanford report on search funds

47:45 Why they started a site on search funds instead of a search fund

49:43 Would you like to run a search fund in the future?

50:15 How Karen joined Searchfunder.com and importance of your alumni network

50:55 More than just search funds on the site, goals for the site

53:11 Gap between mature private equity and micro private equity/search funds

53:37 How do these larger private equity firms access this space?

55:08 Economics of mature private equity firms buying these small companies with in-house staff

57:33 What's the most fortunate event to have happened to you by chance?

1:00:40 Best business you've ever seen

Mike Boyd, Vroom Vroom Vroom and Mudbrick Capital - Ep. 2 Jan 10, 2019

Show notes

My conversation today is with Mike Boyd. Mike is originally from Brisbane, Australia and currently lives in Singapore where he runs one of the leading car rental comparison websites in the world - Vroom, Vroom, Vroom, among other portfolio companies. He has been an entrepreneur for virtually his entire life, starting at a very young age. Mike built on his experience starting businesses and has evolved to buying them whole. Today he invests his own money, permanent capital, into digital-only companies and intangibles globally, with the goal being to build a portfolio of cash-flow producing companies for the very long term.

Our conversation includes discussion on his early entrepreneurial stories, how he became CEO at such a young age, what he looks for in digital investments, and his experience building a remote team. This one, and our prior phone call, are two of the most memorable conversations I've had about business and investing. I hope once you finish listening, you will feel the same way.

I got to know Mike after he reached out over Twitter after seeing my conversation with Trish Higgins and was very generous with his time and experience. If you work in micro private equity or permanent capital, or know someone who does, please feel free to reach out through my website or Twitter - I'd love to have a conversation.

Links mentioned

Mudbrick Capital

video on future of workplaces

Show notes

0:00 Introduction

1:49 Early entrepreneurial businesses, keg rental business, video on future of workplaces

2:15 Planning 18th birthday party

4:50 Decision to start keg rental business, Coolybar Keg Hire

6:50 Story about inbox filled with orders for keg rentals, top of Google results for "keg hire Brisbane"

8:40 Evolving beyond college, moving from Brisbane to Singapore, started non-profit called The Hive

10:20 Getting to know various entrepreneurs through starting non-profit program, mentorship

11:45 Using photos to market Coolybar Keg Hire

12:12 Digital/social media consulting

12:50 Vroom Vroom Vroom opportunity

13:30 Owners of Vroom Vroom Vroom reached out

15:26 Offered, and accepted, to run Vroom Vroom Vroom as CEO

17:01 Starting adding/fixing processes within the company, scaled

21:20 Frequently seeing poor business skills within digital world

22:10 Discussion on why only digital companies, finding these companies, filtering

23:28 Vroom Vroom Vroom business model

25:45 Why Mike moved to Singapore, remote workforce

27:30 Training freelancers for remote work

28:50 CEO AMA's, http://ceoama.co/

33:40 Sourcing acquisitions and deals, finding new digital companies, filtering

34:25 Hiccup insurance

35:44 Mudbrick Capital, private company diversification

36:20 Finding opportunities in digital intangible space

38:05 Types of digital companies sought out

40:12 Challenges in reinvesting capital in digital companies

42:20 Types of companies found, examples, transacting sellers

45:40 Purchase price multiples

48:00 Example prospective acquisition company

52:30 Demographics of owners

53:27 Benefits of permanent capital for sellers, Mudbrick value proposition to sellers

57:54 Reasons why digital companies with great economics don't receive higher multiples than 2-4 times EBITDA

1:01:08 Add backs/withdrawals from EBITDA to get to true "owner earners"

1:04:02 Reinvestment risk, if Mudbrick Capital is in part solution to this risk

1:07:01 Carhire

1:09:38 Can only really reinvest in marketing when it comes to digital companies

1:10:26 Most fortunate event to have happened that was completely by chance

1:16:34 Best business you've ever seen, Envato

Trish Higgins, Chenmark Capital - Ep. 1 Nov 26, 2018

Show notes

For the first conversation of the podcast, I'm meeting with Trish Higgins who, along with her husband James Higgins and brother-in-law Palmer Higgins, run Chenmark Capital in Portland, Maine. Chenmark Capital acquires and operates small companies for the long term using their own capital, with no intention of selling - a perfect example of permanent equity. What makes Chenmark unique is they look for slow growing, steady, and boring businesses and seek to operate them as efficiently as possible.

Trish is the perfect first guest for Think Like An Owner because she has experience being both the investor in the business and serving an operator role in their portfolio companies. Our conversation ranges from discussions around capital allocation within portfolio companies, to the "Chenmark carwash", and why the small business acquisition market at the moment feels a lot like Zillow.

We held our conversation in a quieter area of a shopping mall in Boston so there is occasional background noise. I assure you however, that this past audio performance is not indicative of future audio performance. In fact, I hope it makes the conversation sound more authentic and relatable. Please enjoy my conversation with Trish Higgins.

Chenmark Capital: https://www.chenmarkcapital.com/

Twitter: https://twitter.com/chenholdco

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