Brent Beshore – Cultivating a Disaster Resistant, Compound Interest Machine - [Invest Like the Best, EP.10]

This week’s guest is Brent Beshore, Founder and CEO of adventur.es, a family of companies that invests in family-owned companies. Brent has a very specific mission with this company, to cultivate a disaster resistant, compound interest machine. At just 33 years of age he has already built a portfolio of private companies that has produced impressive results. He’s done all this out of the limelight and with no outside investors. Brent discusses his rewarding but difficult journey and what he has learned, including sourcing and evaluating businesses, how he and his team have improved profitability at his portfolio companies after acquisition and so much more. For comprehensive show notes on this episode go to investorfieldguide.com/beshore/ For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Patrick O'Shaughnessy?

  This podcast is sponsored by CFA Institute, the global association of investment professionals whose mission is to lead the investment profession by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society. CFA Institute serves a global community of investment professionals, working to build an investment industry where investors' interests come first, financial markets function at their best, and economies grow. The Chartered Financial Analyst credential is the most respected and recognized investment management designation in the world. The views expressed in this podcast do not necessarily represent the views of CFA Institute. Hello and welcome, everyone. I'm Patrick O'Neal and this is Invest Like the Best.

• 0:43Patrick O'Shaughnessy?

  This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

• 0:59Speaker 01

  Patrick O'Neal is a Principal and Portfolio Manager at O'Neal Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Neal Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Neal Asset Management may maintain positions in the securities discussed in this podcast.

• 1:21Patrick O'Shaughnessy?

  My guest today is Brent Beshore. This is the first interview he has done in this format, and his story is incredible. Brent's mission is, in the spirit of Buffett and Munger, to cultivate a disaster-resistant compound interest machine. Still just 33 years old, Brent has built a portfolio of private companies very quietly outside the limelight. He has no outside investors. The results he has generated are otherworldly. But his journey hasn't been easy. We discuss all the lessons he has learned along the way, sourcing and evaluating businesses, how he and his team have improved profitability at his portfolio companies after acquisition, and so much more. Okay, here we go. Please enjoy this conversation with Brent Beshore.

• 2:08Patrick O'Shaughnessy?

  All right, well Brett, thank you so much for taking lunchtime with me today. I think our goal will be to, as you say in your firm's motto, explain what cultivating a disaster-resistant compound interest machine is all about. Sounds like someone brilliant in marketing came up with that. I couldn't come up with a much better slogan for building a business. So maybe what we could do is start by you giving us a bit of background about who you are, how you got to this point, and why you've chosen kind of your path as the best way to express the things you're good at.

• 2:45Speaker 02

  Yeah, yeah, well, first of all, thank you so much for having me on. It's a pleasure. As I think I told you over email, I hope that I can provide negative framing to your other guests who are the who's who of the finance world. So yeah, so my journey has been very entrepreneurial and very winding is how I would describe it. We started companies, we've bought companies, we've sold companies, we've invested early stage, we've done complete acquisitions. We've pretty much done almost all of it in an effort to find out what we think works better and what doesn't. And I think that's, you know, kind of the motto that we always talk about is having the highest opportunity costs in the world and playing in the most inefficient markets, right?

• 3:28Speaker 02

  If you nail those two things and you happen to be decent at what you're doing, I think it produces some pretty interesting results. So for us, I mean, the biggest opportunity that we see is participating in what we call the lower end of the lower middle market. So we look at companies that are between $1 and $10 million of owner earnings. And then, you know, we looked at about two, a little over 2,000 of them last year in an effort to get three deals done. So very, very few deals do we get done. We're trying to be very choosy. We're trying to find... Well, if you want to use a Ben Graham analogy, we're trying to pay for a cigar butt and hopefully get a cigar. So how I describe what we do is we buy boring businesses and

• 4:12Speaker 02

  make them less boring. We pay a reasonable price for them, help the company's leadership to transition, and hopefully make everyone's life a little bit better. So I don't know if that gives you a good framing.

• 4:23Patrick O'Shaughnessy?

  It does. You already mentioned something very interesting, which is this 2000-sized universe that you looked at just last year. And there's been so much about the shrinking of public markets, both through buybacks, so less float, but also through companies going private, going out of business, fewer publicly listed stocks. So it's a good reminder that there is a massive universe of businesses out there, which could be investment targets, acquisition targets, they're just private.

• 4:51Speaker 02

  For sure.

• 4:51Patrick O'Shaughnessy?

  Maybe we could back up even further to how you got to where you are today. So what was your early background? What did you study in school? What were some first jobs in your early 20s?

• 5:04Speaker 02

  Sure. So I, let's see, I studied politics in college. I went to a real small university in Virginia called Washington & Lee, which most people think is either Washington University or William & Mary. It's actually neither. It's the ninth oldest school in the nation. It's sort of famous between George Washington and Robert E. Lee, who are two of the people involved at the school at various times. George Washington endowed it. So anyways, I went there because when I started looking at schools, I saw that there was this university that had produced the most presidents and CEOs of any school in the nation, which happened to be Washington & Lee. And it was ranked as the number two party school in the nation. So getting your priorities straight.

• 5:46Patrick O'Shaughnessy?

  Good combination.

• 5:47Speaker 02

  Exactly. And it was definitely a work hard, play hard sort of place. Super smart people, way smarter than me. And I was able to be coached up, I think, a lot through that process. But I studied politics and then I had an emphasis in poverty studies. So I got done with my major at the end of my sophomore year and had an opportunity to major in college, I think is how I describe it, for the final two years and got really interested in poverty, in human capability and understanding, sort of looking through the eyes of somebody who had a very different background than me, urban poverty, rural poverty, did some really interesting research projects through that program. And actually, I'm still involved in that program today

• 6:28Speaker 02

  on the board of directors for it now and really think it added a just unbelievable dimension to my life that I'm forever grateful to Harlan Beckley, who's the director of that. So anyways, after that, didn't know what I wanted to do. Somebody told me, well, if you don't know what you want to do, you either go to law school or get your MBA. And so I said, well, being an overachiever or trying to be an overachiever and arrogant, I said, okay, I'll just do both. So went, came back home, homes Missouri. I grew up in Joplin and I wanted to get closer to my grandparents who I was really close with and spend some time with them while I could and went to get my law degree, my MBA, got

• 7:08Speaker 02

  sick of school pretty quickly. I don't know how PC this is, but I call it academic masturbation, right? So like just the idea of just doing things to do them instead of like, you know, I wanted to get out there and test my ideas. Get your hands dirty. Yeah, get my hands dirty, testing in the real world. So I started a business haphazardly. It was an event marketing business. It was pretty much the worst business in the entire world. I was, had drank a little too much the night that I agreed to do it with my best friend's wife. And the next morning I woke up and I was like, well, I'm committed, I gotta do it now. I highly advise that you don't take a similar path. But, you know,

• 7:51Speaker 02

  it was low margin, it was high replacement value, it had no moat, we didn't have a ton of expertise, it was local. I mean, it was everything you don't want in a company. But I was able through that to realize what, you know, what I did want and it gave me a path forward. So. That led to starting an ad agency that grew pretty quickly, which led into starting a research firm, software development firm, and a film studio, which then led into this whole entrepreneurial journey of, you know, buying a company as a result of having some opportunities from that, seeing that side of the world and sort of fast forward today. And we have five late-stage portfolios at this point that are all fairly good-sized

• 8:32Speaker 02

  companies. And then we have a number of early-stage investments that we mostly today focus on, partnering with people that we trust who are really good at that space. And it's just a small part of our portfolio in terms of dollar volume.

• 8:45Patrick O'Shaughnessy?

  One of the interesting things that people out there may be excited to hear about is how we met. So, once again, Twitter proves to be a bizarre and very interesting place. I was working on a research project specifically on how public companies allocate their capital, and whether or not there were better or worse strategies, even factors, quantitative factors that you could look at to differentiate companies. And so I asked publicly, is there anyone interested in talking about capital allocation? And that's how we connected and had a really interesting conversation. And what I found most fascinating was the fact that this is entirely sort of captive capital, that it's your money, the company's money, there aren't outside investors.

• 9:28Patrick O'Shaughnessy?

  And that allows you to have what everyone says they have, a long-term vision and goal, but very few are actually able to execute on because capital is so fickle. Outside investors, as we know, hire and fire at all the wrong times and way too often. And so, I'd love to hear more about how that transition happened, let's say, from the last entrepreneurial or business experience you had into adventures, where you then started investing in businesses. So, did you sell a prior business as a way of funding the initial, you know, the initial version of adventures?

• 10:04Speaker 02

  Well, you know, so it's interesting. We, the agency started, you know, generating some cash flow. And by the nature of the business, we'd built up a good amount of accounts receivable. And so- It was probably almost eight and a half years ago at this point, I had a mutual friend say, "Hey, one of my buddies is in the agency business, wants to sell his agency, and you should go talk to him." And I should say, "Buddy," he was an acquaintance of this person. And so I was like, "You know what? I'll just roll the dice and I'll go talk to him." And here I am, thinking that the guy's primed up and ready for me to, you know, to make him an offer and, you know, all of that. And I sat down and he said, "Why in

• 10:46Speaker 02

  the hell am I sitting here?" And he had been left at the altar twice before. And so we ended up, over the course of about nine months, striking a deal and I leveraged the accounts receivable of my, my agency business to buy this other business, which is, he considered it an agency. It's really had a military focus and a recruitment focus. And we actually still own that company today. And, and we've done really, really well with that. You know, we, I joke sometimes that we, you know, we started with a micro capital base, but the, the beauty of compounding is when you can compound at a very high rate, even small amounts of capital, as we found out, turn into larger amounts of capital over time.

• 11:27Speaker 02

  So, we took that business and, and were able to grow it pretty considerably and have owned it since. And it's been really a nice investment. We also, through another one of our investments, we started another company, co-founded it, called Influence Inc. that was on the Forbes Most Promising Companies list, was in 500 this year, and it's really been a nice investment as well. And then we, through the, through the years, have had small, I would say, you know, singles and, and maybe doubles with different things we've done. But I mean, it takes time, right? You know, anybody who claims that they're any sort of overnight success is, is just, just full of it. And we've, you know, we've toiled away very, very

• 12:08Speaker 02

  long in obscurity, and, and rightfully so. We had to get our stuff together. And so, it's been just really about building capital, as we've been able to do well in the businesses, letting it sit on our balance sheet, and, and not trying to get greedy.

• 12:20Patrick O'Shaughnessy?

  What were some of the early books or influences that shaped your investment approach? I know, I know you and I offline have talked a lot about sort of the classic margin of safety, Munger and Buffett, but everyone knows about that stuff. And it could be that simple. It could be that, you know, this is, there's a lot of wannabe Buffets out there. And it never really works out.

• 12:41Speaker 02

  Sure.

• 12:42Patrick O'Shaughnessy?

  Maybe, maybe this is, is something different. But maybe explain your early influences and what shaped how you go about evaluating companies now.

• 12:52Speaker 02

  Yeah, um, so, okay, the, the, I, I've got to admit, I, I've read pretty much everything Buffett Munger have ever said or written, right? I think that's almost table stakes these days. If you're going to be in the investing business, I'd say, you know, in terms of books that really helped shape what I was thinking, Poor Charlie's Almanack, you know, what Peter Kaufman put together there was just, I mean, just spectacular, right? And the clarity of thought, I think, was, was really important. I'd say that some of the, the books that maybe not as well known, The Fish That Ate The Whale was a big influence on me.

• 13:25Patrick O'Shaughnessy?

  Really?

• 13:25Speaker 02

  Yeah, I don't know if you've ever, if you've ever read it, but it's about.

• 13:28Patrick O'Shaughnessy?

  I have, a lot of Buffett.

• 13:29Speaker 02

  Oh, you have?

• 13:29Patrick O'Shaughnessy?

  A lot, a lot of Buffett similarities. I actually wrote an article called.

• 13:32Speaker 02

  Oh, really?

• 13:33Patrick O'Shaughnessy?

  Uh, I'll send it to you sometime soon. Um, basically the similarities between, I'm forgetting the guy's name, the Banana King.

• 13:39Speaker 02

  Sam, Sam Zamuri, yeah.

• 13:40Patrick O'Shaughnessy?

  Yeah, Zamuri. And we have, we have a Tulane guy here at our firm. So, so that's how I came across him.

• 13:46Speaker 02

  Interesting.

• 13:47Patrick O'Shaughnessy?

  But, but yeah, an amazing, amazing book.

• 13:49Speaker 02

  Yeah, I'd highly recommend it. It's actually one of my favorite books that, that just, it's not a, you know, super long read, but you talk about a guy who immigrated from Russia, had nothing, hustled, hustled, hustled, had no capital base, had nothing to do except for just hustle. And he ends up basically taking over the, one of the largest companies in the world, is responsible for, um, the term, the banana republics and had an amazing impact. And amazing, not always in good ways. I mean, I, I think that, you know, he's a really good example of, of how everyone's a mixture of virtue and sin, right? Um, but it also showed me, you know, what you can do with almost nothing and what you can, how, you know, almost nothing can turn into a tremendous amount of overtime and by

• 14:33Speaker 02

  making, you know, wise decisions.

• 14:35Patrick O'Shaughnessy?

  The, the story that I always remember from that book is that early on, he, he had nothing, as you said, and was, was trying to sell bananas. And the big sellers would basically discard overly ripe bananas and he would snatch them Up for free, so no, no cost of goods and just through hustling would rush them to vendor sites before they went bad and sell them to vendors and that exemplified the rest of his life and career where it was just out hustling, out efforting everyone and, and just an amazing guy.

• 15:10Speaker 02

  Yeah, he, I, I love, and that's, that's a good thing to bring up. I mean, that story alone, it shows you, you know, you're taking a byproduct basically of a big company, right? So they were, they were trying to take the, the bananas and, you know, develop a really long supply chain, right? So, but you had to, whenever the bananas for the big companies were loaded in, they were all green bananas because they had to travel such a long distance and took such a long time. So they literally would just take like really good bananas that you'd want to eat now and just dump them. They were a complete waste. And so it, yeah, it's amazing story of how you can take a byproduct that no one else wants and turn it into gold. And I mean, ended up, you know, taking over that company. I think it was called the United Fruit Group or United Fruit Company or something like that. But

• 15:53Speaker 02

  anyway, so yeah, I would say that's a big book. You know, I really like the book Mistakes Were Made But Not By Me, which may sound like an interesting investing recommendation, but it really talks about the psychology of self deception. And I think, you know, that is something that in, you know, what is Buffett's rule? Rule number one, don't lose money. What's rule number two? Remember rule number one, right? And like the easiest way to lose money is by deceiving yourself and thinking that you're getting into something that's just not true. And so the illustrations that are in that book of how we can deceive ourselves, I think is just, I don't know, it's had, it's had a big impact on the way I think about things. Kind of like Dan Ariely's book about dishonesty. That's another, another

• 16:35Speaker 02

  really interesting one to just really hold the mirror up about who we really are, I guess would be the way to say it.

• 16:41Patrick O'Shaughnessy?

  Yeah, we're going to, we're going to, we're going to come back a lot to psychology because one of the things we've talked about that I find most interesting is how the importance of psychology, if anything, is amplified in the market that you're operating in with, with smaller businesses. So we'll come back to that. But before we get there, so, so rewinding back to the first, you know, the first major, the military company, which was, I guess, finance, you know, through leveraging receivables. How now do you source financing for new acquisitions or investments? Do you use debt or is it just cash?

• 17:13Speaker 02

  Yeah, so we do use a little bit of debt. I think that's a, that's probably a fascinating topic to discuss independently, right? It's really hard to hurt good companies without the use of debt. And so we're very reluctant to put much debt on a company or even come close to the line where you say, maybe it's not, not wise. So we try to stay clear of that line. You know, in terms of financing, so it's all internal capital. So we harvest excess capital from our existing investments. We pool that together. It's very much a, if you want to call it a barbell strategy, right? We have a cash sitting on the balance sheet and then we have these highly illiquid, highly profitable investments.

• 17:52Speaker 02

  And we, you know, over time, as those investments bear fruit, we harvest that cash and then really just pool it together. So we are using, so I would call a modest amount of debt in some of the deals, depending on the type of company, right? Some companies can handle debt better than others. The less variance, right, the less cyclicality that it experiences, the more reasonable it is to put a considerable amount of debt on it. The more visibility you have into the future, the more, the easier it is to, to put debt on the company. So currently today, I mean, we're trying to use as little debt as possible that we think is reasonable.

• 18:28Patrick O'Shaughnessy?

  So, so you said, could you just outline once more the current kind of makeup of the portfolio? So the number of, you know, the major, the major businesses you own and then also the seed stage ones? And kind of just give a flavor of the profile of the overall portfolio?

• 18:41Speaker 02

  Yeah, absolutely. So, so we have, like I said, five late-stage portfolio companies. So we have the military recruitment firm called Media Cross, based out of St. Louis. We also have a fairly big office in Norfolk, Virginia. And it does what I would call the hardest recruiting jobs for the military. So in the past, we have recruited physicians into the US Army Reserve. We've recruited very specific types of instructors into various parts of the military and government. And the largest contract today is recruiting civilian mariners into a branch of the military, a branch of the Navy, actually, that resupplies the ships that never come into port. So it's a really fascinating business. It's been an interesting journey to watch the efficiency of what we're able to do for

• 19:26Speaker 02

  the government. It's so easy to follow the narrative of all those darn government contractors, they're taking everyone's money, they're not efficient. I can tell you that we do an amazing job on behalf of the government and they issue something called a CPAR report card. And our mark's on there, I think we've been, gosh, 12 or 13 years straight of just excellence across the board, which puts us in the very top of government contractors. But it's a great partnership, that's really what it is. So we've got that business. We've got another company that we helped co-found called Influence & Co. Influence & Co. supplies content to some of the top publications in the English language

• 20:05Speaker 02

  and works with Fortune 500 companies, venture-backed startups to help land columnist opportunities, sometimes one-off columns, sometimes ongoing column gigs at these various publications. And really, it's kind of a matchmaking service with a lot of expertise built in on both sides. So we've got that company, that was the company I referenced before that was on the Inc. 500 this last year and should be on the Inc. 500, I would guess, for the foreseeable future. It's really done amazingly well. We own the, I think it's safe to say now, it used to be the second-largest pool builder in the country, swimming pool builder. So construction business, I think they're the largest now in the country, would be my guess.

• 20:47Speaker 02

  And then we own two manufacturing companies that manufacture products in the swimming pool space. And it's our patented products, we manufacture in China, and then we import and actually distribute worldwide. So that's the late-stage portfolio. The early-stage portfolio really varies. We've got great investment, amazing service called Zapier. I don't know if you've ever heard of it. They help connect the APIs of various software. So let's say you wanted to say, everyone I talk to on Twitter, I want to take that contact information, I want to put it into Salesforce, and I want to set a reminder for, you know, six months later to contact that person in my calendar. Zapier does all of that seamlessly. So we were the first money into Zapier, they went through Y Combinator, wonderful company, great people.

• 21:32Speaker 02

  We're a very small investor in Mattermark. This company in San Francisco, which actually we found through Angel List. We've been big fans of Angel List and what Naval and that group's built. It's been really interesting to watch them evolve over time and just couldn't be bigger fans of that work. So I don't know if that gives you a good flavor, but it really is across the board. It's military, it's software, it's construction, manufacturing. We're really, we're fairly agnostic. Our rule is as long as we can really get to know the business and understand the wins in the industry.

• 22:04Patrick O'Shaughnessy?

  Yeah, it's a great overview and it begs the next question, which is maybe the thing I'm most interested in across our whole conversation is how you filter. So you mentioned the number 2,000 companies that you at least looked at to some degree. So what are you looking for and maybe what are you looking for at different levels of interest? So obviously there's a ton you just screen out right away. How do you do that? How do you then take a more narrow list and decide whether or not you are going to make offers, do further diligence? A walk through your process would be extremely interesting, given how different it is in smaller private businesses.

• 22:45Speaker 02

  Yeah, so I would say most of the time it's pretty easy to see that there's nothing differentiated about the business. And I would say, when I say nothing differentiated, I don't mean that the business itself isn't differentiated, because anybody who's making at least a million dollars a year in a business, there's some reason why they're doing that, right? There's some product market fit there, they're providing value to their customers. Unfortunately, most of the businesses that we see are the extension of the owner. So we can't buy a business, or it's very, very difficult, I would say, to buy a business where almost all of the value of the company is tied up in the goodwill of the owner. So there's some guys, we looked at a business recently that was in the furniture space.

• 23:27Speaker 02

  Everyone in town knew the guy, he had great labor relationships, he had great financing relationships with all the banks, he had every relationship in his industry, and people just liked him, right? That's a moat in and of itself, longevity over time. So what we try to look for is where is the advantage of the company if it's not in the owner? And most of the companies, I would say of those 2,000 we reviewed, gosh, probably we only got serious, and by his way, serious, I said, you know, taking a much harder look on three or 400. Most of them were fairly obvious that it's commodity-type business, that it's really the ownership that's driving it. And, you know, one of my favorite phrases is, "Small businesses don't stay small on purpose." And so what we're really trying

• 24:12Speaker 02

  to understand when we first look at a business is, why is the business smaller? Right? And when I say "small," that's not to be an insult. I'm saying in the, you know, sort of sphere of businesses, let's say if you're running a 10 or 15 million dollar company and you've been running it for 30 years, like, that's still considered a smallish business. So why has it stayed small? You know, what are the things that it's maybe lacking, or it's doing that it shouldn't be doing, or misallocating resources, just not optimal? And then we try to figure out, is there a way that we can step in and help that transition in a way that's meaningful? So, the first thing we're really trying to understand when it gets through the, kind of, the first filter of, do they have some sort of unfair advantage, or any sort of hint of advantage? I think that's the first filter. And the second filter

• 24:57Speaker 02

  would be, how much money do they actually make? What's their, we call it owner earnings. So, owner earnings being defined as EBITDA plus or minus, how much capital is really required to operate the business? We looked at a company recently that was making $6 million a year of EBITDA, but the owners could really only keep about $2 million a year of that business, right? Like, that's not a, it's not a fantastic business in and of itself. I mean, it's making $2 million a year is really what it comes down to it. But when you use a term like EBITDA, which we can obviously riff on for a long time, it just doesn't, it doesn't add up in that way.

• 25:36Patrick O'Shaughnessy?

  Bullshit earnings, as Munger would say.

• 25:39Speaker 02

  Exactly. That's near and dear to my heart. Yes. So, so we, you know, we're really trying to understand how much they earn, what's the stability of earnings, what's the visibility into future earnings, and then how much of that is tied to the current ownership. So, I mean, that's kind of the next filter down. And some stuff, we just can't, we just can't figure out answers to those questions, right? We looked at a cellphone technology recently that was doing extremely well, and we had an inside look at it, and we just couldn't figure out their largest customers were all the big telecoms, and we couldn't understand and we couldn't get comfortable with, you know, how long would they stay? Could it be disrupted? It's just, it, you know, it's sort of like Buffett mongers too hard pile, right? So, we're big believers in that concept that almost everything should go into the

• 26:24Speaker 02

  too hard pile, and then you sort of have a, I don't know, negative filtering of everything else, right? If it doesn't go in your too hard pile, then wow, why, why is that? So, sort of default to no, and then force yourself into the yes column only if everything sort of lines up.

• 26:40Patrick O'Shaughnessy?

  So, I'd like to talk for a minute about the people selling to you and their motivations, because one of the things I'm always interested in in public markets is, is who's on the other side of the trade? You know, what, what do they, what are their motivations? What do they know that, that we don't? So, so how often is your edge, so to speak, someone that needs, say, just liquidity, that they've, you know, they've built a business and they're, they want to retire or move on? What kind of multiples are you, are you willing to stretch to? And what kind of competition do you face? Or maybe an example of, of some stiff competition you faced when you found a business you really like, but, but have to discipline yourself in, in not, in not getting into a bidding war of sorts?

• 27:21Speaker 02

  Well, so to answer your, your last question first, we have to discipline ourselves almost every day, if not every week, right? I mean, it is, we, you can go out and, and buy and buy and buy. There is an ocean of companies for sale. The trick is to make sure that you're not overpaying. And we've seen a lot of this, you know, the multiples have now risen pretty considerably depending on the sector you're in. And everyone, you know, the bias is most of these sellers are selling for the first time, so they don't know what reality is. Everyone loves their own business, right? It's their baby. How much is your baby worth? It's worth a lot, you know? It's, it's hard to get some sort of baseline. And so, you know, we often find that unfortunately, especially in the lower end of the lower middle market,

• 28:06Speaker 02

  there's a lot of intermediaries that are willing to BS their potential clients in order to get their business and put them on the market and tell them unreasonable multiples. The good ones don't do that. The good ones for sure are extremely valuable. We see, do see a lot of, you know, people saying to a, you know, fairly commodity business that's doing, you know, a million dollars a year of owner earnings. Yeah, it's worth six, seven times earnings. Like that's just, you know, unless you're in aerospace or something with high predictability and, you know, contractual relationships, I just, that, that's not gonna fly. But occasionally you can find some retired executive who wants to jump back in the game, who's never run a small company and thinks they can do it, who will overpay, right? I mean, this is the definition of inefficiency.

• 28:50Speaker 02

  You know, if you can, if you can try to lose money and you can easily, then, then by definition it's inefficient, right? So, you know, I would say that, that, that we do face a lot of stiff competition. There's, we've, you know, we never used to run into private equity groups, traditional fund-based private equity groups below, gosh, five million dollars of EBITDA, to use an industry standard term, which I hate, but that's kind of the way people talk about it. So below five million, we never used to see competition just by the nature of how asset prices are. I mean, maybe not to veer too far out of my circle of competence here, but I think things are fairly high. And with interest rates being so low, it obviously inflates the values of. Every asset, and I think we're seeing that to some degree in our markets.

• 29:33Speaker 02

  So, you know, we, we look forward to the day when there's kind of a washout and we can be holding cash, if that makes sense.

• 29:40Patrick O'Shaughnessy?

  Have you ever had a scenario where there's more to do than you can either fund internally or via debt? Which is another way of asking, have you ever considered or would you consider taking outside capital?

• 29:52Speaker 02

  Yeah, I mean, this is, yes, we have. We actually went through this exercise recently and it's been, it's been a tough, it's been a tough decision-making process. We find stuff that is just too big for us to bite off and we have considered partnering on some things, but there's just such an opportunity with the capital base we have now to generate really just unsustainable returns is how I'd describe it. They're so good that it's hard to give them up to other investors right now. So we really haven't. I recently had a conversation with a guy, I just can't tell you how much I respect him, who's a legendary investor in his own right. And he said, Brent, you've got your head up your ass, you're not thinking about it the right way. It's not about the money, it's about getting the right people, the smartest people, the wisest people, the most connected people in the world, and getting them to care about

• 30:37Speaker 02

  what you're doing. And I said, oh gosh, it's hard. I get it. And I probably am wrong on the topic and I think that we will end up taking outside capital sometime in the future. It's just hard when you're generating, you know, unbelievable returns in what you're doing to, to take a passive investor and say, even though I really don't need to, here's, here's how I, you know, I want to start shoveling money over in a different direction, if that makes sense.

• 31:03Patrick O'Shaughnessy?

  So what kind of returns are we talking about? You know, returns on capital or however, however you want to, however you want to formulate it, ballpark?

• 31:08Speaker 02

  Yeah, so we, we've been, okay, some, some combination of lucky and good. And I even hate talking about the numbers rather than in specifics, just because it does seem, you know, pretty fantastic. But, you know, we're buying at, let's say, an average multiple of around four times owner earnings. So our, what I would call base case yield, if the business doesn't go up at all, if the business doesn't go down at all, we're generating about a 25% return. From there, we have a history of taking companies that are, that we're buying around a four times multiple, sometimes even lower, and then we're doubling or tripling the profitability over a fairly short period of time. So when you do the math on that, it's pretty decent returns.

• 31:53Patrick O'Shaughnessy?

  It's, it's, you know, you see a lot in value investing circles in public markets. And I'll say that owner earnings, and I've, you know, I know your exact calculation is relatively similar to free cash flow as we would define it. And in, in, in public markets, you know, you see a 10% free cash flow yield. And that is, that's pretty impressive as a steady state. And, you know, to talk about, you know, two and a half times that as, as your kind of starting point shows the power of, we'll call it a much less efficient market to hunt in. Where, you know, your scale, your, your smaller scale is a huge, a huge advantage.

• 32:31Speaker 02

  Exactly. And this is, I mean, I, I, I know Howard Marks has talked about this a lot. I know that some of the top investors, you know, everyone says like, you know, play your strengths, right? So if you're, if you have a tiny amount of money, you know, don't go and compete against Ray Dalio. Right? Like, that's not, like, that's not the, the best waters to probably fish in. If you think that's what you want to do for a living, right? If you're not indexing and going that direction. But yeah, I mean, the, the reason why, okay, so let's go back to the kind of the, the underlying theory behind what we're doing. So if we're starting at a 25% cash on cash yield, right? Pre-tax, everything's pre-tax I'm talking about right now. Because most of the businesses that we buy, actually all of them currently right now that we own are all pass-through entities, right? So untaxed personally, we're not taxed at the corporate level.

• 33:17Speaker 02

  But when you talk about, you know, the types of yields, it would indicate that there's something going on. Not only is it inefficient, but it's also really, really, really hard. And we happen to have found a niche and, and learned things that, that are fairly uncommon, right? That's why we're allowed to get the returns that we're generating. I think, you know, hopefully we're good at it. Some combination of, you know, being lucky and being good. But, you know, just to, I don't want your listeners to think, oh, gosh, well, I should go out and immediately drop, you know, my entire savings on some small business. Like, there's no faster way to lose your money than to do that. Just as a disclaimer, not that any of this is financial advice, but yeah, I want to make sure your, your listeners don't take, take it as advice.

• 34:01Patrick O'Shaughnessy?

  We are loaded up with disclaimers on this.

• 34:03Speaker 02

  Good, good, good, good, good.

• 34:06Patrick O'Shaughnessy?

  So you mentioned something earlier which was interesting. So you've got your screening process. You're looking for really solid, but maybe even boring businesses where you're not reliant on the goodwill and sort of the owner as driver and leader of the success of the business. And you're paying a fair price, right? So it all seems really reasonable. Obviously, it sounds a lot easier than it is in practice. Anyone with hands-on experience knows that. But then you mentioned that one of the other things that happens is that the profitability levels often grow pretty fast from the point of your acquisition forward. So I'd love to hear more about that because, you know, one of the models I'm fascinated with, and I guess just broadly speaking, is the venture model.

• 34:50Patrick O'Shaughnessy?

  But Andreessen Horowitz, regardless of their returns, and I think they borrowed this strategy from the entertainment industry. One of their things is it's not just a check. It's a whole bunch of connections, efficiencies, services, et cetera, expertise that can make the business a lot better after acquisition. So how do you think about that? What are the employees that you have that work on that? Talk about expanding the profitability post-acquisition.

• 35:19Speaker 02

  So I think it can fall into kind of a few different buckets. The first bucket is what are the things that the business is doing that it shouldn't be doing? And this may sound, you know, like a no kidding, of course, sort of, you know, yes, the lowest hanging fruit, and it is in most businesses. So if you think about it, if one person's been running a company for 30 years, at a certain point, just human nature is to get used to whatever you have. You know, some people call that the hedonic treadmill, right? Like, I think the principle also works for these smaller companies in the sense that there's a lot of things that... You know, coming in with a fresh set of eyes and just asking, hey, why are we doing

• 36:01Speaker 02

  things that way? Like, why are we taking, you know, $150,000 here and plowing it into that? Doesn't seem like that's generating good returns. And they kind of, you know, will look at you and depending on the nature of the relationship, either be irritated that you're bringing that stuff up, or say, yeah, you know what, it's just, I've had other things to do. I got busy. Right? And, and that's an honest, I mean, we all do this in our lives, right? It's not, it's not a value judgment at all. And these people are, you know, without exception, every single person we've ever transacted with is very good at what they do. But they've been doing it for a long time. So we come in and typically are asking, you know, what I would call the dumb questions, which usually yield some sort of result. To give you an example on this, we bought one of the businesses and

• 36:46Speaker 02

  it was putting quite a bit of money through, through media, buying media. And we came in and we asked, well, why don't we put all that buy through credit cards? And the owner was like, well, because we don't want the debt, you know, we, we, we just like to do everything in cash. And I said, well, sure, let's pay it off, but we get an extra 30 days float on all that money. Right? And we get an extra 1%, 1 and 1/2% yield on that spend. And he just couldn't wrap his head around it. He just was like, no, I just, we've always done it this way. And I said, well, you know, now that we're in the driver's seat, that's what we're gonna do. And by God, we immediately did it and started generating 1 and 1/2% in profit above and beyond on that spend through the credit card rebates.

• 37:29Speaker 02

  And our cash flow jumped by, gosh, I don't know, half a million dollars? Like, that's not complicated.

• 37:36Patrick O'Shaughnessy?

  Yeah, very simple things.

• 37:38Speaker 02

  Yeah. So I would say that sort of the, the one bucket is, what are the things that the company's doing that they shouldn't be doing? Or what are the easy ones that you just, you know, sort of flip a switch on? Those are typically pretty rare, depending on the situation. And we try to get to know those through due diligence and have a pretty good idea of, you know, how we want to handle those. The harder question is, what are the additional services we're providing? How are we helping and jumping in? And really, honestly, we've been having this conversation a lot recently. We've historically tried to under promise and over deliver. One of the intermediaries I respect most that we've gotten to work with said, you guys do an absolute crap job of selling yourselves, which is sort of ironic.

• 38:23Speaker 02

  Given circumstances, but you know, we, we have three primary buckets we, we like to look at. We like to look at marketing, advertising and lead gen as sort of one bucket. Uh, that's my background. I come at most things from a marketing mindset and that comes with advantages and disadvantages and a lot of the team members around me are there because their expertise is, and their mindset's very different than mine. So the second bucket we look at is technology. We like to call ourselves technology agnostic. To us, what that means is we're not thrilled with technology. We don't think you need to be the first adopter of technology. In fact, we think there's a lot of value destruction by sort of implementing the latest and greatest, you know, uh, we would not recommend that

• 39:05Speaker 02

  our, you know, military recruitment company jump on Snapchat right now. I don't think that's going to be yielding the highest results, um, but maybe someday. And we also at the same time are comfortable with technology. So we've had a lot of experience building out mobile applications, mobile sites, databases, you know, just different software systems. And so we try to come in and implement, well, recommend, I should say, not implement, but help them understand what technology could, how it could be valuable.

• 39:33Patrick O'Shaughnessy?

  One of the things that, you know, we, we are going to very rarely touch on, on, on this podcast for sure, and which means it's interesting to talk to you about it, is the first one. So this idea of lead generation and marketing. Um, I talked to Ted Seides about hedge funds and the importance of charisma, um, which, which I guess is, is one form of marketing, but maybe you could flesh that out a bit more. Um, I, I know, for example, that you write for Forbes and that your articles are, you know, broadly about business, thinking, strategy, what have you, uh, but that those serve as sources of leads, um, for, you know, people, companies contacting you because of what they read.

• 40:16Patrick O'Shaughnessy?

  Um, so that's just one example. Maybe you call that content marketing. Maybe expand on your marketing background, how you think about it, what strategies are effective and for anyone that's running a business out there, maybe something they could think about that they aren't already.

• 40:30Speaker 02

  Yeah, so I think marketing is actually fairly simple, but has some interesting, I guess you could call it tactical secrets, right? So content marketing is sort of a hot rage right now. Everyone's doing it, everyone wants to be in it. And I think, using that as an example, is content marketing a good use of resources? Well, it depends on your opportunity costs, right? Depends on what other channels you have. Most people think content marketing is, oh, write a great piece of content, whatever great means and regardless of audience, right? Write a quote-unquote "great" piece of content and people will be beating down your door. And that just doesn't make any sense, right?

• 41:11Speaker 02

  If you think about the value chain that would have to occur for that to produce, you know, call it a new customer and new investment for us, that means that, you know, let's say on average, on a Forbes piece, if it does pretty well, 10,000 people would read it. Okay, well, so now you've got, you know, a universe of 10,000 people who've read an article. Of those people who are qualified to sell their business and actively looking to sell their business, likely none, probably, maybe one to three, hopefully. Then they've got to read that article, they've got to think to themselves, "Gosh, that was so stellar, I wonder who wrote that." Then they've got to find my byline, they've got to click through to my website, they've got to spend time reading my website. Oh, by the way, this entire time, they can't get interrupted or distracted

• 41:55Speaker 02

  because they'll probably forget, right? So what are the chances that somebody who reads that article is going to come through and, you know, raise their hand and say, "You know what? I think Adventures is the place that I want to go to sell my business." It almost never happens. And this is kind of the tactical, using that as an example of how to think about it. But, once somebody has found us, regardless of the way they found us, content is crucial to scaling education trust. So the way I like to think about content is it allows you to spend a lot of time on one conversation, one conversation being the content itself, that you can then have that conversation at no additional time to yourself. So it's kind of like the software business and its scalability, to be able to scale that trust and scale that education

• 42:40Speaker 02

  with a potential client, partner, employee. I mean, there's endless uses of it. But it allows you to scale conversations that just really weren't available before. I mean, why do we think we know celebrities so well? Why do we, you know, we're all wired to think in a sort of tribal-like fashion. And when you watch somebody or you read something they wrote or listen to a podcast, you sort of feel like you're getting to know them, even though you're not, right? I mean, you kind of are, but you're kind of not. You're scaling that conversation. So I don't know if that makes sense. You know, every situation's a little bit different, and I hate to, you know, use the old, it depends. But, but really for, for marketing, I would say, most people fall down by not understanding the value chain that it would take for somebody to be successful. And so at the end of the day,

• 43:24Speaker 02

  all marketing is, is sort of a value funnel concept. You know, you try to dump as many people of, that are qualified and that could possibly want whatever it is that you're selling in the top, and then move them down through the funnel over time. And how do you move them down through the funnel? It's trust and education. So overcoming, what are their concerns, their questions, you know, are you legitimate? Do you have value? Are you thoughtful? Do you have integrity? Do you know, all the questions you are going to screw me at the first opportunity. You know, how would I, how would I know how to use your product? How would I know, you know, the, the potential options that I can customize it? Or, you know, whatever the situation is, you know, content is an amazing way to push people down that funnel. But most people have these, you know, I would say, highly

• 44:09Speaker 02

  mismatch of expectations. And I think that's where a lot of the, the value is lost. You know, an old quote in the ad agency businesses, you know, I know half my, my marketing spend is wasteful. I just don't know which half. You know, I think that's, I think that's a lot where it originates, is people are just not understanding how that value chain's connected. So we spend a lot of time with our companies trying to figure out, what is that value chain? What are the highest opportunities? Mass media still holds, look, a lot of value. I'm actually kind of a contrarian. I love direct mail. I think direct mail is awesome.

• 44:41Speaker 02

  Mostly because no one else is doing it and because it actually gets in people's hands remarkably. But a lot of that stuff that's out of fashion, I think is out of fashion for maybe the wrong reasons or shouldn't be nearly as out of fashion. And a lot of things that are the hot new thing, you know, just getting on Snapchat is not going to drive leads to your business. You've got to understand how to use it. You've got to use it sort of best practices around it. And it's got to make value, you know, sense to your value to your target audience, too.

• 45:06Patrick O'Shaughnessy?

  Did you ever read either Robert Collier's Letter Book or Scientific Advertising?

• 45:11Speaker 02

  I read Scientific Advertising, yeah.

• 45:13Patrick O'Shaughnessy?

  Yeah, it's the, it's kind of a fun, weird, sub-sub-sub genre of books about how to write direct mail ads, which sounds like no one would want to read it. But, but what really is great about those two books in particular is that they're great, like writing tutorials about removing fluff, focusing on, focusing on you, not, or on them, not you, rather. And maybe two more books that people might be interested in checking out. So I'd never really thought about it that way. Certainly no marketing genius by any scratch.

• 45:48Speaker 02

  I think you're doing okay.

• 45:50Patrick O'Shaughnessy?

  But, but the, maybe we could use an example of wanting to remove or to neuter your it depends. Maybe we could focus on just one example. So the one that seems obvious in your portfolio would be influence and co, just because of the title. So if you can, would you be willing to walk through marketing in the context of that business and kind of how that, how, what that funnel looks like?

• 46:14Speaker 02

  Absolutely. Be happy to. And it's, it's really interesting because they definitely eat their own dog food, right? They are, that, that business, I mean, it's, it's based out of Columbia, Missouri, which is, you know, my hometown where I am recording this podcast right now. Not based out of New York, not based out of San Francisco. And really no one had worked in marketing, except for me, before we founded that company. So you take a company that, you know, is, is full of young people that's in the middle of the country and you say, how in the world have they grown, I don't know how many hundreds or thousands of percent, you know, on an annual basis, you know, moving back? It's through content marketing, right? And content marketing, you know, the name of the company is Influence and Co.

• 46:55Speaker 02

  Because what they really try to help, like I said, bigger companies, oh, I shouldn't say bigger, bigger-ish companies or venture-backed companies to use content to drive influence. And so, driving influence has, you know, a lot of different opportunities depending on who you're trying to drive influence with. Most people think about it only in terms of your customers or gaining, you know, gaining additional clients. But there's a lot of other ways to use content, you know, to attract employees and talent to, we had a, actually, one of the clients of that business raised over a million dollars of venture capital, like, out of the blue because one of their potential investors read an article that she had written, this female entrepreneur had written, and said, "Oh, my gosh, that is the company I want to invest in."

• 47:39Speaker 02

  So it has a lot of different applications, and I guess that was my point, kind of in content marketing, talking about that. So what they do is they eat their own dog food, they're out there publishing a ton, you know, they have column opportunities at all the top publications, and they're using that to build influence amongst their customers, right? Venture-backed companies and CMOs, VPs of marketing, using those to start conversations, using those to, I mean, really just develop relationships, what it comes down to. You know, it's not a quick and easy sell. A lot of times, people have to, you know, understand what is it exactly that you're doing and how are you doing it? So there's a lot of education, there's a lot of trust-building, and they're doing it typically from afar, although they travel a tremendous amount. So, yeah, I don't know if that, I mean, I'm happy to go into more details.

• 48:24Speaker 02

  I mean, they have that website optimized for downloading content, gated content, they're doing, you know, lead-gen forums, they have a pop-up that allows you to talk to somebody on staff anytime. I mean, the best practices in sort of conversion optimization, I would say, that they're using as well. But, I mean, the primary driver of their value is the product that they sell, which is using content that's delivered off-site, linked back to on your own site.

• 48:51Speaker 02

  But putting an article on a Forbes or an Inc. magazine or Entrepreneur or Wall Street Journal or wherever it is, and hopefully your target customers will read that. And if they find you some other way, they'll look at that content and say, hmm, these are people that answered all my questions and helped develop trust with them.

• 49:09Patrick O'Shaughnessy?

  Let's talk a bit about data, how you use it, whether or not you're a believer in gathering detailed customer data, which is certainly in the entertainment side of things, becoming the lifeblood of the Netflix's and Amazons and these massive, I think now the top five companies in public markets are all tech companies. And a lot of that is facility with data to improve interactions with customers, et cetera. Obviously, I'm a huge believer in applying data to just about every aspect of business and investing. And as a sort of 1A question on the data question is, maybe you could touch for a minute about your new

• 49:52Patrick O'Shaughnessy?

  relationship with Shane Parrish. I know a lot of people will know Shane and Farnham Street. And if you don't, you should for sure go check out what is a wealth of interesting writing on all things, really, and a great source of books in and of itself. But maybe touch on data. I know one of Shane's many, many competencies is working with data and how you incorporate that in the overall adventures business.

• 50:19Speaker 02

  Yeah, well, so actually getting back to one of your early, I'll talk about Shane as part of the answer, but getting back to one of your earlier questions about sort of how do we do value ads, that I talked about, we have three buckets. One is marketing advertising. The second one is technology. And then the third one is what I would call business systems. And the whole point behind business systems for us is, does the management team, executive team for sure, and hopefully even a layer or two beyond them, have access to good, clean, actionable data? And to give you an idea of where the bar typically is, and I say typically is not to call anybody out, but most of the companies that we see, their owners Probably beyond the basic numbers, don't understand how the business runs.

• 51:04Speaker 02

  In fact, I would say a good chunk of them don't even know how much money they actually make. And through our process of, you know, due diligence and helping, you know, helping them even understand where their business really is, it's sometimes a painful process. So we try to create scalable systems, try to help the companies get data and be able to look at dashboards and make good decisions. That's what it ultimately comes down to, which is perfect lead in for Shane. I've known Shane for, gosh, a while now, probably four years. And he's just a, he's a remarkable human being. He's an awesome, awesome guy in and of itself, super smart, very driven. Yeah, I've been a, been a longtime admirer and we've gotten to be good friends.

• 51:47Speaker 02

  And through the process, you know, he's done some, quite a bit of public investing and done very well in the public markets. He also worked for an intelligence agency and has a background in technology. He's a computer programmer by background and happens to be an amazing writer as well. I mean, that doesn't tell you everything you need to know just right there. And so, you know, over time, we'd have very transparent conversations about what he wanted to do with the rest of his life and what we were doing. And, you know, we shared information and we were kind of a, I joked that we have a group called the nerd squad, that there's four of us who email, I would say, three to 10 times a day, various articles and books that we're reading and observations about

• 52:32Speaker 02

  the world and really just share information to try to, you know, help each other get a little bit better each day. And so Shane and I got to know each other through thousands of emails, probably, and spending a lot of time together in person. And eventually it made sense to have him come on board. And so we're, couldn't be more excited about it. He came on, he's actually, I think, finishing up his first month. He came on September 1st officially and full time. And he's still, Farm Street's still doing, doing its thing. He's still involved in that. We absolutely want him to be involved in that. That is a fantastic opportunity for us, but I think it's a great opportunity for him too, to use the You know, the mental models and the principles that he's, you know, been so deeply immersed

• 53:13Speaker 02

  in, as well as his, I would say, more formalized skill set to help us build out systems and technology and really bring a depth of understanding to, uh, to the company that's, I think, pretty unusual in this space we play in, so.

• 53:27Patrick O'Shaughnessy?

  One of the, it's a good bridge into my next question, which is, one of the kind of Buffett maxims is this idea of, you know, shares in a public business being, you know, really just that fractional ownership in a business and that, um, that the stock should be evaluated as such. From your seat, and we've talked about the multiples you're willing to pay, um, or seek to pay, and, and what you try to do after acquisition, what are some of the absurdities that you see when you look at public markets? Is there, is there anything that you, where you look at public markets and just scratch your head and think, how, how could this be happening?

• 54:03Speaker 02

  Well, I mean, so I don't want to step outside of my, my circle of competency too much here. I mean, I've, I've done a little pub, public investing in the past. Um, I mean, everyone, before I found the thing that I wanted to focus on and before I found the, what I would call the most inefficient market in the world, or at least the safest, most inefficient market in the world, you know, I, I paid attention, pretty close attention to the public markets. And I mean, I think there's no doubt that interest rates have caused a distortion in my humble opinion. I, I think it's really hard, if you're an individual investor, to, you know, beat the average. I can't remember, I saw a stat recently, and Patrick, you probably know 10 times where I should be interviewing you on this topic, but, you know, I saw a stat that if you're an individual investor, you know, the, the

• 54:47Speaker 02

  likelihood that you beat the, the average is like 7% or something, or 6%. I mean, it's just unbelievably small. Most people, you know, are significantly underperforming benchmarks. And so I think the absurdity is it, you know, in it is, I don't think I can beat a Ray Dalio, just to use an example. I mean, I'm, I think when you have people looking at every nook and cranny in the market and pricing things on, you know, a per second basis and. I think it's just really hard to find much alpha there, right? And again, you may completely disagree, that's my own personal take on it. But that's why I don't even, I have no money in the public markets. I'd never planned to put any money back into the public markets just for that very purpose.

• 55:30Speaker 02

  If I did, I am putting money on behalf of my daughter and my new daughter, who's going to be born here in a week or two. I plan to, you know, put money into the markets for them. But I'm buying an ETF, actually buying a Vanguard S and P 500 and planning on never selling it. So I'm betting on the future of American industry and leaving it alone. That's, that to me is the only logical thing for me that I can do.

• 55:55Patrick O'Shaughnessy?

  What is your most memorable day at? Well, you could choose either at adventures or throughout your career, let's say.

• 56:03Speaker 02

  Boy, professionally then, because I've had some pretty interesting days personally.

• 56:07Patrick O'Shaughnessy?

  Let's do both.

• 56:09Speaker 02

  Okay.

• 56:11Speaker 02

  Okay, so professionally, I can remember when I had just bought MediaCross. So MediaCross is the military recruitment firm in St. Louis. And the owners, the way it rolled out, we closed in the morning and then he had an all hands on meeting, all hands on deck meeting. And I think it was one o'clock or 1:30 in the afternoon. And so gathered back in his office, no one knew who I was. I had a guy with me who was my right hand guy at the time and was in his late 40s at the time. So we go into the conference room, the entire staff is gathered there. We're kind of seated off to the side. The owner, former owner at that point stands up and says, well, guys, I have big news.

• 56:55Speaker 02

  I sold the company to Brent Beshore. And he kind of points in our general direction. And all of a sudden, people start looking panicky. Is it, which guy is it, right? And I, you know, your listeners can't see this, I look about 19 now. And I think at the time I looked about 13 or 14. And so they were like, you know, they looked over and the guy's name was Craig, who was my right hand guy, awesome, awesome human being. And they, you know, looked at him and they were kind of like, okay, I don't know who this guy is. And he said, Brent, why don't you stand up and come here and talk to the group? And I stand up. And I can still remember the looks on, it looked like somebody had been publicly executed.

• 57:33Speaker 02

  Like it, the looks on their face were sheer horror, terror, um, they had, the company had just been sold to a 12 year old. And I, I will never forget that day, uh, probably for the rest of my life because there's nothing I could do about it. Right? There's nothing I could do about it. I totally understand their reaction. I like to joke about how young I look still today.

• 57:57Patrick O'Shaughnessy?

  How old are you?

• 57:58Speaker 02

  I'm 33. So, but, uh, I get carded sometimes. I actually was on a, uh, on a trip, uh, and the drinking age was 18 and I got carded two years ago. So I look young. There's just no two ways around it.

• 58:11Patrick O'Shaughnessy?

  I may not, I may not look 19, but I feel your pain.

• 58:14Speaker 02

  Yeah.

• 58:15Patrick O'Shaughnessy?

  I actually thought about buying what, like some reverse just for men early in my.

• 58:21Patrick O'Shaughnessy?

  I needed some gray in there.

• 58:22Speaker 02

  A little bit of gray hair. Actually, it's funny you say that. Uh, we always used to joke, uh, Craig, the guy who I was with at the time, that his main role was to just stand there and look imposing, look, look older, right? So that he could olden this up if you, if you want to call it that. So yeah, I mean, I would say that's, that's probably a moment.

• 58:40Patrick O'Shaughnessy?

  That's amazing. How about personally? It sounded like you, you probably have, uh, an interesting one on that or two on that side as well.

• 58:46Speaker 02

  So I had the opportunity, uh, in law school to go and study international law in Cape Town. And I don't know how much you know about apartheid politics and the sort of remnants of apartheid, but you know, it's still a messy place today. Um, I mean, African, yeah, okay. So, so it's messy. Um, you know, my interest in poverty and, and helping alleviate poverty, help, uh, understand the underlying causes and how, you know, really just get a more full picture of the complexity, led me to an interesting situation that I got one of the, uh, professors that I had, uh, worked with a little bit through the law school,

• 59:26Speaker 02

  who was friends with an owner in Google Latu. So Google Latu, uh, is made famous by the Google Latu seven, seven women and children murdered in broad daylight by police, uh, under the apartheid regime. Horrible situation. Extremely impoverished area, uh, over a million people live in a very dense, shanty town environment. I mean, these people are scraping by is an understatement. And so I wanted to go in and help understand. I want to see it, you know, sort of touch the medium, right? I wanted to understand it for myself and, and I got this guy to take me in and he assured me that I'd be, I'd be safe. It is, it was a remarkable experience, but for an unexpected reason. I thought I was going to go in and, you know, see a people beaten down and, and misunderstood. And, and there was that, but there was also a lot of hope

• 1:00:10Speaker 02

  and a lot of amazing vibrancy to it. And I couldn't quite figure out, you know, when we got out of the car, uh, at, at this butcher shop, this big guy met us and he said, oh, this is the owner of the butcher shop and went in and, and they put a giant bowl of meat in front of me. When I say a bowl of meat, I mean, probably three and a half pounds of seven different times of meat, kinds of cooked meat, right? And I had already eaten and the guy said, welcome Brent, welcome, eat. And, and I said, oh, I'm good. And the guy who I was with like, you know, hits me in the side and says, eat the meat, like eat it now. And so I started getting down on the meat. We went on a tour after that of the, the town. And when I say the town, I mean, just this tiny little portion of

• 1:00:54Speaker 02

  it. And everyone was looking at me. I mean, I was the odd man out. And I had this weird feeling where it looked like, like people were kind of looking down, looking sideways. And so it was a very strange experience. I get back and, and come to find out the owner of the butcher shop was the largest drug dealer in all of Cape Town. That butcher shop was well known for taking care of people who, uh, didn't jive with his, uh, wishes and desires. Let's put it that way. Very interesting experience. So I, uh, I, I, I, I touched the medium in a way that, uh, was I think, uh, a little unexpected, if you want to put it that way.

• 1:01:30Patrick O'Shaughnessy?

  Wow. So you probably needed a glass of wine after that day.

• 1:01:33Speaker 02

  Yes.

• 1:01:34Patrick O'Shaughnessy?

  That, that brings me to your foray into winemaking.

• 1:01:38Speaker 02

  Oh, yes.

• 1:01:39Patrick O'Shaughnessy?

  So.

• 1:01:40Speaker 02

  The boondoggle.

• 1:01:41Patrick O'Shaughnessy?

  Yeah, this is, this is gonna be probably unbelievable that this is yet another dimension, given you're 33 years old and making me feel like I need to speed things along. But, but talk about, talk about wine. So Be Sure Family Vineyards, what was the story there?

• 1:01:57Speaker 02

  So my wife and I, when we first met and had just gotten married, so she's a scientist, like, like I told you, I think before, actually started recording, like I, I married up in a big way, she married down in a big way. I apologize for it every day. She's a PhD in molecular microbiology and immunology. So she's incredibly brilliant, wonderful, kind-hearted person. And we just figured out early on with my background as an MBA and, and JD and her background with PhD, we kind of struggled to find mutual shared ground, like, early on, right? And so we started enjoying wine together. We both sort of got interested in it. We started going out to Napa Valley. And to make a long story short,

• 1:02:41Speaker 02

  met some owners out there, got to really be integrating the community over, say, seven, eight, 10 trips. And somebody said, you should start making your own wine. And we said, no, we're from Missouri. And the guy said, no, no, no. I used to be an architect in New York. Like, that guy used to be whatever. Everyone out here is, you know, out here for the dream. You should just start, you know, just do it. And I said, well, how does that work? And he said, well, you just, you know, find a winery, you, you sort of get a consulting winemaker, you buy grapes, you, you know, buy barrels, you rent a crush facility and, you know, you just, just do it. And I said, well, okay, I guess we need a hobby and it'd be fun to try it. And so we did. And that was kind of the start. My wife and

• 1:03:24Speaker 02

  I just decided to make, I think the first year, we made two barrels. No, no, no, we did three barrels. We did one Pinot Noir from Russian River, which is an area in Sonoma that's our, where our favorite Pinot comes from. And then two Cabernet's, one from Howl Mountain, and then one from an area called Coombsville, which at the time wasn't an AVA, but now is and recognized. And it's pretty, pretty interesting, kind of upcoming area of Napa Valley, but.

• 1:03:50Patrick O'Shaughnessy?

  Did you ever, ever run across Oceana Sea Wine, it's no relation to me, on Howl Mountain?

• 1:03:56Speaker 02

  Uh, we are wine club members.

• 1:03:57Patrick O'Shaughnessy?

  There you go.

• 1:03:58Speaker 02

  Yep.

• 1:04:00Patrick O'Shaughnessy?

  My wife's maiden name was Messina and so at our wedding, we had Messina beer and O'Shaughnessy wine.

• 1:04:06Speaker 02

  Oh, that's awesome.

• 1:04:07Patrick O'Shaughnessy?

  Neither was affiliated with either family, but uh.

• 1:04:10Speaker 02

  That's really cool.

• 1:04:11Patrick O'Shaughnessy?

  For anyone that's interested in wine, the O'Shaughnessy Hal Mountain Cabernet is pretty good stuff.

• 1:04:16Speaker 02

  Oh, it's off the charts. It's actually, um, um, they're, I think they're fully allotted now. We got into the wine club, uh, before they became fully allotted. I don't think you can actually, uh, I don't think they're taking any new wine club members, unfortunately. So if you ever see it, I think they have a limited distribution. So if you ever see it at a menu at a restaurant, it's, uh, not cheap, but it's delightful.

• 1:04:34Patrick O'Shaughnessy?

  So where does, where does it stand now? Do you still make wine?

• 1:04:36Speaker 02

  So we made wine this last year. Um, we're going to take a break. It's a lot of work and it's a lot of headache and I, it's sort of, it's like owning a boat, except instead of pouring your money into the water, you just pour your money into the ground. What we've learned is that we like drinking wine. We like making wine less and yeah. So I think, I think we're gonna, we may go back to it someday and, and, and test on it some more, but I think for the time being, I think I've got, I don't know, 80 or a hundred cases of our wine in my basement. So, um, I think we're, I think we're good for now.

• 1:05:08Patrick O'Shaughnessy?

  What are the, uh, I have no snappy transition to get back to, to business, but one of, one of the most interesting things that I've read that you've written was about different types of debt. So forget traditional, uh, you know, money-based debt. You write about culture debt, code debt, systems debt, expectations debt, um, things along those lines. Could you maybe pick a few of those and, and describe what you mean and why they're important to businesses and, and maybe how you think about them when, when looking at targets or managing your, your portfolio companies?

• 1:05:40Speaker 02

  Yeah, absolutely. So, so this goes back to the comment I made earlier about small businesses, you know, not staying small on purpose. So typically when we go in and we analyze the, what I would call the quality of the underlying business. It's not only what's the growth rate. It's not only, you know, what do we think the future prospects would hold on the upside? It's also what's the downside? And I think a lot of these things are a mixture of, you know, if you don't have, um, so let's just take code debt. Code debt's an easy one because if you're in technology at all. You know the term code debt. What code debt means is you wrote code, the underlying technology, let's call it that, for the product has been written quickly and not documented and isn't easy for somebody else to jump into and is kind of patched together over

• 1:06:25Speaker 02

  time. So instead of being thorough and systematic and sort of setting the table for long-term success, the decision was made either consciously or unconsciously to take some shortcuts, let's call it that way. So that, we do find code debt in some of the companies, depending on what their technology systems and stack is. But I would say more often we find what I would call culture debt or leadership debt. And culture debt is just, you know, there's not high trust amongst the employees or there's a certain cultural element that is impeding success and potentially causing some extreme liability. So I would say an example of

• 1:07:08Speaker 02

  this that we see quite a bit is a focus on making, the employees focusing on making themselves happy at the expense of their customers. And where does that usually flow from? Right? It usually flows from an owner or leadership group that is focused on making themselves happy at the expense of the employees. So, you know, we try to go in and sort of diagnose what are these pockets of opportunity? Because we're paying for a base case, right? So we're paying at the prices that we're paying, there's, risk is baked into the equation, right? So the margin of safety is fairly considerable, at least in the types of deals

• 1:07:49Speaker 02

  that we do. And so we're assuming we're going to find, I call it the squiggly things, right? So you pick up a rock and all of a sudden there's all these squiggly things underneath the rock. And what do most people do? They take the rock and they put the rock right back down on the squiggly things. And they're like, whoo, I don't want to see that again, right? Our job is to pick up the rocks, look at the squiggly things, figure out how to remove the squiggly things, or at the very least mitigate some of them. And kind of, you know, sunlight is the ultimate disinfectant. So bringing these things up over time, I mean, it's not a, you know, slam down the door first day, you got to build trust, you know, it's. It's a function of being able to earn the respect and earn the trust of the people

• 1:08:34Speaker 02

  over time, make sure they know that you're not trying to call them out and trying to make them look ridiculous or like they don't care, because that's just never true. I mean, we work with amazing people. It is unbelievably brutally hard to run a company. And I think that's one of the things, if I was going to say, the average investor that I've met significantly underestimates how hard it is to run a company. I've heard investors, especially public market investors, say, "Oh, my gosh, look at that business. Any idiot can run it," right? And Buffett's quoted as saying, "Buy a business that any idiot could run, because sooner or later, that'll happen." And while that may be true, and the dream come true is to own companies that idiots can run, idiots aren't running

• 1:09:16Speaker 02

  successful companies typically, and hopefully aren't running the companies that we choose to get involved in. So it's more just opening people's eyes to what more could there be? How could we choose to focus time and the highly limited resources that we have into the highest and best use, right? We've got to look at opportunity costs. We've got to look at the risks to making the change, and those risks are not insignificant, right? Even in a culture that you think it'd be easy to say, "Oh, gosh, if we just focused everyone on caring about the customer more, if it was easy, they'd already be doing it." So it takes a lot of time. It takes a lot of effort. You have to redo incentive systems. You have to help kind of realign people. And ultimately, if people don't get

• 1:10:01Speaker 02

  on board, you've got to make tough calls. And I think that's a large part of what we're able to do, is just really hold the mirror up.

• 1:10:09Patrick O'Shaughnessy?

  What's the biggest miss that you've had? A company where maybe you looked and passed, or, and this could be a more late-stage type or an early-stage type, and maybe what lessons, more broadly speaking, beyond the biggest miss, have you learned from deals that you've not done?

• 1:10:27Speaker 02

  Yeah, that's a great question. Boy, this one's painful for me. Okay, so I try not to think about this one much. Actually, I do think about it a lot, but we had a chance, gosh, six years ago. I had a proprietary deal. Proprietary means there's no intermediary involved and there's no other. It's not a competitive bid situation. So this is a person coming to me and saying, this business is for sale. If you can buy it at this, you know, if you can come up with this much money, the business is yours and you can own it. So we had a proprietary deal come. It was a good friend of mine who brought it to me and said, hey, I know these guys real well. There's some discord in the company. The owners can't get along.

• 1:11:09Speaker 02

  It was in the advertising technology space and they owned a lot of inventory and they were very early on into the, you know, installing widgets on sites and gathering ad inventory and then reselling it at unreal margins. So anyway, we had an opportunity to buy that company for, I think it was a million three, maybe a million four at the time. It was doing, oh gosh, I want to say $250,000 a year, maybe $300,000 a year of profit. So the multiple looked high on it. And at the time, I sort of definitely was into the Ben Graham style private investing, I would call it, right? I hadn't, I hadn't found my Munger yet, my Munger gene.

• 1:11:54Speaker 02

  And I wasn't willing to overpay under any circumstances and I love the business. I thought it had longevity. It was a great for sale opportunity. I was getting it at, you know, in hindsight was a tremendous discount. That company was sold to somebody else and then three years later, that company sold for about 35, 40 million dollars. That hurt. Yeah, ouch.

• 1:12:21Speaker 02

  So yeah, I mean, the lessons I take out of that, right, are, you know, I saw somebody in the venture business said this the other day, you can't always focus on the downside. You also gotta use your imagination and say, what could it be? And there's some businesses that just lend themselves better to that than others. Right? Um, you know, if you, if you're getting into an old school, old style business that, you know, is, is selling a very clear package of services and that, you know, it's, it's easier to see, you know, what it could be. But if you're getting into newer technology areas, if you're getting into sort of interesting, unique models for businesses, I think that you have to use your imagination. And we, we've tried to do that. I'm more and more and more be willing to stretch a little bit if the situation presents

• 1:13:06Speaker 02

  itself.

• 1:13:07Patrick O'Shaughnessy?

  So maybe a twist on that question of, is there an example of one that you said no to for, for some reason, and you could tell me the reason and then, you know, it really worked out. Um, so, so missed, uh, missed, not a missed investment, but one that you passed on for that turned out to be a great pass.

• 1:13:24Speaker 02

  Oh, yeah. Boy, I would say I've got tons and tons of those examples I'm trying to think about. I mean, this is, this is basically almost every day.

• 1:13:30Patrick O'Shaughnessy?

  Yeah. I guess, yeah, you mentioned earlier, you know, most, most businesses in the 2000, you know, 1700 of those probably, probably are examples.

• 1:13:37Speaker 02

  Yeah. And I think this is actually the interesting point, you know, cause, cause, you know, if I was one of your listeners and I wasn't familiar with, with my area of the world, I'd say, man, it sounds like a load of BS that you can buy a company for a 25% cash, immediate cash yield. Right? Like, that's just not, there's no way that's true.

• 1:13:54Patrick O'Shaughnessy?

  Sounds insane.

• 1:13:55Speaker 02

  Yeah. Yeah, that's just, it is, and it is insane, right? It's only insane though, if you can find the ones that are, deserve to be sold. The problem is, most of the companies are untransferable or intransferable, I don't know what the proper English is, but they shouldn't be sold. Most of these companies are set up and there's so much, you know, of the types of debt we talked about, culture debt, leadership debt, there's so much inherent risk. You know, I think of the, was it Buffett or Munger talks about the buried suit problem, right? Like the

• 1:14:25Patrick O'Shaughnessy?

  I haven't heard that one.

• 1:14:26Speaker 02

  Oh, I think it's in one of Buffett's letters, uh, way, way, way back. And he talks about, uh, the, you know, a guy got a call from his sister and he said, uh, his sister said, oh my gosh, our father's died. And he was overseas, he couldn't attend the funeral. He said, well, you know, you get everything taken care of, I'll pay for it. And so, you know, the funeral happened, he got, you know, the bill for the funeral, he paid it. And then every month thereafter, he started getting another bill. And he went back to his sister and said, hey, what's the deal here? I thought I'd taken care of all the expenses for the funeral. And it says, oh, yeah, sorry about that. We accidentally buried dad in a rented suit. Right? So I always think about that analogy. To me, that's a really interesting mental model for what we're potentially inheriting with the businesses we're buying, right? Like,

• 1:15:11Speaker 02

  what are the buried suits that we're buying that we're going to be paying on for basically the rest of our lives? And a lot of that is the debt that we talked about. So, you know, the honest to God truth is that most of the businesses that are under, I would say for sure, under $5 million of owner earnings, and even some under 10 million, you know, gosh, it's, it's a pretty hairy situation. And it is fraught with all kinds of risk. And I think if you run a Monte Carlo simulation on those companies, I'm not sure that you get to a place that gets you much of a return. And so, again, you know, our, our big, you know, if you want to call it edge, or the thing that we've done that's, that, or at least what we're trying to achieve is, you know, buying cigar butts, what look like

• 1:15:54Speaker 02

  cigar butts, at cigar butt prices. And, and hopefully, we buy a cigar through either assessing the business better, discovering the business better, or adding a lot of value. We try not though to, to over negotiate. And I think that's an unusual point. I think that's something that actually is a big differentiator for us. And I don't know if we want to sort of dive into that side of things. But we try not to, we're trying to develop a relationship. And there's no worse way to start, start off a relationship than saying, ha, ha, ha, I got a great deal, you got screwed, right? So we got to play the long game.

• 1:16:29Patrick O'Shaughnessy?

  Let's take an example of you bidding for a company. How many back and forths will there be? What, when you say don't overdo it or over negotiate, flesh that out a bit more. That's, that seems interesting.

• 1:16:41Speaker 02

  Yeah, so, so if you think about it, I think this is, if you ask me, what is our single greatest edge we have, or sort of what's our, what's the adventure's competitive advantage? It would be our mentality seems to be so different than almost everyone else we're bidding against in the sense of we're playing the long game. We're not playing a one-time game, right? We're playing, playing a very, very long game with an ownership group that we hope to actually, you know, keep on their expertise, have a great relationship with them because they're the, they're the key to the business, at least in the, in the medium term. And we don't just do that only for that reason. I mean, it is self-interest rightly understood to use a, you know, Tocqueville quote, right?

• 1:17:23Speaker 02

  But more than anything, you know, we're doing it because it's profitable in the long term to do it that way, and it's also the right thing to do. I mean, how lucky are we that we get to engage in activities that are both, you know, fruitful and I think morally sound, I guess you could call it. So we try to really focus on incredibly high integrity. We try to be extremely reliable, so we're not flaky.

• 1:17:49Speaker 02

  So much in private equity is lob out term sheets, deal sheets, just, you know, kind of, it's a machine and you just lob enough out and enough come in and you kind of screw around with people and you don't close and you try to renegotiate and we don't do any of that. We only get, you know, whatever we put on paper, we stick to unless there's sort of a material change in due diligence that we find, which is not uncommon, but also not incredibly common either. And, you know, we just try to focus on a win-win situation, right? I mean, if it's a, if it's a win-lose for either party, it's not sustainable. Like, there's no way that that makes sense long-term.

• 1:18:26Patrick O'Shaughnessy?

  So, people will hear or have heard, you know, 25% cash-on-cash returns and that's the stuff of, you know, salivation. And I'm always hesitant to even let myself think about returns like that. And as a dyed-in-the-wool, albeit quantitative, but a dyed-in-the-wool, value-based investor, where, you know, a lot of the best outcomes come from growth, individual outcomes come from growth stocks, but as a category, it's been very bad. And so, chasing after, you know, 25% returns is almost going to certainly result in inferior returns in most situations.

• 1:19:06Patrick O'Shaughnessy?

  But if someone was interested in doing something similar to what you do, what are some of the maybe personality characteristics that you have or key people that work with you have? Or things, skills, skill sets that people could work on cultivating, especially, you know, younger people out there, that could allow them to thrive in, we'll call it the private, you know, small, mid-market, private investing space?

• 1:19:36Speaker 02

  Yeah, that's a great question. So, in order to answer that question, I think it would be helpful if I, and I know this was actually your, kind of part of your last question that I didn't even answer because I forgot that you asked it, but what is the actual process? So, let me walk through the process and there's no magic to this. This is, I, you know, I think, pretty standard. But you first got to find deals. And this may seem like an easy task, considering at the end of the day, you're selling money, which should be intuitively the easiest thing in the world to sell. It's not. It's really, really hard to find good deals. The easiest way, especially if you have very little money, to find deals is to go on deal websites. There's like BuySellBiz, there's a bunch of these listing sites, right?

• 1:20:21Speaker 02

  And unfortunately, the inside ballgame on that is if it's for sale and it's up on one of those sites, it shouldn't be sold, basically, shouldn't be bought. I mean, there are exceptions to that. There are rare situations, but for the most part, you're going to be chasing your tail a ton because those are businesses that sort of have no other options. So if you find a business that's publicly listed, it just probably isn't a fantastic base case situation. So how do you find deals? You've got to go knock on a lot of doors. You've got to talk to a lot of intermediaries. They get hounded all day long, lawyers, accountants, wealth managers, and there's an inherent negative bias that they're going to have

• 1:21:03Speaker 02

  because they know as a service provider to these companies, if they sell, the lawyers, accountants, those types of people, typically, they're going to lose that piece of business. So in fact, it's a really, really hard place to find them, but that's a source. Intermediaries are another source, as I mentioned. They come in all different kinds of flavors. I kind of put them into two buckets on a spectrum. One is the very, very low-end business broker. These are the people that it's basically a real estate agent for a business, is the way I would look at it. Those people are, I mean, they are just a pure connector. They are saying, hey, my client is over here, you're over there. Here, hold hands and good

• 1:21:45Speaker 02

  luck to you, and let me know if you guys sell and I'll take my fee. So very much like a kind of a real estate transaction. And then on the opposite end of the market are very, very, very skilled intermediaries, which are typically known as investment bankers. Depending on the firm and depending on the reputation, they're going to be doing very deep analysis. You've got to be careful with those people like anybody else, that if they're doing all the analysis and they're providing you with all the numbers, there's going to be a bias against giving you an accurate picture or not completely clear picture. And typically, on the upside for the business selling, of course, what's the proverb or the old saying, who's bread I eat, his song I sing. So I think that's

• 1:22:30Speaker 02

  kind of a dangerous situation, too. But you've got to, you know, going to intermediaries is a must. The way you've got to look at that is unless they're bringing the deal to you for a very specific reason, they're probably taking the deal to Oh gosh, 100, 150 people, they may be hitting an email list. And so, you know, you always got to look at your base case chance of winning a deal. So if, you know, just at the pure number standpoint, if it's sent to 100 people and you're one of 100 potential buyers to the business, what are your chances of winning the business? 1%, right? So, you know, I think that finding the deals may seem like the easy part, it's actually not. So I would say, um, you know, that's really challenging.

• 1:23:11Speaker 02

  Once you've found the deal, understanding, doing the actual analysis, which I would say is pretty close to what any investor does, and that's what we kind of covered earlier. It's really, really hard, right? Um, but you've already had to go through another hard gate to get to that gate, which is hard. Once you get it under a letter of intent, so that, so that the pacing of it is, you know, get to know one another, sign an NDA, review data, send over what's either called a term sheet or an indication of interest. Once that indication of interest is in the quote unquote ballpark, then you draft what's called a letter of intent. Letter of intent is much more fleshed out, detailed version of the term sheet. And, uh, typically gives the, uh, buyer, uh, of choice, the, uh, exclusivity on the

• 1:23:56Speaker 02

  deal for a certain period of time, call it 60 to 90 days, somewhere in that ballpark typically. Here's the interesting part, once, well, actually I'll ask you, Patrick, what do you think the odds are once a letter of intent is signed, in a deal in the lower middle market, it closes?

• 1:24:12Patrick O'Shaughnessy?

  Hmm, good question. Um, I'll guess like, uh, a third of them close.

• 1:24:20Speaker 02

  22%. So you got to think about it this way, one in five, one in five close. So that shows you again how difficult it is to, even once you're the exclusive buyer, once you have exclusivity on the deal, uh, there's so much that happens and is so difficult to try to get information. I mean, these people are running the company, there's egos involved, there's, you know, maybe an intermediary involved, you're not sure what kind of game of telephone you're playing. You know, it is, there's so much intricacy. I mean, the deal that we closed in December, I remember we were, let's see here, two weeks before close and I had an open issues list that I was running, this kind of part of my process and due diligence. You know, what are the issues we still have to resolve before we can close the deal?

• 1:25:05Speaker 02

  And two weeks before close, a pretty hard close date, I had 130 open issues. 130 things that I had to negotiate as part of that deal, and this is two weeks before close. The intricacy and level of detail and making sure the taxation gets right and making sure that the incentives are set up properly. I mean, it is mind-bogglingly hard. And by the way, you haven't even closed on the business. You don't even own the business yet, right? So, I'm trying to present an accurate picture, you know, why can you generate those, you know, high returns is because even before you get to the starting line, which is, hey, you closed on the business, now you own it, what are you gonna do with it, right? You've got to get through, you know, 15 really, really high gates.

• 1:25:50Speaker 02

  And the chances of even closing a deal, you know, are hard. I would say, if you ask me from a standing start, what is the likelihood that a smart, well-read, well-versed, maybe even experienced business executive would find a deal and close a deal that is a valuable deal, that's a good deal, that would be a positive ROI deal in the first two years? And I would say, maybe 20% chance? Maybe 15? Somewhere in that ballpark? And I mean, and again, that's where it sounds like a dream come true when you just look at it retroactively or historically. Yeah, we've been able to generate great returns, but we've also eaten a lot of glass.

• 1:26:30Patrick O'Shaughnessy?

  What keeps you going? So, let's assume, you know, you're 33. Let's assume you do this for another seven years and you're...

• 1:26:37Speaker 02

  Oh gosh, in seven years?

• 1:26:38Patrick O'Shaughnessy?

  No, no, no.

• 1:26:39Speaker 02

  I plan on...

• 1:26:40Patrick O'Shaughnessy?

  That's where I'm going.

• 1:26:40Speaker 02

  I plan on doing this until I'm 85 or 90 or 95.

• 1:26:43Patrick O'Shaughnessy?

  Yeah, so it starts to get to the answer to my question, but under the hypothetical that you compound at, you know, maybe not 25% because you get bigger or something, but at an impressive rate and obviously it's not about the money. So what particular aspect of it creates this, what seems like a tremendous like personal momentum in you or insatiability? Like is there a, is there a, is there a part of the process which is laden with difficulties and high hurdles, as you point out, that keeps you coming back every morning?

• 1:27:20Speaker 02

  Yeah, I mean, I love what I do, right? So my, my test on, am I, am I on the right track or not is do you do what you love in a place that you enjoy with people that you admire, right? Like that to me is the, that's the ultimate test. And we, I'd be happy to not close a deal for five years or, you know, if we're so lucky that we can find the best deals that we want to close, I'd be happy to close five of them in one year, right? Ultimately, it's not about the outcome per se, it's about making, I kind of make an analogy for golf, right? So if you ever play golf and you know that you can make a good swing and get a bad outcome, but typically if you make a good swing, you get a good outcome, right?

• 1:28:02Speaker 02

  And I just love swinging, like I just, everything about it, I get to work with some of the smartest people in the world. I mean, you know, Shane coming on board, we've got an existing team that's just absolutely dynamite. I have a ton of respect for the people I work with and it's just, it's a blast. I get to, I get to hang out with really, really, now, not everyone would say they're cool people, they're not celebrities, right? They're not, they're not, you know, sort of Nobel Prize winners typically. They're really good people and they really care about their communities and they're having a lot of fun typically themselves and they've done very well for themselves before we came along. And so, you know, I, I just can't imagine having a better job.

• 1:28:44Speaker 02

  Like, you know, the joke that Buffett says about tap dancing to work, like. That's me most days. Like, I think I live the most blessed, great, I'm so grateful for my life. Like, it's just absolutely amazing.

• 1:28:55Patrick O'Shaughnessy?

  What are the things that, you know, I ask this of everyone, because I'm just fascinated with, and you've already mentioned how important for you process is, that, you know, you're not setting some return goal, or wealth goal, or anything. It just sounds like you want to enjoy yourself every day. And I'm always fascinated to know what the things are that you do every day that you feel are the most important habits, or sort of daily values that have led to, you know, the well-being and good things in your life. Maybe that people can emulate, the results won't be the same, but sort of daily systems are everything, I think. And so I'd be curious to know what your key points are on a daily basis.

• 1:29:38Speaker 02

  Yeah, so I mean, I'd say the single biggest determining factor of the success we've probably had is the compounding of of knowledge, giving yourself time to understand how the world works, think deeply about the way the world works, try to learn new things about the world, and try to, try to get a more accurate picture of reality every single day. I, you know, I make a lot of time to, well, I shouldn't say, it depends, I go through sign waves, right, where sometimes I'll have like a lull in deal flow, and everything's kind of clicking along at the portfolio companies, and if I was going to jump in, I'd probably cause more of a mess than I would help. You know, thank goodness, I have

• 1:30:19Speaker 02

  a wonderful woman who's the president of our firm, named Suzanne Byland, who's, yeah, she's the best business decision I've ever made partnering with her. And, you know, she'll tell me to go sit in the corner for a while. And as I, I like to call myself an isolated extrovert, so I, I have this desire to engage, and I think the way I have an outlet for that is in reading. I have a conversation with the authors that I read, I read, you know, depending on where my interests are, I read a lot of articles, you know, I have a, probably a stack of 50 books that I'm gonna get to, you know, at some, to some degree. And sometimes I'll read 10 books in a month, or 12 books in a month, and other times I'll read two or three in a month. So, you know, it kind of varies depending

• 1:31:02Speaker 02

  on where my interests are, and engagement. But I would say just the compounding of knowledge. I mean, for me, you know, a lot of knowledge is found in the Bible, and my, you know, prayer life's important to me. That's something that, you know, I've really Yeah, it's been a blossoming for me and I'd be remiss if I didn't say it. And I think that's, you know, again, kind of goes to the whole compounding of knowledge and understanding.

• 1:31:24Patrick O'Shaughnessy?

  Fascinating stuff. What is the kindest thing that anyone has done for you, we'll say professionally?

• 1:31:32Speaker 02

  Wow, kindest thing. So it's easy to look back and tell a tight, nice story of how everything came together. And, you know, I hope anybody with experience probably realizes that that's not the case, right? Things are, life is far more messy than quick sound bites explain. And I, you know, my entrepreneurial journey initially, over the first couple of years was, was rough. I had, I'd gotten myself into a challenging spot. I mean, making money's hard. Creating a stable company from scratch is, is just, it's, it's like eating glass. I think that's a great analogy, every day. And, you know, I'd gotten myself to a spot where there was a lot of big egos involved in, in the business

• 1:32:17Speaker 02

  and some challenging things had happened. And I had a, um, some people who acted very unethically and unprofessionally. And, and I was just kind of at the end of my rope. And there's a guy who worked for me, uh, his name's Craig Brace and, and he's the guy I was mentioning before that was, looked a little older and came into the acquisition with me. And it was probably, you know, six months, uh, or so before that, that I, you know, really hit the bottom of the trough. And I can remember, uh, you know, crying on my way to work. I mean, the sound, you talk about raw, I mean, this is just the reality of it. I think a lot of people go through this, but you know, I, I thought I was complete failure. I thought I was doomed to, uh, you know, I sort of had dreams about, you know, having to get a fast food job or something, right?

• 1:33:01Speaker 02

  And I had a guy named Craig who was older, much wiser, super, just one of the kindest human beings I've ever met, who, you know, I opened up to him and he was one of my employees, right? And, and I kind of had this moment where I was like, I should be working for him and not, not in reverse. And he, he just, you know, he gave, you know, he, he sat there, listened to me, was patient with me. And for about, you know, a month or six weeks, I mean, kind of nursed me back to health. I don't know how to describe it, like mentally and emotionally. He just, he was a rock. I mean, just unfailing rock. And, you know, if it wasn't for him, I mean, I probably haven't told him this enough, you know, I, I, uh... I think things could have turned out very differently. So I think sometimes we all just need a person to be real with.

• 1:33:46Speaker 02

  And you know, I hate the culture around business and that everyone's killing it. Right. And that's why even I hate talking about the returns and all of that side. Cause it sounds like such bravado BS and I don't want it to come across as that. Like making money is brutal, right? Like, like trying to be successful in business and just operate any business, regardless of the business you're in. I'm sure the investing business is exactly the same. It's just so hard. And I think you need to have real relationships with people. And, and you know, I'm not saying trust, you know, to that degree, a lot of people, but I think you need to find some people that you really can cry in front of and be your worst in front of and be your most insecure in front of. And I hope they love you regardless. And yeah, he definitely, he definitely was that for me.

• 1:34:31Speaker 02

  So I don't know if that's, that's probably a really weird answer.

• 1:34:33Patrick O'Shaughnessy?

  No, it's, it's, it's a great one. And this is one of my routine questions. And like many others, it's, it's sort of, the answer is one of integration and understanding. So I think that's a great place to wrap up. This has been just an awesome, awesome conversation for me since it's totally outside of my area of what's led my career. So thanks, thanks so much for all the time, all the interesting stories, all the lessons. I think that certainly are super applicable for someone that wants to be in the private investing world, but, but more broadly as well. So Brent, thanks so much for, for all your time.

• 1:35:07Speaker 02

  Yeah, Patrick, I really appreciate it. Thank you so much for having me on.

• 1:35:12Patrick O'Shaughnessy?

  Hey everyone, Patrick here again. To find more episodes of Invest Like the Best, go to investorfieldguide.com/podcast. If you're a book lover, you can also sign up for my book club at investorfieldguide.com/bookclub. After you sign up, you'll receive a full investor curriculum right away and then three to four suggestions of new books every month. You can also follow me on Twitter @Patrick_OShag, O S H A G. If you enjoy the show, please leave a quick review for us on iTunes, which will help more people discover Invest Like the Best. Thanks so much for listening.