Private Equity CEO: What They Don't Teach You About Building an Empire

All investing at the end of the day is the Assumption of risk the ideal investment scenario is you are assuming a risk that is knowable you are being paid more to assume that risk and you have some ability to mitigate that risk so we all have three basic Moves In conflict it's called move against which is like the the second one is and then the third one is and so if you watch all of your conflict Will Follow That Pattern let's talk about incentives how do you set incentives for this the I think the ideal

system is what have you learned about hiring people that most people Miss I think that's probably been the biggest Leap Forward what most people get wrong is most people don't understand what's the Playbook when you take over a company so we are [Music] um what's changed in your life in the Past two years I would say my marriage has changed a lot my inner life has changed a lot my physical outer life has changed a lot ironically the business has not changed a lot it's been interesting how the different seasons do and don't overlap but

there's been a lot of changes about how I approach work that have changed but the actual work itself has not changed let's dive into that what's changed in your marriage what's changed in your exercise let's Tackle exercise first yeah well I I think maybe all of it is um is connected to to a walk I went on gosh I'm probably pushing now 3 years ago and um there was a gentleman on this walk who was at like a small gathering of people in Colorado he kind of picked me out it was you know like 40

or 50 people in the crowd and and afterwards he said hey hey can I can I go to to walk with you I was like sure and he said hey can I speak truth into your Life and he said I see a lot of shame in you I see a lot of fear in you and I worry that that's dramatically negative impacting a lot of your relationships it was more in-depth than that I mean he we we talked for you know another probably 20 30 minutes about what he saw and I just try to take

a posture I mean initially when somebody says something like that to you like cut you right how dare you I have great relationships you know you've Known me for a long time now we were talking about this at least 10 years if not more yeah and you know I wouldn't have said six or seven years ago that I had bad relationships yeah I would have said I had really good relationships um if You' asked me how my marriage was 5 years ago go I would have said oh like a six or seven you know we

have our challenges but like we get along and you know compared to where it is today I would say it was like a like a two I Just didn't know you know I think about this idea of you know Everything's Relative so like world class is the best you've ever seen you know you ask somebody who's only eating at fast food what's their favorite restaurant in the world they're going to tell you a fast food restaurant right um so you know the question we have to ask ourselves is like what do we have to compare

it to and are we talking about relative or in absolute terms and to be honest I don't Think I had been exposed 3 years ago to what was possible in relationships or what was possible in marriages like I had not seen marriages up close where I was like I was comparing my marriage to what I'd seen in other marriages and I felt like we were doing fine like we were probably right in the middle of the ballpark I think what this person did for me was open my eyes to like there was a lot more

out there there's a lot more possibilities that I that I didn't Know that was like a seminal moment of like a warning shot across the bow of oh my gosh like I need to probably go and look and study like who am I what makes great friendships what am I giving to my relationships how do I think about my marriage and like what am I doing in my marriage and like H how should it be and am I willing to settle for an interior life filled with anxiety and shame and fear am I willing to

settle for a marriage where things are being hidden And and there's disconnect and division right um am I willing to settle for friendships that that maybe don't go that last 10% and uh create that really meaningful deep connection am I willing to settle for a physical body that is overweight and out of shape and and likely going to become diseased and so I think that was a you know that was a major moment and then that led into you know really finding finding these different people who have who have Shaped and changed my life including

an incredible counselor who I started working with and bringing to the surface a lot of these issues that I didn't even know were there yeah I mean I look back on the person I was even 3 years ago and I I was certainly far better than I was 10 years prior but I was compared to sort of where I was now I felt very shut down and frustrated and irritable and and competitive and I feel a lot of those things myself in terms of Competitive and you know maybe a bit more anxious than I should

be what was the next step that you took in this journey that sort of like okay well I realize something I feel now what I don't want to sit here and pretend it's like self-reliance is the thing that got me through this period of my life because it felt like it happened to me and it happened for me it didn't feel like that I somehow figured out like outsmarted The world outsmarted my shame and fear it felt like I had these sort of people be put into my life and these Revelations that started to occur

that all of a sudden I mean think there's a there's an old adage that like when the student is ready the teacher appears right and I think there's very much there's a choice I had to make 3 years ago it was like am I going to pretend like I like everything's fine because that's what everything in me That's what my false self wanted to do no screw you you're wrong you don't know what you're talking about who are you you just met me you can't you don't know you don't know me you don't know anything

about me and it was like I I remember having this very distinct choice to make and I remember being like if I if I continue on the path that I'm on that would have denied you know sort of this idea of like self-promotion self- Protection right that's what that's what our false self wants us to do go around self-promote self protect because then we don't have to really be vulnerable um now we also are shut down and we can't have great relationships we can't um figure out the real sort of us that comes through but

that was the choice and and I I remember kind of it was an act of surrender of being like I have to take the risk that I'm going to take look at myself and I'm not going to like Myself very much I'm going to I'm going to admit things to myself that that are ugly and that I've done more wrong maybe than I'm willing to admit and that I've H people that I care about that was the choice that I had to make and I and and I remember very clearly saying okay I you know

I Surrender and I want to know and then things started to change ever so slowly I mean there's a weird dip that occurs I feel like when you you know when you go from denial To um awareness um it's it's actually way worse so like the awareness of your faults and awareness of your shortcomings without the healing of those is actually put you in a far worse position and so I would say that you know the sort of the period of time from 3 years ago to two years ago was horrible like it was a

it was not a it was not a year of joy in fact if anything it felt like hard my Relationships felt more strained and I think it was because I was becoming acutely aware of how broken they were as a result mostly As a result of me I mean yes other people's Brokenness too mostly result of me but I didn't have any healing in it I didn't know how to get healing um and you know that season was just an awareness building season looking back on that but it's awful if you if you gain awareness

without healing it's way worse than not being Aware give me an example of um something that's changed in your friendships were talking about one last night actually that's a perfect one uh where you always want to pay the bill yeah talk to me about that and the Revelation behind it and how it came about let's see here about two years ago maybe a little less than two years ago I had a friend who was going through some really tough times and uh personally professionally and a mentor of his said hey you got to Go to

this got to go to this intensive counseling Retreat and he kind of reluctantly this he's not a touchy feely uh he's a finance guy you know he's he's not a this he's not this is voodoo yeah this is not is exactly this is ooey gooey squishy stuff is not is not his his ball game and I watched him go into that hard and hardened and just sort of like shut down shut off um again very protective self-protective and he came out of that Week like changed like distinctive ly different and I remember thinking to myself

like wow I don't know what happened there that's incredible he'd worked with this woman at the whole week and he was like you changed my life like this is incredible like how you know first of all I never be able to repay you thank you you know like I don't know anything about you who are you and she said uh I've got you know I've got these kids and whatever I live In Columbia Missouri he's Columbia Missouri what he said one of my best friends lives in Columbia Missouri I live in Columbia Missouri and so

he said Brent I'm I'm telling you like you have to go see this person and it was right around this time that I felt like I hit rock bottom in my awareness of like my own Brokenness and like how I didn't really see a path forward like I kept like sitting in this dismal state where you're like aware of How messy everything is but there's no way to clean it up and all the self-help stuff like it none of it works like at least for me like I I can only speak I'm I'm in of

one here but like you know this self-reliant thing doesn't doesn't work and so he said hey I think you should meet with her and I like man this is a true godson like I had no idea that somebody of that caliber national International Quality caliber was in Columbia Missouri I started going to her And doing these three-hour sessions and dredging up things I didn't even know was there um that were all connected to the behaviors if you if you think about like the way way that I I think about it now is like we have

these we have these behaviors that other people can see and that we can kind of measure right am I doing good or am I not doing good um the reality is there's so many layers underneath that though that are influencing that behavior right like oh Something terrible happened and I really don't feel anything that's weird right or something very small happened and I'm triggered into this like Spiral that's weird and what I would do in the past is I would just kind of like shove it down right like I don't know I don't get it

but life's weird and whatever got to go on yeah you got to go on and so anyway through this series of of sessions and I mean I've done a lot now like probably 25 or 30 of these now three- hour sessions so a lot of time we got down to one of the sessions it was actually probably about four or five months ago out of the blue kind of seemingly unconnected we were talking about friendship and my counselor said do you always pay and I said yeah of course I always pay she was like hm

like out of the last hundred times that you shared a meal with somebody how many times did you pay And I was like like a hundred and she kind of sat back and I was kind of proud of myself right like I'm a good person I pay for the bill I care about people right this is like the thing I told myself in my head I do the exact same thing yeah and and by the way those those motivations are I think real and true they aren't bad but she said yeah I wouldn't be your

friend and I remember just being rocked by it like you wouldn't be my my friend she goes I was Like what why like totally broke my paradigms and she said because in a friendship in a real relationship you seed control to the other person the other person con seeds control to you it's not you're always controlling the whole point of a friendship is that you can trust and you can be vulnerable and you can see control and so paying the bill is merely just a form of control that you're exerting over your friends and I

Remember being like oh crap absolutely right and she goes yeah and I I suspect it's not just paying the bill you like to have your environment you like to have your way of doing things I was like yeah I do force a lot of relationships again this is only like five months ago right I force a lot of relationships into these boxes where it's like I want you to be in my box I tell myself because I can provide great Hospitality or because I can do do these Interesting things right and I'm caring for them

well and and and and genuinely sometimes and I suspect the same for you like those are real motivations but we are this mixed bag and I think that's what I've realized is like we we hook the good and the bad together and then we do things that come off to other people very differently and confuse and frustrate and constrain and it's really hard for somebody to be frustrated at at a friend who's always buying them lunch Or dinner or whatever it might be so what it does is it builds up resentment and frustration and the

other and they don't even understand right like we're all we're all confused it's very hard to see ourselves clearly we can see other clearly right we can't see ourselves clearly um I think that we're designed like that because we're designed for a relationship like we need one another no one is an island no one is self-reliant right we need one another so how do you Handle dinner now so what I say only if I mean it by the way um and sometimes I don't say this um but if I don't mean it I won't say

it now I I say it would give me great pleasure I would enjoy being able to buy dinner tonight but if you don't want me to buy dinner I will respect your choice I give them the choice and sometimes I buy dinner and sometimes I don't but if they say nope I want to buy dinner tonight I say okay thank you and the key there is they have Agency now they have agency and so the resentment doesn't build even unconsciously correct in in kind of psychology circles there's this idea of a of a triangle where

you have a a victim and a hero and like a judge or a a pro cutor um and and heroes are those who are without knowing the good like they tell themselves that they want to do good for other people and what they're really doing and by the way I I relate very strongly to this this is This is a lot of action that I see myself having done and do is to cover up my own shame and insecurities and and sort of to to push down the pain that I feel it's like well I'm

going to go external and go try to help somebody almost against their will like they didn't didn't ask me to help or if they did ask me to help my response to them is so outsized that it removes agency from them and so buying dinner is like a very Small example of this and I've got you know unfortunately a lot of bigger examples of this you know I probably I probably have really engaged in I would say dramatic heroics five or six times in my life where I perceived somebody was in grave danger um they

needed my help and I sprung into action and did this dramatic thing for this other person and you know in my head the thing I'm going to get is oh thank you so much Brent you're amazing I'm so grateful for You now if you hear even the thoughts in my head it's all about me so it's actually not about the other person yes I can justify based on the other person but but really it's about me yeah five out of five or you know six out of six times it has been met with initial oh

man thank you so much like this is incredible wow I'm like blown away at your generosity and I'm like oh I got all the good feelings and uh and then I end up not having a very good Relationship with those people and it shocks me and it almost feels like a slap in the face like how could they how could they do that how could they not be better friends with me as a result of this and then when I started doing these sessions and started working with her um it became clear this like oh

Heroes create victims because you're removing all agency from them and you are telling them that they can't help themselves that they are Helpless and when you do that you are creating somebody who who is diminished and insulted and now now again in the moment that's not how it feels but that's where we are constantly chewing on and assessing our environments a great example of this and this is not a a close personal relationship I remember my wife and I W Christmas um we had a public school teacher who we knew and got to be friends

with and um we were Kind of sitting around the dinner table one night and and she was sharing she was like it's heartbreaking she's like you know these kids around Christmas that I work with in this particularly poor School District you know they don't have any Christmas presents they don't have any Christmas like there's no joy and it really like touched my wife and I we were like wow like what if we did this dramatic act and anonymously of course we bought like $30,000 worth of Christmas gifts for like every kid in that school and

in our heads we were like this is amazing this is [Music] wonderful um these kids you know you can imagine the kids who were like oh we wouldn't have had Christmas but now we have Christmas and wow somebody cares for us and loves us like that's what we were hoping to have done and and so we did it and the response from the you know small group of people that knew About it was like this is incredible you all are so generous you know pat pat pat on the back we're feeling great we're in the

we're in the Christmas spirit oh what Joy you know all this stuff and then it was about a month later and I I followed up with um the teacher and I was just like hey how did that how did that go and she was like it was really good you know everyone was like grateful you know whatever there's a few people who Who had some challenges and I was like had challenges with us giving giving gifts she said well some of the parents of the kids oh felt felt really insulted by it and then it

like hit me and I even like you I'm trying not to get emotional about it like it hit it cut me so deeply because I realized what I had done what we had done my wife and I had done we had taken away the Dignity of those Families and yeah they couldn't buy their kids Christmas gifts they were going to do something for them whatever they could do for them and instead like any kid you you give a kid a present kid like amazing you know but then it started asking all kinds of questions well

why can't you buy me that present do you not love me why do these other people care more for me than you do kids don't understand how money Works they don't understand how some people Have more and some people have less they don't understand anything about that and so what I'd inadvertently done when I was trying to be kind and generous was I didn't put myself in the position to understand what the the real consequences were going to be the second third order consequence consquences yeah a kid would have had you know less toys to

play with at Christmas that's not the point of Christmas I missed I missed the Plot the point of Christmas is to show love and care and in doing what I did I short circuited the ability for those families to experience love and care and I hurt them and there's a great book out there called when helping hurts and it afterwards actually somebody gave it to me and I read it and I mean you talk about being cut deeply it's a book about when you try to help and it hurts people um it's one of the

one of the best books I've ever read on sort of philanthropy And and how to think about um caring for those who you don't have a relationship with and I think that's the bottom line is like it all comes down to we we can't go wrong if we're in deep relationship with somebody and we are respecting what their needs are um we're if somebody asks me for help you're not a hero if somebody asks you for help and you rise to meet the need that's called being a good friend where you become a hero and

you create Victims is when you don't know somebody don't know their needs um they never asked you to do something and you rise to meet a neat they don't have and in in turn you take away agency and dignity from them so it's things like that that I mean these are these are deep Waters right these are things that are challenging stuff that we don't talk about a lot but this is the stuff that I've like it's been a joy and it's been awful in some ways to explore the stuff In me and to see

how frequently I am engaging in this maladaptive Behavior under the name of goodness and virtue and all these things that we tell ourselves yeah the story We Tell ourselves to justify sort of what we're doing because we want to be the hero in a way unconsciously in a lot of ways right like we're not consciously trying to save somebody we see a friend in need and then we we want to jump in and help them when's the last time you asked Somebody for help uh this morning I'm asking I'm I'm learning this is a new

learned behavior though um CU in all the years I've known you this is like this is different recently yeah this is different I uh yeah I would I would always be the one who would be eager to help but rarely ask for help and again that that that destroys relationships there's not just there's no way to have a real relationship with somebody unless it's bidirectional it can't be you Helping somebody and never needing help because then again it's the exact same principle you're creating sort of a a hero victim Dynamics the power dynamics in any

relationship are super and where we have best relationships where we're on equal footing different but equal right so um I always think about it as like you know uh the X-Men or whatever you know you have everyone's got different powers but everyone can like fight the battles together right um And you respect the other's opinion right you respect the other person's skills and talents but if somebody is always the one who can shoot laser beams and you know blow stuff up and make stuff happen and the other person is just oh thank you I appreciate

that thank you for helping me it's not a real friendship I had never thought about any of this until dinner last night with you and I stayed up late last night just going over all the different ways that I I do this in my own life with my friends from you know um always offering like it's to the not even offering to pay for dinner it's like I'll race up to the waiter and you know while everybody's sitting down they go to the bathroom to make sure that I and I re like I was justl

playing this stuff in my head going like oh my God this is crazy yeah I went on an apology tour after I had that realization to a lot of people and I said hey I'm really sorry I did this To you and of course people are kind of caught off guard because I don't even think they realize it but when I said it to him they were like yeah thank you and so now like my close friends like I we have this understanding and and often times I still am able to buy lunch or dinner

or whatever right because I enjoy it and they know I enjoy it like I love Hospitality I love the to be a provision and provide care for people it's like a Core part of my personality but sometimes they say thank you but no thank you and you know what I feel super loved in that I feel super loved so I so the the cool part is before I didn't feel love either way if somebody else bought a meal I would feel frustrated and sort of irritable about it and they took something away from me right

and if I how everybody else feels when you do it in a way right exactly and vice versa right if I did buy the Meal it was a little bit like you start playing with ideas in your head oh am I only a checkbook do people really like me and it's like well you're the one who insisted on buying dinner and you're like well but the other person could have insisted on buying dinner more you know and you start getting into this like weird psychology you fight back enough right you get the old alligator arms

you know um and so now it's like the inverse of that and I think this is Like a a good metaphor for life like I think that the the more that I meet what I would call Elders so there's a difference between elders and elderly elderly are like self-focused incurved BL Blaze Pascal would call it in curvature right they're incurved on themselves um they're irritable it's all life is all about them and what they need and they're scared and fearful then you got Elders who are the inverse of this right who are outwardly focused Right

the more I meet these types of Elders that are like genuinely caring and loving the more that I see them exhibiting this type of behavior the more that I see them like no matter their circumstance in good circumstances or in bad circumstances they live with a joy and a lightness and a freedom and then you see Elder Lee and sort of now I can pull it back and see in my life that like no matter my circumstances like I'm living in fear And shame and and hiding and so it's like I think that's the that's

the the thing that we're really talking about here is like these are all even like maybe the second tier down or the third tier down like at the at the basement of all this stuff at the very core of all this stuff is there are really only two ways to live you're going to live out of fear or you're going to live out of genuine love and care for others and love and care for yourself and like That's it like everything else Rises between those two like like fear driven is scarce it is the way

of the world it is uh um a famous author in the 70s she said that that that nature is red in tooth and Claw right it's like this idea that's like there's nothing but you're either going to be a predator or you're going to be prey everything is a battle everything's a battle everything's about comp competition right and and believe me Like that's when I am at my worst that's who I am and by the way the world loves my false self the world loves that fear-driven self I can get an extraordinarily incredible amount done

in that time A friend of mine calls it clean fuel versus dirty fuel like it's very difficult to see like the car looks like the car from the outside very difficult to understand is it clean fuel or dirty fuel that's operating the car and I can I mean that car can go fast it Can take a lot of people with it if I'm on dirty fuel in some ways dirty fuel is a for me uh I'd learned through my life to be it's it's it's a more potent fuel in the short term for me like

I I get more stuff done quicker and usually even sometimes with higher Excellence out of dirty fuel than I do clean fuel that fear is a heck ofe almost higher o the problem is it's got all kinds of contaminants in it and you eventually like torch yourself and the car breaks Down and you go off the rails and blow yourself up whatever analogy you want to use and so getting back to the original question like what's changed like I think that more and more I'm trying to operate on clean fuel I'm trying to be self

unconcerned I'm trying to become an elder I think people listening resonate a lot with this so I'm curious what other ways you found yourself sub controlling your relationships whether it be your Marriage or your friends uh the paying is an example but I'm sure you've got other ones you get older and you get better at hiding your motivations right you end up wrapping them sometimes consciously sometimes unconsciously in these maybe good packages but the reality was it was like I was demanding control I was demanding care I was demanding people to see me and sort

of Praise me and so how do I do that on a daily basis it was Um and and by the way this is not like it's a victory declared or whatever I mean this is this is like an ongoing battle I would say on an hour by hour minute by- minute basis is I can tell so quickly am I operating out of fear or love and the test is do I have peace or not am I anxious or not and when I'm anxious and fearful and when I'm you know I have a tendency to catastrophize

the Future and always be running down all These different different rabbit holes of what ifs might happens and I have an I've been given an incredible capacity to do that which makes me like my day job as an investor it's really useful because I can run down a tremendous number of scenarios my personal life it's terrible and I I I hate it um it's the Dark Side of creativity right when you have vision and creativity you can Envision a future That is beautiful and bright and loving and wonderful or you can Envision a terrible future

dystopian future and so yeah I mean examples of this I mean I would go into meetings and I would I would need to take over the meeting to get praise and by the way I've been given a gift to be able to say things and think quickly on my feet that people genuinely were praising me it's not like I hope I mean no one's perfect but like I we Created an organization of permanent Equity that's like very um kindly confrontational about ideas like we want to be uh we we want a lot of friction and

so the last thing in the world I want to do is create an organization of Yes Men or yes women right like we we want Divergent thinking we want a lot of uh variety and so I I don't think that they were doing it because it was like oh boss you're so good you know that type of like you know sycophant type Type thing I think it was genuinely like in my false self when I'm really charged up like I have a capacity to Envision a future that a lot of people like I know internally

though my my vision of that future is really driving my need to be liked my need to be respected my need to be praised and so G and I would I would have this high anxiety in these meetings right and then I'd get out of them and it's like I mean I'm so wired up there so much cortisol in my System cuz I craved that I needed that that was like my sort of my drug choice in that in that setting to the degree that I almost lost my right eye as a result of excess

cortisol in my system that's how stressed and I wasn't stressed in the sense of I mean yes like what I call normal stresses like mean there's always going to be um sickness and death and as we've grown as an organization there's just a lot of there a lot of people and a lot of people are A lot of Brokenness but I would say the vast majority of the stress that I was experiencing was self-induced was because I wasn't okay and I knew I wasn't okay but I didn't know how else to cope with it rather

than try to get praise try to grab things from other people right so I was incurved as bla Pascal would say I was the one who was inwardly focused and focused on my needs and what I wanted I was not on the path to being an elder I Was on the track to being elderly and the inverse of that is I get more freedom as I as I you know this stuff kind of comes out in relationships and friendships in my marriage in counseling sessions you know as this stuff kind of comes up and out

and there's healing around it I find myself sitting in meetings and like letting other people talk imagine that not having to always be the leader of everything not having to have my identity based on short-term Wins not being competitive competitiveness is the opposite of relationship it is the antithesis of relationship like when we're competitive with somebody it's I win and you lose that's horrible especially when you're you're you're dealing with like my profession doesn't have to be competitive when I go out and play tennis or pickle ball with somebody like I don't have to win

but before I had to win because I'm a winner winners win Right like and if I don't win I'm a loser if I don't win I'm a loser if I don't win I'm not okay if I'm if I don't win all that stuff's going to Bubble Up from the basement and I'm going to feel terrible I used to literally lose in tennis and feel terrible for days another thing I would fight with my wife and I would go do a bunch of email it's an interesting Behavior why why would I do that well because I

get praised for doing email I get a lot of interactivity Oh hey thank you so much for that oh wow it's 11 o'clock at night on a Friday night and just had a blowout fight with my wife I'm going to go and do some emails because people are going to be like oh look how hard you work Friday night you're working so hard social media was deadening to me if you look at the peak of my social media sort of addiction it was it was probably 5 years ago to three years ago mhm why because

I could go online and tickle the ears of People and they would tell me oh this is a really insightful thing this is really cool wow you're so great because you know whatever validation validation it was praise how many likes did I get right yeah but I found myself my my personal relationship people who like are we optimizing our lives for the people who know us best or the people who know us least that's a question that haunts me I've watched a lot of people up close and personal who the more you Got to know

them the less you liked them and I mean that's honestly the lie that we all engage in right if people really knew me would they love me would they even like me right there are people a lot of people I've I've come in contact with they're bigger on the outside than they are on the inside like I want to be somebody that was me by the way like I you know I mean I think we all have this temptation right the Instagram pick of oh my life's Just a vacation everything's amazing right Twitter's the sort

of the intellectual version of that mm I think is these great thoughts yeah yeah have all this wisdom so wise now let alone my like marriage is disaster my business disaster you know all the stuff it's like well yeah but I can spout platitudes on Twitter and people will praise me for it right like that's the lie that's the Trap yeah this healing has occurred it's like I'm on social Media far less not because like I actually like genuinely want to help people and like when I have something to say that I think could be

helpful when I engage in conversation like I'll go on and like I'll engage in it but like I don't feel a need now to like hour by hour check and see how many people have liked whatever in my marriage I'm trying to be somebody who's focused purely on the good for the other focused on the good my wife like how can I serve her And love her with no expectation of reciprocity like it sounds foreign it would sound foreign to me like the view we have of every relationship sort of in that fear-based scarcity based

mindset is like okay well Alexis doeville called it self interest rightly understood right which is like I do things for you so you can do things for me like that's not true love and care that's loving yourself there's a rabbi who calls that fish love right he says you know we Treat our marriages like we do a a good fish dinner right where you're like oh I love this fish because it tastes good because it makes me feel warm because it you know satisfies the need that I have a desire that I have you're consuming

it right you're a consumer of that thing and I think that without a shift in mindset and the default Assumption of the world is we are all consumers of one another we are all eating one another including in our marriages and and Personal relationships and it's poison straight poison I want to spend a lot of this conversation on investing and sort of running a business but before we sort of transition one of the things that you said to me last night that I found super interesting was that you'd stop drinking unless it's a celebration tell

me about that well yeah the last couple years have been an exploration Of interior and exterior um and I think a lot of our exterior lives reflect the accumulation of our interior lives for me it certainly did I can remember the first time I was called a fat kid I was 10 years old and that was an identity that I adopted um I always was just a little more overweight than everyone else I wasn't like morbidly obese but I was just I carried a lot of weight I was athletic but I but I was a

little bit Heavier you know when I became an entrepreneur it was all consuming I mean my 20s were filled with I had to win at all costs I had to I had to put every bit of energy into being successful I thought that that was going to make me okay so my you know my 20s were filled with uh single-minded pursuit of achievement and I put on 50 plus pounds in my 20s I I tipped the scales at one point at 252 I remember hopping on the scale and I was like whoa I've gotten Big

I started uh beginning of last year at uh 23 fiveish so I was down from my Peak but it was just a battle i' been engaged in like a decade long battle with like I'd you know try this diet or that diet I'd try to work out some I'd make a little progress I'd slip back it was kind of like I had this set range I really couldn't couldn't get outside of it kind of all part of the same transformation occurring at the same time right like um I found out that Food was something I

celebrated with was something I turned to for comfort was how I expressed love and joy and care as my counselor said it sounds like you eat when you're sad and you eat when you're mad and you eat when you're happy I think you're going to probably be always eating and I was like yes I am always eating like I always have a pull towards food right because I because I was using food and by the way in a in a like there are more maladaptive Behaviors right it just happened to be one that you can't

hide very well but I was using food to to do a job for me and sometimes that job was you know in concert with joy and care and sometimes that that was in you know concert with pain um but food was like the tool of choice that would make me both feel out of control and in control at the same time and so as as those sort of things started releasing and the the the the junk that was underneath them that Caused that pain started releasing like I felt a real Freedom you know you I

I I wrote this publicly in my my annual letter this year like you had a huge impact on me and and it's funny how we don't and I don't think when you said it you realized like how impactful it was going to be but it was like a lightning bolt you told me I was complaining to you I think it was maybe January 4th or 5th of last year yeah and you told me that you know you're working out or was Like oh man yeah like I've got a news resolution I'm going drop some weight

you know whatever and it's just really hard to work out and I feel kind of defeated about it because it's like you you know when you know when you're headed to failure mhm and it like sort of that's the thing about dieting and that's the thing about these like short bursts of like like New Year's resolutions is like they head towards failure yeah because they're not Sustainable and so I remember you saying this one thing to me that completely shifted internally how I thought about health and you said well I just work out every day

it's part of my identity I don't have a choice if I'm going to work out I just have a choice what I do and I remember it hit me like a ton of bricks I was like oh my gosh yeah you're right and around that time another good friend of ours Patrick uh I was on the phone with him and um you know the best of Friends tell you the real truth like the Pinnacle of friendship is to tell each other the real truth the hard truth the truth that the truth that you gain nothing

from and you have everything to lose cuz that is true vulnerability that is truly giving the other person control and I remember Patrick took a risk and I said something I used to make jokes about being a fat kid right this is that identity that was imprinted upon me and they're funny people laugh at jokes About being fat right self self-effacing all stuff and he goes would you knock that [ __ ] off and it was like very Stern voice he was like not okay like I've heard you say this over and over again you

made jokes about you being F like not okay like you got to quit that you're not a fat kid he's like why do you do that to yourself and it's again this idea like we can't see each other we can see each other clearly we can't see ourselves Clearly that really flipped a switch in me that I was like I'm not a fat kid I'm going to be healthy I'm going to be a healthy person who part of their identity is I'm going to work out every day no I'm not putting my salvation in that

I'm not putting my goodness in that I don't think that people who work out are better than people who don't work out but I'm going to make it a core part of me that I'm going to like honor this body that's been given to me like I've Got one container in this life and it's important when I say basically every day like I am now I I I work with a couple people on the fitness side and like their their biggest problem with me is that I work out too much now like literally this is

not like a bragging thing this is like I love it so much now and this is something I hate ad door C I hated it I would dread it I was out of shape I mean I hated working out and so now it's like I feel the joy and I feel Privileged that I get to work out like I have an opportunity to move my body and to like experience this world and so whether it's going on a run or a bike or playing a sport I love pickle ball and tennis and um or just

getting to on a hike or a walk with a friend um I I love it you know the Greeks had this very like it's like body versus Soul like dualistic view like we are embodied creatures like we are one and the same that's not the proper view like our Physical health impacts our mental health and vice versa right um and so I've I've seen this like wonderful like I have more energy to play with my children and the relationships are better and like I can I can I feel better just in general so like you

know when you feel better and you can move better it's all this like it's like this virtuous upward Loop right an inverse downward Loop when when those things start to fail and so the alcohol thing Very very long-winded way of saying it um I just noticed that when I drank alcohol things felt hard and turns out uh alcohol is one of uh in men especially one of the biggest Inhibitors of testosterone and we think of testosterone as like the libido you know hormone or whatever and it is but like that's not the the point like

I wasn't like I was like oh well I'm you know drinking I was basically drinking almost every day and I was drinking a lot like I got to the point I probably drank to say this even now I would never in a million years have to find myself as like with any sort of addiction yeah and like I could not drink and be okay but I was drinking like three or four or five drinks a night every night like you know you get home and you open up a bottle of white and you're making dinner

we cook all the time we love cooking my wife and I it's like kind of a core part of what we do and you know we're making this Meal and you know the you you know open you know another bottle of wine maybe a red you have a little bit of that and then it's like oh man you know it would be really great T nice have a little age tequila or some CAC or something and you know before long it's like it really adds up and it affects your sleep and and for me I

just noticed like you know testosterone the best definition I've heard of testosterone what it does is it makes hard things seem easy and so when I drink hard things seem hard and when I don't drink hard things seem easier like I can very clearly tell and so I just said it's not worth it and tried to come up with other Alternatives and how to get the ritual of it and the specialness of it it's kind of like a you know you can mark your days right I mean I went for a lot of my life

it was like alternating between like caffeine was one part of my day and alcohol was another part of my day and now I don't Drink caffeine and I don't drink alcohol for very different reasons but both of them Health rated and my life is way better for it and I so I so my my my excuse now I shouldn't say excuse my the way I think about it is like when I celebrate it's the only time I let myself drink the interesting thing to me when we were talking last night is you mentioned you Ed

the word rule which I thought was really interesting do you have any other rules that you've adopted In the last couple years that have really helped you sort of unlock the next level yeah this is actually a huge part of a lot of these changes that I've made in my life as well what how we spend our days is how we spend our lives like our habits are who we are and habits are very sticky and hard to change uh they require a tremendous amount of focus um and it's very difficult to add multiple habits

at at once is what I found um Um I'm also not a personality that loves habits I I don't love structure I I really enjoy um the variety of life and so in many ways like habits great on me but I've really come as I get older to to appreciate the value of good habits and so the habits I I I try and I would say as I these are most days um almost all days um I get up and the first thing I do is read and pray um the I always try to tell

my kids And my wife that I see them and I know them and I love them and that there's nothing they can do to ever move outside of my love for them um um one of the questions I love asking my kids now is what do I do when you feel most loved and I really try to focus on doing those things for them um that's sort of the magic question that unlocks a tremendous amount of intimacy with anyone really any friendship if you ask that same question you you'd be shocked and I Think what

the answers you get because in my marriage and in my friendships in my relationship with my children to some degree like I used to try to love them uh the way I wanted to be loved and that doesn't work very well because really what you're doing is you're loving yourself by doing that and then I kind of went through a phase where I was like okay well I'm going love them the way they should want to be loved M that doesn't work well either why don't they love it why don't they love it right and

then I started really being like okay I'm going to pretend like I have no preconceived notions of how somebody wants to be loved and just gon to ask them I'm just gonna ask them and do you know it's interesting is most people both can tell you pretty quickly but but it's shocking to them what comes out of their mouth oh interesting so most people don't actually know how they Want to be loved like it's not something they think about and I mean you can use this analogy at work too right like you know a question

I'll ask somebody's like when do you really feel seen and appreciated I think this is the question we're all trying to ask is like how do we want to be loved and like really getting down on somebody's level with them and getting in the muck and the mer with them like that's real relationship let's switch gears and talk about Business a little but I think that the a good segue question is how do you balance love with operating and you're one of the best operators I've ever met in my life how do you balance those

two things where we're taught to come out everything from a competitive point of view which you do exceptionally well or did exceptionally well for a number of years and it made you a huge success and then how do you get the same results or better results Operating out of love well I think the lie that we tell ourselves is that if we don't act out of scarcity that there won't be enough and what that does is it isolates us and it shuts us down and it isolates and shuts down everyone I mean anxiety is contagious

scarcity is contagious as soon as Ian if you look at the game theory of scarcity as soon as one person acts scarce the fear ripples through the entire crowd And love is fragile care is genuinely fragile this either this fear mindset or this abundance mindset it's love mindset it requires a tremendous amount of protection in order to engage in it and look I'm not going to sit here and pretend that I would often make the same decisions if I weren't already in a position of of success you're operating out of a position of strength already

yeah I'm coming often times I'm already coming from position of strength I do Think though I would hope if I hit hit reset and I could go back knowing what I know now life is just way better no matter how you slice it operating from a position of abundance and love and care no matter if you have resources or not but money makes you more of what you already are right and so if you look at people with tremendous amount of resources who made that money through scarcity and through high competition and through uh stepping

on people on the Way up when they get to the top they continue to exhibit that behavior I think there are a number of people who experienced that and I by the way that was me in my 20s my 20s were filled with uh doing whatever it took to to to to make it and I would hide it and you know I'd do it in a more Gentle Way um but that my heart was scarce and I still battle this on a daily basis now so it's not like again there's no Victory declared here but

what is sustainable Long-term is not a sort of Mexican standoff with everyone in your life I mean that's how most business is done it's like there's power structures and it's like well I'm going to make myself indispensable so you can't get rid of me right and it's like oh well I wish I could get rid of that guy but I can't right it's like that's a horrible like confrontational competitive scarce mindset to be in business I feel like this is the norm unfortunately it's Really the norm in the finance world I mean I I feel

like I've I've um I felt backwards in the finance um I've joked that I'm the force Gump of private equity and it is as scarce as it gets I mean it is all zero sum is how it's treated as we've moved towards a position of abundance as we've moved towards an ability to try to treat people with honor and care and create win-win relationships I mean that's really what we're trying to do um you Know one of our mentors both of us Peter Kaufman talks a lot about this right as like the only sustainable long-term

path is that everyone has to win or it won't work if there's any losers in a system it's not sustainable so I think that's just something that we we've really tried to pursue and so what does that practically look like I think is is a question right um it looks like not protecting yourself always all the time but giving people the ability if they Want to act scarce to do so but in like lower Stakes ways so like one of my favorite things to do is is be almost open myself up to being taken advantage

of early on in a relationship so if they do then you're like okay great like and by the way there's no judgment in this it's not like how dare you or I'm somehow better you know whatever it's just hey I just don't think you're in a position right now I was there before but you're not in a position right now To be able to engage in our system because our system requires a tremendous amount of mutual trust and care mhm now again we're imperfect we screw up all the time we're asking for forgiveness all the

time we say sorry all the time it's not I don't want to paint this picture of like idealistic like we got it all together we got a lot of things to work on right but I think most of the people are trying to operate out of a position of abundance most of us are Trying to work towards wins for everyone we're trying to be thoughtful with not just the buyer and the seller you know private Equity so we buy businesses we're not trying to just think about the buyer and the seller buyer being us seller

being the person who's selling us this thing we're trying to be thoughtful about the the executive leadership teams at these companies we're trying to be thoughtful about the employees the rank and pile we're trying to be responsible And and be thoughtful towards our customers and our vendors and the communities maybe even Regulators depending on the situation what does a win look like for a community that we purchase a business in I don't know it's an interesting question I think it's different for every business what does a win look like for the construction worker on a

job business we bought there interesting questions to ask right we can't make anybody happy we can't Make anybody fulfilled but we certainly can create an environment that that allows more for them to be happy free fulfilled this is where I think for the rest of my career the the engaging part for me is it's not been about money for a long time like thankfully that was like I've not had to worry about money for a while now for me I'm like wow what if when we buy a business not only is the work environment better

maybe we allow them provide the environment um Maybe show them a better way this idea of like Everything's Relative right maybe we can show them a better way where their marriages get better and their friendships get better and their relationship with their children get better they're more engaged people they're more active because like I don't want people who are working 80 100 hours a week every week now look there are weeks where I work 100 you know 100 hour weeks um sometimes you got to get stuff Done right so there's no shame in that there's

no but but if that's your Norm like you just cannot sustain a healthy lifestyle healthy relationships healthy physical body working that much consistently just no way there's not enough time in the day to do it and so like I don't want people who are sustainably like like the the whole um Finance world is full of just you know chewing people up and spitting them out they use people as objects right and They throw them away when the object doesn't become useful I mean my fantasy and this maybe you know how you look at delusions of

grander Illusions a grander uh is could we show people a better way that actually you create higher returns long term by treating people well um you create higher returns over time by using little to no debt as weird as that is in the finance world and believe me I know all the people are watching this I get the math you don't have to send me the Math I understand how leverage works I can do I can do the math too but I think there's real value in in examining why why is it that we have

a system especially in the Leverage byout world of private Equity where the norm is buy lever strip and flip right I'm going to lever this business to the Moon I'm going to try to use as little Equity as I can I'm going to try to sell it as quickly as I can to Generate the highest return I can there's no way to make good long-term decisions with short-term capital with short-term time Horizons there's no way and by the way what are we doing If all we're there's no way to create a long-term enjoyable sustainable Life

by having a series of short-term transactional relationships that you move your life through that's where you end up with these people who can buy anything who've made hundreds of Millions not billions of dollars who are miserable like I've met these people like they have their irr etched on their Tombstone like no one gives a [ __ ] no one cares at the end of the day like David Brooks I think calls them like eulogy virtues yeah yeah like no one at somebody's eulogy was like he was a great man made a ton of money hated

his life hated his wife but he got 26.5% right IR but that that net irr wo Boy let me tell you yeah he was the one one of the best yeah I mean and look we admire greatness like we're we're a society that worships outliers and so you're not wrong to play that game that is a game to be played there is a game there and it does lead to certain things that are good it also makes you lose your soul and also I don't want to give the impression like we are trying to absolutely

shoot the lights out in Returns yeah just in a different way how you go about it your your way is more sustainable and and there's a couple things I want to follow up on that we talked about there going back to the first part allowing people an opportunity to almost take advantage of you often I find that the first request by somebody is very telling or the first offer here's what we want here's what we need from you and if that doesn't come across as Fair it's like the biggest Signal in the world that it's

like oh this is probably not a relationship that is going to be win-win I'm going to have to work to try to make it win-win but you've you've given me this valuable piece of information on day one without even intentionally doing so amen but I also I would say is the slight twist I'd make to that is and give Grace that like I will fall down you will fall down and make offers to people even though maybe we actually are like in a heart space Most of the time that's not transactional yeah this happens to

me all the time where I will fall down and and and and do something transactional totally and so it's like what I often do in that situation is say hey maybe this was unintentional maybe you're having a bad day whatever the reason this came across to me as transactional if I misinterpreted it maybe not understand what you're actually that sentiment underneath it but it feels shortterm Feels transactional feels extra ractive in what you offered did I misunderstand and usually that reaction the more defensive they are the more kind of like what are you talking about

right like the water we swim in culturally is transactive extractive it removes control it says it says you will be okay if you can build your own kingdom so like it's perfectly normal for that to be the way people interact and trans like that is the norm so like I just want to be careful with how steeped in that somebody is and how much they've realized that maybe that there's a better way and what I don't want to do is I don't want to I don't want to come across as judging them or condemning them

oh of course based on that which is a real danger right because I mean you can you can get self-righteous pretty quickly it's just a signal right it's just a signal if anything even if they are highly transactional and and sort of My my like I have this like it's like a weird feeling that rises up in me it's like a uh like I don't know Spidey s right it's that I think it's like a protective thing where you're like okay I can feel myself rising in in competitiveness rising in scarcity to meet their scarcity

and I'm like Oho I don't like that that's that dirty fuel that I feel like it's almost like a direct injection yeah of dirty fuel into my system and I'm like o yeah and then It's like okay well even if I say hey I don't think we're in a position right now to probably do something on this or like I don't I don't think the system it would work for you engaging in the Sy system right now try to show them a better way and encourage them don't condemn them right I think that's the thing

that we try to do now often times I think people don't take it as such it feels I mean look if if somebody makes you an offer and you decline there's Rejection in that M and again I totally get this because I feel this way is when you get rejected it touches things that are way deeper than just that mere surface level rejection totally so when it travels down and starts ping ponging around and hitting all those things down below that's where you get these outside reac outsized reactions to things and and again the response

that you want to have is when you see somebody have an outsize reactions to be can feel stupid Belittle them conflict pattern is something that I uh really have enjoyed studying um so we all have three basic Moves In conflict um and and actually if you watch these it's it's fun like now it's like a whenever I engage in Conflict I like I know my pattern and I very much know my wife's pattern and uh I I like I try to guess then other what other people's patterns are you can watch people like go through

these phases but there's a uh it's Called move against which is like no you're wrong screw you I want to like make you submit to me right like it's it's like very much like a force submission right so this is somebody who gets up in your face who's yelling or who's like kind of like talking down to you like a very very confrontational right that's kind of like one phas and by the way again we do all three of these we just depends on the order but we all have an order to How we do

these things and then by the way how they interact with one another is super interesting as well um the the the second one is is move towards the person so the first one's move against second one's move towards move towards is we need to be okay I'm not okay unless we're okay let's just gloss over whatever's happened it's okay it's it'll be fine you know let's just water under the bridge let's just move on right let's avoid it it's avoided well it's Avoided in a way that is it feels very relational but it's actually not

cuz it's not for the good of the other it's actually for their good that they want to to to have things be okay MH um but it actually doesn't address the underlying issue at all and then the third one is move away so this is to isolate and so if you watch all of your conflict will follow one of like we'll follow that pattern talk to me about debt and your your thoughts on debt and The optionality it gives you and when it's appropriate when it's not appropriate debt is not a source of return it

is an amplifier of return so it makes good things be great it can take mediocre things and Destroy them and of course it takes bad things and nukes them the the higher your confidence in the predictability of the future the more debt you can use I say can use not should use in a perfect world of perfect information where you And I own a business and we're like it's a recurring Revenue business um we are for sure going to make unlevered we're going to make $2 million this year $3 million the following year $4 million

the following year and it will go up exactly $1 million in free cash flow every year into the future mathematically you can create a formula to know exactly how much debt you can maximize in that business you pull out the equity the Equity returns look out of this world incredible and because you know exactly the future is there's no risk in that so businesses that have high predictability of revenues and incomes and feel like that they are um well I shouldn't say feel in this case since we're creating a scenario they know that outside events

are really going to not affect them then they can lever a tremendous amount and it makes complete perfect math sense um the reality is that um the world I Believe is largely unknown and unknowable the future is is is murky and so it is a form of pride hubus to use more debt than you should now I this is very broad this is like you know 60,000 foot because Everything's Relative right how much debt should you use in the world I play in we are buying Loosely functioning disasters that sometimes make money I mean these

are small to medium-sized businesses call it3 million to $20 million of free cash Flow you know my general view after looking behind the curtain at thousands and thousands of businesses is that all businesses are Loosely functioning disasters like whether it's a not for-profit or for-profit or government institution like people are messy when you get multiple people together that mess compounds when you get large groups together groups together that mess compounds even further it's exponential and the volatility of that messiness is Tremendous and so when you get to a smaller end of the market these are

for-profit companies that are making between three3 and $20 million a year free cash flow the volatility of them is tremendous um and hence the price that we pay is on average less than because we're we're paying to accept that risk so all investing at the end of the day is the Assumption of risk the ideal investment scenario is you are assuming a risk that is knowable um you are being Paid more to assume that risk and you have some ability to mitigate that risk and that's what we're trying to do in our business we're trying

to find things that are highly risky right because we wouldn't pay the price that we were paying for them if they weren't highly risky but that we have talents and relationships and systems that we can diagnose what the risks are properly analyze the probability and the magnitude of that risk and then work to Mitigate it and that's where our Returns come from the math to me is far less clear that over the long term debt makes you more money I'll give you an example this we bought an aerospace business in the fall of 2019 I

don't know if you know this Shane but Aerospace never goes down it's always flat or goes up we were told by by some of the people advising us on that deal they were like are you guys did you guys get dropped on your head as A child or something like you're not putting any debt on an aerospace business like what is wrong with you like this is tons of assets highly lever like Banks would be happy to provide predictable it's predictable look at the of the of the business and we said yeah we don't feel

like that's a responsible thing to do again debt only helps the buyer and the seller it doesn't help the leadership team it doesn't help the employees it doesn't help the Communities it doesn't help The Regulators doesn't help your customers doesn't help your vendors there's all these stakeholders at the table that it doesn't help but it does help in certain circumstances the buyer and the seller which again if you sort of play short-term games Win short-term prizes area of SC non-recourse debt heads I win tals you lose there's a lot of incentives to use debt irresponsibly

you know I think that Most private Equity firms look at you know they're the gas and the bankers of the breaks and they'll just do whatever the bankers allow them to do and it's sort of up to the bankers to say no and so our Aerospace business um you know we were called idiots I mean actually even on Twitter I think when we came out with our annual letter that year people were like like Finance Bros were like you guys are morons I was like maybe and often times we are morons and Which is good

to be called out for it but like in this particular case I don't think we were and this is obviously way before we knew that there was going to be a pandemic um and you know this idea of like did we get lucky do we get good I think you can know that things are not going to play out the way you want them to and prepare for them not playing out and keep optionality open which is going to decrease your returns in any given year But give you the ability to survive over for decades

so pandemic rolls around and we're worried um you know demand in the industry uh in our segment went off at one point by 88% we started to struggle and we looked at it and we were like okay let's and and by the way the the leadership team there did an incredible job of maintaining positive cash flow every single month through the entire pandemic everyone else was negotiating With their Banks everyone else was firing people and we were the only ones hiring and we were Building Systems and we were taking risk and we were able to

do that because we didn't have any debt everyone else is tied up we we didn't we weren't tied up and the alternative is we lever the thing up and for I don't know four or five months we get a better return and then we negotiate with the bank hopefully we Salvage it maybe we have to Inject more equity in down the road uh we're sure as heck not hiring we're not buying parts packages for pennies on the dollar we're not setting up for 10 years of future success and growth uh we're not you know implementing

new you know Erp systems we're not implementing new process and ordering system it it the whole thing was basically gave us two years to completely rebuild that business from the ground up and to see the fruits of that is astounding the Business is dramatically worth more than it was when we bought it in spite of having a pandemic and dramatically decreased demand we can't predict the future when I was talking to Chris Davis who's on the board of Berkshire he he mentioned it's a strong signal if you're looking for a good business that they don't

have any debt or they have very little debt uh because debt mask so many things and the fragility involved is just off the charts and people don't Realize the risk they're taking and there's a also a world of difference between Deb at you know 2% if you can get long-term debt at 2% versus uh sort of now S 8 n even higher uh depending on the circumstances and when people enter into a debt transaction they just assume that the world is going to stay the exact same that it is today and I'm going to make

the same Revenue the interest rates aren't going to go up they'll only positively surprise me to The downside and then you find out that that's not the case and then you're your all of your free cash flow effectively starts getting consumed by debt and it doesn't take much it takes like a 5 to 10 % downturn in the business which is a perfectly normal business cycle reasonable cycle to then throw the business into chaos yeah like I I would I can't imagine being an operator and by the way we've never seen a business that we

Want to purchase ever in the history of the firm that has debt on it like when we buy it that has debt on it like no families get Wealthy by being like Oh yeah we have this great operating business like let's pull a bunch of a bunch of income from the future into the present and lever up because that would be awesome so we can increase our consumption temporarily so we can buy a bigger house like no one does that and for a very good reason like it doesn't Make any sense but somehow we've gotten

ourselves as an industry in the finance industry into this position where it's like it makes no sense how families build businesses by the way every business starts as a small business every business starts as a family-owned business they then take a business that has been operated a certain way for a very long time gone through ups and down survived for 20 30 50 100 years maybe And then all of a sudden it's like actually what we want to do now is completely gut how the business operates and runs we need to hit it with the

steroid needle we're going to get we're going to jack it up with debt we're going to strip it of a bunch of cost structure we're going to hire a bunch of new people who are going to do amazing things in a short period of time and then we're going to flip it to somebody else and and by the way once you get on That treadmill like once you sell to private equity traditional private Equity do a leverage buyout that that business is forever going to be flipped to the next person or eventually might get sold

to strategic but it it it forever is relegated to a lack of Independence like it will never be an independent ongoing concern for very long after that there's just no no examples of this so for for us like you know I don't think we're smart I don't Think we're trying to be Geniuses we just look at like okay the whole world is built on an entrepreneur or small group of people entrepreneurs getting together creating something that the world needs it's hard they built it over long period of time they inherently acknowledge the fragility of it

we just want to continue to honor them their legacy honor the all the stakeholders and all try to win together over the Long term and I couldn't imagine a worse thing to do than to put debt on that and I think people Miss over the long term the lack of debt actually works out better but it for the short term and I have the saying which is the lack of patience changes the outcome and so when you lever up to get your your immediate returns and then you're like sort of like playing with house money

uh you can sort of justify almost any Behavior and when you think longterm like a family thinks of a business and you sort of go well we can't do that because what we want is optionality you missed the fact that what you guys did you had a period of two years where you made more progress than you would have in probably 10 or 20 uh where you're strong and you're operating from a position of strength and it's almost playing on easy mode in a way right it's like oh like now we can expand our Business

uh people are probably discounting Parts uh at these fire sale prices we can stock up on them uh and our margin's going to expand because of that we know the business is eventually going to come back I mean I think it depends on how you look at our roles are we owners and I'm not talking about legal definitions here I'm talking about mindset yeah if you own something it is your property to do with it whatever you want do anything you want with it so Like the the push back to everything if I was going

to strongman the opposing argument is who are you to tell me what risks to take oh you can take it who who are you to tell me how to how to how to run my business like I own it I can do whatever I want I used to feel that way big shift for me was becoming a steward right it's this idea of stewardship and not ownership so the way I look at it as families are entrusting us to be stewards of their company it's A responsibility that we have yes we get benefits from being

a steward yes we get to share in the fruits of the labor and progress of the company but at the end of the day my job is to make sure that these businesses you know remain intact are healthy and when you look at it from that position the world becomes a lot clearer what's in the best interest of of of everyone else but also me I mean I don't want to do things that harm us but If we align incentives properly things that help us should help everyone else and vice versa like we will be

taken care of if we take care of our people we'll be taken care of if we take care of our customers like it's not a complicated thing but I think again are we owners or are we stewards or I think often families take a stewardship mindset of ownership it's it's the exactly um it's interesting to me the the I try not to judge other people for What they do or what they choose cuz I mean we're each playing our own game we're each sort of like doing what's rationally makes sense for us given everything going

on in our life and if we switch shoes we'd probably see the world very like very differently than we do but people I think they just underappreciate the fact that you are not thinking about really what you're doing over a longer period of time And if you structure your thinking stewardship is a great example over a longer period of time you eliminate a lot of poor behavior that you would otherwise get or a lot of things that can take you out of the game yeah for sure let's talk about incentives how do you set incentives

for the CEOs of these businesses how do you think about them uh walk me through one in detail for example yeah well so the I think the ideal system is everyone's Eating at the same table right so there's not different tables that the food Falls onto one and then Falls to the other right everyone's everyone's incentives are aligned to to achieve the same goals and for us when we look at traditional private equity and the traditional 2 and20 model right so on the amount of capital that you have either gotten to invest or have invested

depending on the terms of the agreement With your uh limited partners you get a 2% fee uh annually that goes to covering your overhead costs and expenses of operations of the firm the seeking out the doing of the deals the um the oversight and governance post close and then you once you pay them back with a return typically um 6 to 8% maybe 10% depending on the situation then you get to share in the upsides of that and you know the LPS the people supplying you with the money um provide you that Capital for usually

in private Equity 10 years roughly which again goes back to time Horizon 10 years sounds like a long time Shane isn't that plenty of time to buy a business and hold it maybe I think if you talk to most private Equity people they would say it's not the deals that they did that that like really hurt that they did that went poorly the ones that hurt the most are the ones that they were doing great And they could see a long future compounding that they just had to sell the business you're like but 10 years

is a long time MH but the reality is it takes time to find a business get the transaction done there's a sort of initial phase getting to know the business you know once you buy you really never know what what you actually buy no matter how much due diligence you do you don't really know until you get into the into the weeds post close so There's a period of orientation then there's a period of of In traditional private Equity growth and trying to hit some sort of metrics to then sell it to somebody else which

by the way selling takes time too so you got to buy it takes time you got to operate it takes time you got to sell it takes time so they're really at Max if you if you hit it perfectly in the fun life cycle maybe you get five years five years at most most private Equity firms now are targeting what they'd like is 2 to three years so from the time we buy something till the time we sell it is two or three years again maybe four five if you get past five it's really distressed

at that point like you're you're trying to look for you're trying to get rid of it and you can't when we think about incentives uh an incentive for ntional private Equity would be Shane I'd like for you to come on I'd like you to run do us do a tour Of Duty right the tours of Duty is kind of the way that that that leadership has done and traditional private Equity once you to tour of Duty it's going to be 2 to three years look you're not going to see your family much you're going to

work your tail off um but there's this pot of gold at the end of the rainbow if you can get us our returns you get our investors our returns then you get to share in the upside uh of that it's a highly levered bet of of sort of your Time and attention and we think that that doesn't make much alignment this is where you see private Equity detonating companies this is where you see lots of problems I mean private Equity you know as an industry when I tell somebody I'm in private equity it's like we

look up to lawyers and reputation these days you know lawyers have a better reputation than we do and for a very good reason like there's been a lot of bad behavior and by the way the Incentives are for the bad behavior all the polls of traditional private Equity leverage byout model is towards bad behavior short-termism treating people poorly yeah cutting all these things that that hurt I mean you're you're damaging when you fire somebody you are hurting not just them but their entire family their friend group like you're you're you're hurting communities now it's also

not healthy to keep somebody in the role that they're In because you want to fire them that's not healthy either that's not kind nice that's not kind we can talk about that as a separate point for what we are trying to do though is we're trying to have a complete perfect alignment between our LPS us and the people who operate these businesses on a day-to-day basis so we're trying to all E from the same table trying to use the same metrics practically what does that look like we Are are I used to say unusual in

our fee model now it's Unique I mean we couldn't even get audited right out of the gate because no one knew what to do with us we take no fees of any kind no reimbursements of any kind there's no cash that comes from either our LPS or the companies to us zero guaranteed Revenue which you're like how do you run the firm thankfully when we started the firm we again we were operators so we came in with cash flow and with Businesses and fell backwards into this whole thing of private equity I remember um the

first deal I did I I it was close to Accidental as you could buy a business I bought it I remember my lawyer um he was like we just got to due diligence I typed into Google do diligence due diligence media cross yeah it was media cross we still own it today I I remember getting that deal done and I called up a friend who was like my One Finance friend from undergrad and I was Like hey I did this thing like I think it's a good deal I don't know he goes oh you did

a private Equity deal I literally Googled private Equity I most of my career to Google um and when I started studying it I'm like what this doesn't make any sense like all the incentives are off and so what I said was when we came in and we were you know we ended up taking outside capital for the first time in 2017 I was like I don't need your fees Like I don't want your fees I don't want the incentive to gather more and more Capital which forces you to go up Market we can talk about

that um I said and I don't want to I don't want to be able to win when you lose like I want a win-win or a lose lose situation like I am willing to take the risk I wanted to be entrepreneurial because that was my background like I was an entrepreneur and so we have a model where we take no fees of any kind no reimbursements of Any kind from the portfolio companies or from our LPS we get a percentage of free cash flow as we return cash back that's how we share with our with

our investors Well turns out what that does for us is it gives us the perfectly aligned ability to if there are high return high probability projects to reinvest in the portfolio we would be idiots not to take the cash defer gratification and reinvest it often pre-tax at high rates of return with High probability that's what any family would do right that's what we do that's what our investors want they they want to defer gratification we want to defer gratification and the same thing we want to incentivize our our leaders to do the exact same thing

so oftentimes the metrics that they're measured on is on free cash flow but again it's not free cash flow in a short period of time it's free cash flow over a long period of Time so when we don't have to do with the capital high probability High return reinvestments the dumbest possible thing you could do is keep a bunch of cash I call the bladder problem right the more money you have the more likely you're going to piss it away yeah this is where you see these businesses being run in ways that you're like they

are they are murdering money they are destroying Capital how in the world are they getting away with this and it's like Well they're Kingdom building they Fusion building their incentives are build a bigger business because by the way you hire the compensation Consultants that tell you well yeah the team that that same team and they haven't really made a great return but the business is bigger and by the way bigger businesses command higher salaries so you play the game it's a bigger business it's a higher salary more comp it's like their incentives are Off the

firm who bought them they're two and 20 buy lever strip and flip their incentives and the leadership teams incentives often are misaligned LPS are misaligned everyone up and down the value chain of the traditional private Equity structure is misaligned now there's so much money flowing through the system and there's enough safeguards and there's enough discernment over a long enough period of time it all kind of has worked you can make an argument That when rates are continually decreasing for the better part of two and a half decades interesting weird distortions happen in the market we

just want a perfect alignment so we want that operator in the business to say the first thing I want to do is keep a healthy business with strong cash flow keep the Golden Goose cranking out eggs second we want to take the proceeds free cash flow and look for high return high Probability projects in the companies if we can find them especially pre-tax fantastic reinvest the cash they want to reinvest the cash because now they reinvested $100 and now they've got $25 more dollars every other year following that we love that too we'd be happy

to defer we're getting $25 as well ourselves now our investors are like of course keep the capital you've got great things to do with it keep it so up and down the value chain we're Completely aligned when we should hold cash we do and reinvest it and when we don't have anything good to do with it we send it out so is it a simple sort of like two variable formula for all your CEOs then or in terms of free cash flow and invest to Capital yep everyone's just incentivized on that and then do the

the CEOs get a compensation on the cash distributed yep often times yeah I mean it depends on the situation where sometimes having the CEOs are rolling Forward uh quite a bit of equity depending on the situation so sometimes they're getting you know Equity or getting cash kickers on top of that but oftentimes they're you know 10 15 20% owners in these businesses and so the incentiv is naturally baked in we love that we like we don't want to buy 100% of a company right like if we have our choice we're buying 51% to 70% of

the business and we want we don't allow non strategic actors yeah we want people who Are actively engaged in the business to own the remainder how do you think about hiring and firing CEOs how do you know you have the right CEO and how do you know when it's time to to move on it's hard it's hard and it's messy uh the is the answer since we're talking about comparing us to traditional private Equity I would say it's one of the things that traditional private Equity has gotten done better than us in some ways is

is held people accountable I Think they go they go too far in One Direction I think we've just being honest and and transparent about it we've been tolerant of a lack of performance to a degree that is unhealthy not only for the companies and the returns but also for the people that are engaging in that behavior and this is an active area of discussion right now in The Firm I mean I'm I'm I'm giving you a like a real live view of what we're discussing and ultimately It's a failure on my part like I'm the

CEO I'm responsible for setting the tone and I deferred too much early in my career to the promises and to the optimism that things would get better when things weren't great and if you look at where we have really succeeded is working with people who were doing well and making them better where we've really fallen down as a firm is when things get dicey uh we tend to defer to relationship and we tend to trust the People that we have even when there are many warning signs that things have things are not okay and I

would say this is the nice versus kind principle we've screwed up being kind to somebody is saying hey I think you're in the wrong role and they're stressed out their lives are not they're not enjoying life they're not enjoying their role they're fear-based right when you get into a position where things are not going well and you don't know why and You don't know how to get out of it it's terrifying and part of what our role is is to help people we look fundamentally is like we our job is to serve and help others

if we can serve and help others succeed we're going to succeed our LPS are going to succeed and to be honest we've screwed this up we have not done a good job of getting people the help and moving people into roles that they should be in or or having them move on to outside roles and we need to do Better at it does it ever work to change I I mean I don't have a ton of experience with this working out maybe you do were you change a role like hey you're CEO but you'd really

make a great CTO in the same company because then you create all these internal politics of like who do I report to and my loyalties to the person who hired me and where is it just easier to sort of like transition and move on I mean it would that would be wonderful to be able to do That I think that a lot of people's careers would benefit if they had the humility to to be able to do that fundamentally we all struggle with pride yeah and we can't see ourselves clearly like we are a mystery

to ourselves and what we how we see ourselves in our talents and our weaknesses is often different than how other people see us this is why we need each other this is the whole point of relationship this is the value and the this is the the terror Of where we've gone as a side note with social media being so isolating with with not having inperson relationships like this is no wonder that deaths of Despair and suicide attempts and anxieties through the roof right we would love to be able to take to somebody hey you're in

the CEO role or maybe the CFO role or whatever it is and we need you to take a step back you know in order to move forward careers often die by Suicide not by Homicide like it's not double click on that over and over and over again I've watched this tragedy happen which is the Peter Principle someone Rises and they rise beyond their abilities and then they can't take a step back they're their pride their ego they their identity is rooted now in their title in their position and and you say to them we love

you we think you're awesome we'd love for you to continue to be with us the role you're Currently in is hurting you and hurting those around you and hurting the company and they'll acknowledge that and then you'll say great could we get you into this role no absolutely not people fight claw for territory Kingdom building it's hard to go from being King still may be an important person in the Kingdom but you're not the king anymore it's it's hard it'd be hard for me too would I be okay with rlps coming to me And saying

Brent I I don't think you're the right person to lead permanent Equity I'm not going to lie and be like oh that'd be a great conversation to have I hope that I would meet it with curiosity I'd hope I'd meet it with self-reflection and say wow I really want to hear I mean I I think I disagree but I want to meet it with curiosity and see what they have to say and see if I could discern out of it maybe I'm not in the right role what if You learned about hiring people that most

people Miss well another Journey I've been on speaking of of of these like added tools in the toolkit is I've really become much more familiar with different personality testing and um specifically like I I you know I've looked at a bunch of them I really like the combination of Myers Briggs and inag if you think think about our business as um you know we we take money and we turn it into more money I Think you miss the most important thing that we really do which is our whole business is predicated on predicting the behaviors

of people like if we can predict the behaviors of people there's no way to lose and when we don't predict the behaviors of people we're almost certain to lose like it increased in incredible volatility into the system if I think about my job as CEO I need to be helping our team to be The most thoughtful well-educated up to speed on predicting human behavior I mean this is where the knowledge project has been super helpful the work that you've done collecting the best of what other people have figured out getting it distilling it right I

mean this is what we're all trying to pursue and specifically around the wisdom of clicking over these lenses that these personality tests provide and giving you a framework to to create Empathy and create predictability in relationships I think that's probably been the biggest Leap Forward and what most people get wrong is most people don't understand why people are doing what they're doing don't understand how they should think about incentives based on the person themselves and not just the financial incentives and don't have much empathy for how other people react so take things personally that aren't

personal you know everyone acts Rationally in the Moment Like This is the like the heroin addict who's choosing heroin over eating a meal or you know leaving their family in that moment believes they're doing the right thing for them believes it's rational to pursue that hit versus do everything else so the question you have to ask yourself is why right and same thing in companies same thing with leadership in these firms like the question is why what do we Think why did that person go off the rails or how did that person suddenly disintegrate before

our eyes or why is that person performing so incredibly well and so these different personality testing it it doesn't no one's a box no one is a you know in the 16 types for Myers Briggs or whatever it might be there's there's no grouping that will perfectly describe anyone that's not the point the point you've you've missed it if you think that you're going to put Somebody into a box and it's going to predict 100% of their behavior that's why I like having multiple of these that kind of give you a a 3D look at

people I mean my experience is it was an eye openening I assume that everyone else operated the way I operate I assume people wanted what I wanted turns out I am weird so are you so is everyone you meet they're they're weird because they're they're mixtures of all these different axes of how we sit on these Things right and how we how they interplay and interact with one another but I can tell you as an example once I understand sort of the four axes of Myers Briggs so where do you gather your energy is the

first one so this is introverted extroverted this is not how you show up in the world this is where you gather energy so introverts can appear extroverted extroverts can appear introverted that's where this like sort Of you get these very um basic ideas about how the world works and you sort of hear like a little bit of these things and you get misperceptions of what they actually mean so it's really important to understand are you getting your energy from inner life or are you more solar powerered right getting your energy from from other people and

from the world the second one is how do you process information are you in intuitive or are you high sensing this tells you a Lot about where somebody starts in how they think about life so sensors think about life in the present they're present oriented they walk from the present into the future they're very practical they're very reasonable they're very rational people intuitives like maniacs like me we start into the future and then we walk back into the present so we get excited about ideas we're like oh we Vision this these this future oh what

might that be how might That work what might we do who could come along with us right and then somebody says a sensor comes along and says excuse me um I'm I'm glad that you're 10 years in the future right now and you have these you know grandiose visions of where you're going um we've got to make payroll this week and by the way the that's on fire and that's on fire and like we need to be here so you need both right that's the beauty none of these like being introverted or Extroverted they're just

strengths and weaknesses right there's always upsides and downsides to each one of these but once I can tell okay where's somebody power from right how does somebody process information the third one is how do they make decisions this is a really important one so thinkers and feelers two basic categories thinkers are all about ideas and about truth so they're seeking truth they're seeking ideas They're very uh achievement oriented they want to get things ordered up and neatly packaged that's how they make decisions so they're making decisions based on what is truth and how am I

seeking feelers on the other hand by by the way most men are thinkers so 70% of men are thinkers 30% are feelers 70% of women are feelers 30% are thinkers when we go back up to the sensing and intuitive it's about 75 25 sensing to intuitive so 75% of people are present oriented 25% are future oriented and so I'm like this super weird combination right where I'm external focused I'm an extrovert who is intuitive so right there I'm in the 25% right uh introvert extroverts 50/50 um in 25% and then I'm in the 30% of

men that are feelers so feelers base everything on relationships and values so we feel our way to decision- making it's how will it impact the world around me how will it impact my relationships How will it make people feel now again it's not like I don't have a rational side and I can't consider ideas and it doesn't mean a a thinker can't feel anything that's not the point the point is which is the primary lens that you look through in life right then the last one which is really interesting is lifestyle this is a J

versus a p a judger versus a perceiver and it's really about how you like to move through the world uh do you Move through the world in sort of an orderly way do you like structure do you like to you have a decision to make you gather information you make a decision you move on right you you like things structured or are you a maniac like me who is a perceiver who is kind of open for whatever I loop on things I need forced I need to be forced to make a decision uh I need

a deadline um to to do things and so again if you understand people based on these these four Parameters then you could really have a lot of empathy like my wife and I did this um personal testing together in each other's presence and I'll never forget my uh you know we're going through these lists of like are you more like this or you more like this you know whatever and she's like of of course this like only an Maniac would be that and I'm like yep I'm the other one and literally at one point she

looked over and and I could tell but like look on Her face I was like I have children with this man like what like who is this right but again we're all in our own heads like we think that the world works the same way but for us it created a tremendous amount of empathy like she the how I made decisions and how she makes Decisions by the way we're opposite on every single category you can imagine that might create some friction in a marriage same thing in work relationships right right you ask What do

people mostly get wrong I think we get wrong is we assume everyone like us and so if you have a certain attribute set you tend to want to look at the whole world through that attribute set and say oh well everyone I hire should have that attribute set yeah and if they don't they're bad they're bad fit which is totally not true and so we think about a lot of this stuff as we are recruiting we think about a lot of like okay what are the things that we're Asking this person to do and what

type of person would be good for that and then the the other one that I've really enjoyed as inag because it it really shows you what is your underlying insecurity and what are your primary drives so there's nine numbers and each one has a very different set of pluses and minuses strengths and weaknesses and so when you're able again none of them are perfect you're not it's like Oh I'm a b personally like I'm a 32 Okay right which in anyr means I'm an achiever and I'm like a kind of a people pleaser like I

like to serve um which sounds oh he's an achiever and likes to serve people like that's again like look at it no no it comes with huge downsides like my worst fear is I'm not enough my worst fear is if people knew me they wouldn't like me I'm adaptive to other people and so it's like do I know the real me like my my serving of others quickly turns into people pleasing do You give people personality tests as part of the recruiting process yeah we we do yeah we we really and and by by the

way we don't um automatically ask people as part of that like it's not like we're like oh if they don't fit this exact personality then but what it does is it allows us if we're getting you know it's it's usually when we're pretty serious with a candidate right so we're trying to make sure that we're what we don't want to do is we don't Want to project onto them what we think they are and then come to find out later that they're not actually capable and so when we get really serious kind of down to

the final like 3 to five candidates is usually when we start testing and they often learn things about it and sometimes we actually had this happen recently somebody was like I don't think based on the testing that I went through and all that that I actually would be good for this job they opted out I want To switch to Acquisitions so I think a good way to to dive into this subject is what's the Playbook when you take over a company so you you go through a process internally uh you come to a decision do

you guys write memos internally yeah we do what's in that memo so we are um describing the what I would call the overall situation of the business um who are they what business are they in how does it work we we also think about like what is the core action of the business So often times things our favorite deals are ones that look weird or different on the surface there may be a little furry fuzzy things on the deal or they're misunderstood and hence the price and the connection between the the price and the value

is is is off right so we're trying to look for mispriced opportunities and so so in order to be mispriced means that something about it is either risky that we can we're doing jobs right you know this is assuming We're we're correct in how we do this not always correct but we're trying uh means that there's a Divergence between the risk and our ability to mitigate it and other people's ability to mitigate it right or there's a lack of information that the other parties have based on their ability to dive into the into the um

weeds on a deal and so uh we like things that are misunderstood I'll never forget um this the second large deal I did was on a a pool business that We still own we've never sold anything so I mean we still own everything I shouldn't keep cave Ting that it's not like we've sold anything so um but the pool business I remember talking about it with you back in the day and you know most pool builders get big because they partner with uh development firms and they go through these massive boom and bus massive boom

bus cycles and it's feast or famine all the Time the other thing they do is they they're tempted to do be vertically integrated and do all the work themselves right because you make more money at every step you know the more margin but you're constantly then in the booms you're hiring a tremendous amount of people which creates cultural issues tremendous liability all kinds of I mean it's just Madness margins end up not being nearly as good as you ever think they should be and then in the bus Cycles you're having to let go of a

whole bunch of people who are you want to keep but you have no choice because the business will implode right and so there two unusual things when I first got the deal memo on this I remember thinking to myself like uh pool builder big pool builder like large largest single location pool builder in the country so like at the time was really large and I was like yep they partner with they're probably vertically Integrated they probably partner with um development firms and like that's just not you know that's not something we want to do and

then I started asking just a few questions I was like hey can you tell me what percentage of your revenue is direct to Consumer yeah I was expecting it to be you know 10% or 15% it was 97% and then I said oh interesting like what is your capex Capital expenditures on an annual basis and it was like Microscopic I was like weird tiny capex good free cash flow direct to Consumer man that's a really durable business that's example of like the risks we were taking and the way that the company appeared like the core

action of that business is they are in the business of marketing pools like selling pools and then handling the logistics but they're you know they're subbing out the actual construction the hiring the firing the Risk all those things the Boom in the bus to other people and that what that creates is a very Capital light highly efficient High cash flow high durability business that again everyone else was looking at as a quote unquote construction business so other people that maybe interested in it were turned off and they're like no I don't want that because that's

a I'm G to put that in the bucket of construction I don't want to take that to a you know my Senior partner or to the loan commit you know to the to the investment committee and say um hey guys I think we should buy a mom and pop construction business in Phoenix there're and be like what in the world's wrong with you right versus we look at that and we're like oo that's really attractive yeah so those are the types of examples so we're probably to put all that into the memo um we're trying

to put all in the memo the things that we think are holding it back so First principles like let's go to kind of first principles on an on an a business that we would acquire so this is a business that's long tenured um they've been around for on average a long time and they're still fa fairly small so something is holding it back we think of it as the kind of Lids on the business and we're trying to figure out why they aren't bigger right there's something so by definition there product Market fit if we're

if we're acquiring It by definition there's some sort of moat so a mo being defined as you can generate above average Returns on invested Capital there's something unusual about the business that has allowed them to get into business build the business into a successful again minimum sort of three $3 million of free cash flow not a hard and fast rule we've done some smaller deals but but on average for for for new platforms we're you know three million that means There's something special about the business it's really good in some ways and on the flip

side if it's not bigger and has been around for a long time there's something holding it back holding it back and so our job is through those memos to collect all the findings of where's the moat why do we think it's transferable how durable do we think it is and on the flip side what do we think the opportunities are for growth and Make sure that all of that triangulates with price of course um I um had the privilege of spending some time with Buffett at one point and I asked him this like battery of

questions and he kind of I think at some point got frustrated with me um being I was probably being annoying and he said price is my due diligence and it was kind of like the the showstopper like drop the mic moment he was like because I was asking him all Kinds of like how do you think about this or how do you think about that and timately he like I use price as my major due diligence filter which I thought was brilliant it's like this simple heris like the higher the price you pay for it

the more you're pricing it to Perfection the more things have to go right the lower the the more you can absorb things and so you know we are uh because of the nature of these being smaller companies they're messy they've got some Weird stuff going on usually in these things they're not bigger so there must be some Lids on these things we're trying to figure that out and we're trying to correlate that to price and the cool part is after close like all the problems are merely opportunities I try to remind our team of this

all the time because you get in these operating situations there's a lot going on like sometimes relationships are very strange there's weird power dynamics Dynamics All this stuff's going on and I I say to them yeah it's hard but this is what we get paid to do like we're in the business of Shaving fur so do you have projections In This Moment yeah we we're we're um you like do three scenarios like Bas upside downside or how do you how do you think about that yeah we're trying to stress test where we think based on

the history of the business uh it's going often assuming for most of the deals we do that there is no growth So we want the the business to underwrite with no change in trajectory um if it can't stand on its own like we're not big on quote unquote synergies we're not big on trying to do this massive change like if you've if the business has been operating a certain way on a certain trajectory for 30 years it is nothing but huous to come in and think that within a short period of time you're going completely

change the directory of the business yeah it Can happen there are some tricks and some outside perspective that you can kind of look and see and run a Playbook from time to time but for the most part like there's no easy solutions like I I was talking with a um a Harvard educated search Searcher the other day uh actually when I say the other day it's probably year and a half ago and um bought a business and had all these grain plans I was going to he was going to introduce all this technology all These

like changeing systems it was an old school business and he was going to you know revolutionize with technology and this is kind of like if you go on Twitter the you know I don't know we call it or whatever the group of people that are trying to do this SMB land or whatever um this is often the dominant Narrative of people who haven't done it right so people who haven't actually been in the weeds who haven't bought a business who haven't tried to change it Is like this is super simple you buy things for cheap

huge amount of upside you go in and you transform them these guys are idiots yeah yeah these guys are idiots they don't know what they're doing it's like dude yeah you may have been to Harvard you may be well educated that guy's been working in the business for 30 years do you not think that he knows everything you know and far more mhm of course not so anyway this guy came in he had all these Grand plans and I talked to him about I don't know a year later like six months ago and I was

like how's all that going and he was like oh my gosh I haven't done anything that I wanted to do I was like oh interesting tell me about that and look the business is actually doing well like he's glad he bought it yeah yeah but how it went post close was not filled with oh man this is perfect now we can hit this huge growth trajectory or whatever he's like yeah our servers went out like The second day on the job uh the phones don't work we have all these issues um you know the head

of sales left shortly thereafter had to rep you know it's like this constant fire fighting mode running business it's running a business the only people who think buying a business and operating it are easy most of the people have never done it there's a small group of people who got lucky the first time yeah and usually the second and third time they get smoked I mean Look we took the better part of a decade toiling away in obscurity doing things like you know I joked that like we were running the world's smallest family office for

a good amount of time there just slowly compounding trying to learn systems trying to get you I mean we were just getting smacked around constantly but that then allowed us through that decade to get good at this and then we were able to scale like if I had been given 50 hundred million right out of The gate I would have lost every penny yeah and this Market is so in efficient which is by the way good and bad inefficiency being defined as can you make a lot of money or lose a lot of money depending

on skill right so like argument is if I gave you a million dollars to invest in the stock market and I said hey I'm going to let you keep everything you lose right so lose as much money as you can and I'll give you 60 days to try to lose as much money as You can in the stock market yeah it'd be really difficult for you to lose a lot of money yeah in fact you might end up making money in the private markets like give me 48 hours and I can lose a million dollars

like it's super easy right which means skill really matters which means if you want to have it as a career there's a lot of value in honing your skill set so to me that's the ultimate mode is it's very simple what we're trying to do it's Just really really hard and judgment matters and so that's the reason why we put everything out on the internet like we literally have our entire Playbook on the internet like you can go on the permanent Equity website and you can see our entire due diligence toolkit like not only just

the questions we ask but the why underneath each question why would we do that doesn't that spark a bunch of competitors doesn't that help A bunch of people yeah sure helps everybody helps everyone yeah and we're stewards and we're unconcerned there's abundance do you go back a year later or is there a milestone like a predictable Milestone where you go back and you review this memo and now you've owned the business for a while and like what can we learn Yeah we actually do this quarterly so every single quarter we have um we call them

baseball cards they're like one pagers maybe a Little bit longer than one pagers that explain the overall strategy the overall purchase price the rate of return so far where we've done well for the wrong reasons where we've done well for the right reasons vice versa so it's like the entire memo is a constantly updated living document of every single investment we've ever made and how we're doing almost like value line for your businesses yeah for sure and like but here's the thing is how would we do it Any other way yeah like if we're in

the business of investing of buying small private companies trying to make them better we've got to learn we got to get better like how would we know if we we were getting better or not how would we know how would we learn if we weren't doing a lookback so I mean to me it's just of course obvious and I mean look if we're not good at what we do we should do something else like don't waste this life doing things that you Aren't good at for God's sakes like that'd be terrible do the CEOs make

that baseball card or does the because you guys what's your structure you have a almost like a portfolio manager who's in charge of multiple CEOs yeah we so right now our structure is we have a dual hook in structure post close where our financial team and their financial team hook together okay and we're constantly getting feedback loops of what call information from that so our our goal With our financial team is keeping scores the easy part the hard part is giving actionable real time information to all the stakeholders to make good decisions right that's their

primary role is to help those companies which by the way this idea is completely foreign we come into most of these small businesses and they're like yay yeah we give all our stuff to this accountant and the accountant tells us how we did we're like sure that's not what we're Talking about at all what we're talking about is on a day-to-day week toe basis what are the metrics you're looking at how accurate are they how updated are they how can you make decisions right so we got back group that's working with them to try to

increase the quality of those feedback loops and then we've got you know what I call like a board of directors in Box model where there's one point person for permanent Equity that that accesses all the resources of Perman Equity kind of is the sherpa the guide for the person internally so oh you got an issue with marketing or you need help with that like we've got external internal resources recruiting external internal resources legal external internal you know so we got all these you sort of um helpers that we have and that person's job is to

help direct them as well as govern the the business those are updated based on the constant feedback loops of the business Over that course order uh in concert with the leadership teams but but we're mostly doing the authorship of them and then you don't step in and like start issuing directives you want the finance plugged in and you want the metrics that they're looking at or you want specific metrics for you or both we want information Every Which Way the more High signal we're trying to separate the signal from the noise right so there's tremendous

amounts of information being Thrown off by these businesses that doesn't matter we're trying to get down to a handful of metrics that we can agree on that the leadership team and us that work working in concert to understand what they're telling us um that's actually one of the most difficult things post close is just getting on the same page about what matters totally and when does it matter and and again we're coming in hopefully with high humility saying you all are The experts we're not yeah but we're asking questions like okay well if that's the

business model wouldn't it make sense that this would be like a leading indicator and sometimes they'll be like no we like oh interesting tell us why right we try to come out from that perspective as like instead of just telling them what we want to see like do you think this would be helpful are you look like what are you looking at and why yeah why aren't you looking at this Why are you looking at this how does this work again this is not rocket science like this is like treat people as humans be humble

be kind be longterm things usually work out do you uh do anything within the business from otherwise from the first day or you're just sort of what's the reporting Cadence back to you is it is it weekly monthly quarterly yeah so we are usually in touch on a weekly basis um depending on if if we're going Through periods of negative change or positive change then we're more active and helpful being supportive uh being corrective maybe if we need to be if things are in the Box smooth sailing no storms on the horizon then we can

be a lot less Hands-On uh we we always tell our leaders like we're always available everyone has your cell phone like yeah you can get in contact we're the easiest people in the world to get in contact with yeah running a business is lonely Yeah if you've never run a business if you've never been in the CEO spot you can look up from in the organization and it looks Rosy oh look that person gets paid a lot more look at all the freedom they have oh I want to be the one to set vision and

whatever looking down from that position there's usually no one to share sorrow with there's no you know frustrations like you you you're isolated so one of the things we do is Just try to be relationally connected and offer to be a release valve for the very natural human Tendencies we have to be seen and heard and blow off steam and consult on difficult situations um you know again uh it's interesting going back to like the personality typing you know we try to understand for our CEOs if they're internal or external processors that's a really important

piece if you're a CEO as an internal processor then you can you can go away With your thoughts and be fine if you're an external processor and you're the CEO you have no one to external process with or you end up creating inappropriate relationships with people who work for you yeah so that's fraud so that's one of the things that we can do is if we're Adept at that and understanding the people then we can say hey that person's an exteral processor hey they need somebody to talk to you come talk to us let's work

through things the only Things I would say is we're aggressive about post close in the short term is if there's just any laws being broken um which is sounds funny to say my guess is 80% of the small businesses out there are are either knowingly or should know that they're breaking some sort of rules there's a lot of government regulation depending on the state you're in and often by the way Federal Regulation State regulation and local regulation will often times conflict with one Another and it requires a tremendous amount of background and understanding to know

how to be in compliance um I wish they'd simplify this I mean it's the the amount of stuff you have to keep up with is just insane astonishing yeah why don't you do a totally hands-off model like Buffett just because it would miserably fail in the scale of business you're dealing with why would that fail people get divorced people have health issues people die um people lose Interest things are constantly changing the ability to self-replicate is unbelievably rare mean the reason why we are in the position we're in to be able to buy these businesses

because we are the best option for the business to transition um oftentimes there isn't a family member who has the capacity uh or either Financial capacity or Talent capacity to be able to do it or some combination of both and these businesses are not ones That you can just like leave alone like there's there's no passive income in working in small business land another way to think about is like you know sort of buying an index of small businesses right I mean from time to time as like people come up this idea of like oh

what if you just put like $1,000 with you know a thousand of these small businesses and created like a index the reality is over a long period of time that index is zero like it's really hard The governance of these things is difficult like the the norm for most small businesses is entropy is Decay is dying slow death and being wound down like that's that's a norm in the small business world you have to fight to grow it takes Dynamic leadership it takes Vision it takes risk-taking it takes Capital takes mitigating risk you're doing all

these things and so yeah the the the ability um to do that is is non-existent in our Area of the market and by the way having spent time with both buff and Munger they would say the same thing go deeper on that so when you look at them early on in their Journey so this is like let's go back to the Buffett partnership let's go back to actually when Buffett first met Munger Buffett was invested in sandborn maps and dimster Mill those are the two primary Investments I think this represented 70 or 75% of the

assets of the buffet partnership one of the things That Buffett Ander connected very early on about was struggling businesses was struggles he was having with those two businesses um you know the story I think it's been told a number of times but is you know not often remembered because where they are now there's been like five seasons of Burkshire yeah and where they are now Bears Zero resemblance to where they were in the early days where they were in the early days is where we Are where we like to play and this is where Again

by the way they said they generated the highest returns right smallest amount of capital highest returns being able to access small companies but uh dimster Mill was a disaster like Buffett had gotten sideways with relationally with people um and he was kind of desperate yeah and he met this guy Charlie Munger who he started develop a relationship with I mean they actually talked about at the Annual meeting this year um kind of how they got together and they had a family that brought them together and when they met each other it was like kendri Spirits

they stayed in touch and one of the things that Munger asked Buffett was you know what problems are you facing and Buffett was like oh I've got this business that like I don't know what we're going to do it's it's upside down sbor Maps is a whole different story and it was kind of upside down in a Different way that worked out but dster Mill was just a mess like he needed somebody to go to the middle of Iowa I think it was Iowa and fix this company and get it fixed up and make money

at that business and he's like he didn't have anybody because he was a you know stock investor pass investor and become activist and active in that business by the nature of how much stock you bought and again this is where you know look the balance sheet was stuffed like they Had a lot of resources low free cash flow yield all these things that we get access to as well in our area of the market he got access to then in his area of the market right things just don't work out and so you get sideways

operating issues the value of the business it starts to go pear-shaped um and so he got in touch with Munger and Munger said hey I know this guy Harry bottle yeah this is a famous Harry bottle story they convinced Harry bottle To move his family from Los Angeles to the middle of nowhere middle of the Heartland Harry bottle fixed the business they ended up selling it and that I mean Buffett said without Harry bottle without Charlie Munger without a few of these things going a different way early on there is no Berkshire there is no

Warren Buffett there is no institution the way it is today one is it's good to acknowledge just how much luck plays a role in all this stuff Totally right I mean like a big part of humility is just acknowledging like we're far less in control than we really think we are also when things do happen and you do see a need talk about it voice it see how you can access people and resources and so um I would I would just argue that um no one can take a business that's small Loosely functioning sometimes makes

money and leave it alone uh these are highly variable assets with very difficult Attributes about them and it's a knife fight the other story is like Brookshire hathway right if you think he was hands off and not talk I think it was Malcolm Chase who took it yeah yeah like they were talking daily uh and he he wouldn't let him reinvest in the business but he knew the numbers better than than chased it he still knows the numbers better than I would imagine a lot of the operating CEOs do for sure I mean Buffalo News

like they Were buff and among were very very active in many of their situations now as they've gotten into massive businesses that are you know you're hiring really high-powered really paid high paid operators like they're going to be better at the operating than they are so I mean at a certain point like it flips and you have such an access to Capital and such a need for size that some of those problems take care of themselves now you got the other problem Which is the fact that burshire hasn't beat the market in 20 years 25

years now yeah well why because they're so freaking big yeah so you got I mean the there's problems either way and there's pluses and minuses either way you just get to choose which one you want to engage in where do people go wrong doing what you're doing as they scale they try to go too fast uh too soon assuming they know too much so We uh from the time bought the first business to the time I bought the second business was four years four years of toiling away and correcting and learning and trying to get

a good foundation of capital and into position to do the next deal now we were looking for deals in between but it's hard buying one business one small medium-sized business negotiating it documenting it closing it operating it and having some sort of either through distributions or Through a sale positive outcome one time is brutally difficult is a brutally difficult thing to do now get to do that again and again and again and oh by the way this is an interesting dip that happens where so now you've got let's say you've done this three times three

brutally difficult and you you you've just now cash flowed them so you still retain them so now you've got a portfolio of three companies well now you can't be CEO of three companies I Guess unless you're Elon Musk and you know somehow he's figured out how to do this but most normal people can't even operate one business well let alone two or three so you got to make a choice okay well now I'm going to take my free cash flow from three of these companies and I'm going to build a layer of overhead to be

able to then scale and manage so somebody's got to be out there looking for deals interacting with capital Partners diligence really Matters legal due diligence Financial due diligence technology due diligence somebody's got to be managing all of that documenting it negotiating that process all the way through and then of course post close operating these things right it's a lot to worry about oh and by the way you got Regulators all mixed in there as well there's a lot of places to hit a pothole and so you say whooo I'm working 100 hours a week every

week and yeah we're making a bunch of money Things are going great I'm making up a scenario um but now you got to basically take all of your earnings all the free cash flow of your business and and go to zero again so you start at zero or with very little you invest it you do well you do well you do well you run the gauntlet two or three times now you got to go back to zero because you got to take all your free cash flow and you got to reinvest it in that in

that next layer That's brutally difficult now you've got a whole another set of issues now You' got meta problems at the head level now you've got Personnel issues now you've got culture problems now you've got technology issues and now you've got an operating business that's trying to operate businesses and you've got the same issues in the operating business the parent CO as you do in all the smaller businesses it's brutally difficult and Then you go through another phase where you're like okay now we got a tight group of people it's a small group now we've

got three or four or five companies maybe six well now you got to build a much larger organization you got to go through the whole cycle again so every time on the way at the cycle up you got to pass through this Gauntlet of over and over over and over and over again I mean it is a miracle that Permanent Equity has 15 companies it's a miracle it's a miracle that we have a team that for the most part loves each other and cares about each other and wants to do good things like it's a

literally not a day goes by when I don't think it's a miracle and by the way the future is not secure like we might screw up badly and so there's always work to be done there's no free lunch nothing's e easy so why do you do what you do given all of that I think I have the Best job in the world I get to um meet extraordinary people from very different cultures around the United States um one day we'll be doing a dinner in New York at a Michelin stard restaurant the next day we're

eating at Hardies in the middle of Ohio um we will go from Oregon to Florida to New Mexico it's the cultures are different the food's different the people are different the the businesses are all different I Mean I can't imagine I mean we have a blast doing what we do and it's hard and it's stressful and it's tiring um why do I do it because I feel called to help families transition I feel called I mean like um you know in in my Paradigm as a Jesus follower work is pre-fall work is for our good

work is something we should engage in deeply um this is our co-creation that we get to do um and I feel that like I feel that on a daily Basis and there's thistles and thorns and it's difficult and it's fallen and it's broken and it's messy and so that's life though like that's what we get to do and like I can't imagine a better job than getting to serve the families and the institutions that give us Capital that trust us with their capital for 30 years the amount of trust that they have with us to

give somebody capital for 30 years there's nothing you can get back 30 years I don't take that lightly That's incredible I feel honored that somebody would trust us that much I want to serve them I want to serve them well the families that sell us their life's work sometimes generational work like that is a heavy burden in some ways and what an honor in other ways and then all the people who we get to work with who are trying to be as excellent as they can at their craft like I I I get to interact

with so many interesting uh people and we get to Do such interesting things and I don't know like I said I think I have the best word job in the world we always send on the same um question which is what is success for you uh success would be to be an ambassador of the kingdom of God my life transformed uh when I became a follower of Jesus and I uh I've been rescued and and the thing that I want to do most is to we're Called to love and serve people around us um we

worship a God who condescended himself into the Physical Realm who's the author who wrote himself into the ultimate book of reality and came to serve not to be served and to um to rescue I want to with that same love that I've been given give that to other people and serve them well what a beautiful way to end this conversation thank you