Episode Transcript
[00:00:02] Speaker A: Welcome to Intentional growth, a show that teaches you as a business owner and entrepreneur to view and run your company like a financial asset, which will allow you to enjoy work, create wealth, and make an impact. This mindset will help you focus on building a more valuable business and give you the choices to grow, acquire, reinvest, or exit. Live the life you plan for all with intention.
And now, here's your host, Ryan Tansom. Hey, everybody. Welcome back. Very excited for today's episode because it gives some interesting contrast to last week's episode that was about Esops coming from Daniel Goldstein, who ran a Esop holding company and bought a bunch of companies under the ESoP structure. I have Dan Cremens on the show today, and Dan is from the world of private equity. And the reason I was super excited to get Dan on the show is because I also found Dan on LinkedIn, and he has got some mutual relationships like Brent Beeshore from permanent equity and some other people who I tend to have a lot of respect for from the world of private equity. And what Dan was talking a lot about on LinkedIn was value creation for private equity and how financial engineering and cost cutting is no longer the name of the game. And I started following some of Dan's stuff. I saw his book, winning moves, and I really liked Dan's approach. And the conversation I just got done with proved why I was liking his approach. Because Dan is on the show today to talk about what does value creation actually mean in the name of the game of private equity. And what I love about this conversation is the fact that Dan and I are both singing the same song, where the name of the game is growing, sustainable, predictable, transferable cash flow, focusing on the people, and where are we going. So that way everybody can grow equity value for the owners of that company and all of operations and leadership, and the people can have fun while making money while everybody's tied to this long term value creation goal, and Dan's out there helping private equity firms talk about how to actually operate and create value, focusing on people instead of just the financial engineering. So I want to bring the megaphone of intentional growth to Dan because he is doing what I think is very needed in a place that has been focused on just the finances for many decades. So thanks everybody for tuning in. If you enjoy this show, please leave the podcast a rating on your podcast player that you listen to. And I appreciate you for tuning in. And here's the episode with Dan.
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Dan, so you and I were just chatting about mindset. So why don't you just talk about. Because we were talking about fatherhood and parenthood. I just got back from Disney and there's a lot that goes with that, but I really appreciated how you were talking about the mindset. And I think about fatherhood, parenthood or running a business. And it's kind of. And we talk about our businesses are babies, so what better place to start? So tell us how you like to think about hard things.
[00:03:24] Speaker B: Well, as we started to talk about a moment ago, so much crossover between fatherhood and leadership, and this could be a whole several podcast episode series in and of itself. But this only really came to light for me in the past two and a half years since I've had kids. And what we were talking about is the idea that I have a two and a half year old and a six month old. We are in it, as they say, for sure, if you ask me right now. Hey, how's it been? It's been pretty tough. It's been amazing. It's been beautiful. It's been a blessing. It's been challenging. It's been all the things, as the kids say. But what I appreciated about our conversation is this idea that mindset is the difference maker between, in the context of fatherhood, the first two and a half years of being a father, being a total drag and frustrating and dominated with frustration and challenges, or being something that you can sort of ladder up from and really appreciate. And it's not easy in the moment, every moment of every day, to see the meta perspective and realize how much of a gift it is, realize how much I'm going to look back when I'm 80 years old, sitting on the rocking chair on the front porch and look back with great appreciation for these context.
[00:04:45] Speaker A: That's what I love, Dan.
There's so much similarity to that. And then running a company where it's hard, but then there's a lot of joy in. And like, what I was about to say before, which is why I wanted to just hit record, is it's about the journey, man. And it's taken me a long time, Dan, to figure that out, where it's like the journey is the. So, like, you can't have a perfect journey. So therefore it's the ups and downs that bring relativity to it in order to make it actually worth it. And I think about business and how many times, and I stumbled across you on social media and a bunch of the common connections that we have. So many times, people put just the perfect pictures out there, right? Like, and I think about parenthood. It's the same thing. It's like people put up, they post everything at Disney or their holidays, and I'm like, yeah, but there was bloody murder screening that happened right before that picture. And then on social media, we post all the upsides about business. Owning companies, buying companies, buy them, let it run passively, and everything will work out great. And it's like, we're missing so much of the picture, man.
I think that is just a great container to start this conversation because you have a unique take on private equity. From what I've gathered as far as it's not just about set it, forget it and financial engineering, it's a lot of value creation, which resonates exactly with what I'm talking about all day long. And so why don't you just give us a little bit of a background, man? How did you get to that point?
[00:06:12] Speaker B: Sure. Yeah. So I'm a product of a midwestern upbringing. I was the son of two awesome parents who were in the healthcare profession. My father was a product engineer at a medical device company. My mother was a nurse, 42 year nurse at Cincinnati Children's. And so I thought I was going to be in medicine.
[00:06:33] Speaker A: I was sort of destined Cincinnati children's.
[00:06:35] Speaker B: That's right. Yeah.
[00:06:36] Speaker A: Oh, nice. You're right in the backyard of my business partner. He's in Cincinnati, too. He bleeds Ohio state, man, it literally ruins his weekend when they don't win.
[00:06:43] Speaker B: I'll try not to let that get in the way of my views towards your business partner, his OSU allegiance. Sorry for any listeners out there, but there's this weird dynamic in the state of Ohio where if you're from Cincinnati, OsU is a very polarizing topic around these parts. I'm aware. Yeah. But long story short, so I was sort of destined to do something in healthcare or medicine, so went to school sort of undecided, but veering in that direction. And it wasn't until I learned how incredibly queasy I get at the sight of blood and broken bones that I decided to take sort of a hard left and get into something that was as far away from that world as possible. So I stumbled my way into finance in undergrad and to make a long kind of early chapter of the career short. Landed my first private equity job in 2007 through, and I say this not as a throwaway comment, but sincerely, through just some dumb luck in right place at the right time.
[00:07:43] Speaker A: How did you stumble in the finance, even just to kind of pull that thread just a little bit before we get into the rest? Because I stumbled into it the way wrong way, like, going through all the hard stuff, then realizing that finance is kind of the name of the game the hard way. But was it something about the topic that you liked and then how did you get into private equity versus the traditional accounting route?
[00:08:05] Speaker B: A boss of mine, so I had an early career experience. This is when I was in undergrad, so I was in sort of an operations management managing warehouse and a logistics and supply chain organization for a small privately held company here.
Great early indoctrination into leadership, great early experiences, and lots of mistakes along the way when it comes to just managing people.
My boss at the time was not a finance guy by background, but it's just one of those very intellectually interested and interesting people, very curious. And he's a mid level manager at this company, and God love this guy. He was always so keen to spend time in my office, just asking me about how I was doing, asking me about my family, asking me about where I wanted to go with my career. And I don't think anybody ever trained him to do that. It's just sort of what was natural. Natural to him.
[00:09:01] Speaker A: Do you know how special that was at the time?
[00:09:03] Speaker B: Did I realize how special that was?
[00:09:05] Speaker A: Yeah, at the time, I appreciated it.
[00:09:08] Speaker B: At the time, trying to put myself back in that frame of mind, I definitely appreciated it because I hadn't had enough professional experience up until then. I guess I didn't really realize how unique that is for somebody to be so to take such an interest in their people's lives and pour into them in those ways, I've later realized that that's both rarer than it should be. And probably one of your three things.
[00:09:35] Speaker A: Why you hung your new shingle, right? Get into the people.
[00:09:38] Speaker B: That's right. Yeah. So this ends up forming some of my worldview down the line, but I didn't fully appreciate how unique that was at the.
As we got to talking about what I wanted to do with my career, and I frankly didn't know at the time. He told me he had a buddy who was in finance in Cincinnati offer to make an introduction to him. And he's like, you know what? I just read this book that I think you'd find really interesting. That's about business. And so gave me a copy this thick of Buffett making of an american capitalist. You ever read this book?
[00:10:13] Speaker A: Not that one. I read the snowball one, which is I'll put notes and I'll add that link in the show. Notes.
[00:10:19] Speaker B: Yeah, amazing book. And I read that and I had a lot of takeaways from the book. It was very sort of impactful on me. And again, I'm in the early days of my formal business education, but just understanding the worldview, the approach, the style, the investing philosophy of arguably the greatest investor that's ever lived just sort of sparked in me a curiosity to dig into this topic in this world of finance and private equity was a natural extension of that. So this ends up coming back, this little early anecdote planted in me this seed of interest in this topic and was one of the things, probably not the only thing, but one of the things that caused me to really lean into this educationally. This book comes back to bear later on when I'm interviewing for a private equity job and I am interviewing at a firm called Alpine Investors on the west coast, which I spent. I ended up going on to spend 13 or 14 years with. And the guys who were interviewing me at the time, one of their interview questions was what book have you read recently? What's the most recent book you've read or what book was the most impactful on you? And this one came to mind. So I shared a bit of my musings on this book. Little did I know after the fact this book was like the Bible. This firm, that's awesome. Nail for everything I lacked in terms of real qualifications to do this job.
This is what I mean when I say dumb. That's awesome. My way into this job. But for everything I lacked in terms of qualifications, which was some significant gaps I sort of made up for by at least professing an interest in the same book, they'd become somewhat of the Bible at this firm.
[00:12:03] Speaker A: That's awesome. And what I find fascinating, and I'm excited to pull on this thread because I'll give you some context, Dan is over the last ten years I've really separated in this concept of our intentional growth is ownership, which is the capitalist right? Is your asset growing at equity value and what's the trade offs between distributions and reinvestment versus operations and leadership and operations where people will get w two paychecks that are running a company to meet ownership's objectives? Very often that is very conflated in the privately held market. And that's one of the reasons my dad and I ended up selling our business that was doing 20 million with 110 employees because all that was conflated solving for annual income. K one. And so when I think about, well, the reason I asked that question from you is how will people's mindset get into, hey, what the hell is this thing worth and what's the growth of it? And then how do we run the company? And you have gone from what I hear from the capitalist side into then operations and value creation, which I just think there's this very interesting overlap happening in the marketplace where it matters to do both. And you've kind of threaded that needle from what I've seen.
[00:13:12] Speaker B: Yeah. And they're not mutually exclusive.
[00:13:14] Speaker A: Right.
[00:13:15] Speaker B: In every case, yeah.
I have not founded a business in the way that you have. So you're going to have a lot more to say on the topic of how does that really manifest at the early stage? But like you said, I've had the unique luxury of having seen the private equity movie from a few different chairs. So I've sourced deals, I've done deals. Yeah.
[00:13:36] Speaker A: I was going to say why don't you give us a little bit of background into Alpine? Like what were you doing there? What was your kind of career path there?
[00:13:41] Speaker B: Yeah, so I was there for about 13 years and I played across most of the positions on the field at the time I joined for context, we were a small maybe seven or eight professional firm and joined in seven.
I don't know if you knew or not, but there was a massive global recession in 2008.
So a very interesting time to be getting exposure to and really immersed in.
[00:14:07] Speaker A: Especially when the rates went down. And that's really when private equity started the rampage that it has been on for 15 years. Right. Did you guys see that coming? Or was it more like what ground are we standing on and how is the paradigm shifting?
[00:14:20] Speaker B: Yeah, I don't know that we had the foresight at the time. I'm trying to think back. I don't know that we had the foresight to know that. What's the old aphorism, never let a good crisis go to waste sort of thing. We clearly knew we were in the midst of crisis, but our founder at the time, much to his credit, he had the foresight to sort of use that crisis as an opportunity to because there wasn't a lot of deal making happening. So we have people sitting around, we're very engaged in our portfolio, just trying to keep the thing afloat at that point in time, but we took the time, and this is probably 2009, to take a big giant step back out of the day to day out of the firefighting mode and say, what do we want this thing to be?
[00:15:05] Speaker A: What was your portfolio made up of at that point, Dan, what kind of companies?
[00:15:09] Speaker B: There were probably twelve to 15 companies in the portfolio at that point. These were across a bunch of different sectors doing some early work in software, some service based businesses, a few consumer businesses, a gaming business. So really pretty generalist fund.
[00:15:24] Speaker A: Interesting.
[00:15:25] Speaker B: Yeah, by style.
And these were lower mid market businesses, probably on the low end, 10 million of revenue. On the high end, 150,000,000 of revenue.
In all cases, we were the first institutional capital, institutional investors in these businesses, oftentimes either partnering with the founders or bringing in a replacement to the founder.
[00:15:47] Speaker A: How long had Alpine been around? Was that the first fund or did you guys have multiple funds at that point?
[00:15:51] Speaker B: We were on fund three at the time that I joined trying to raise fund four. Fund three was mostly invested trying to raise fund four, clearly 2008 nine. Yeah, not the ideal time to be raising a fund.
But Graham, our founder, had the foresight to say, let's use this as a chance to kind of codify and solidify what we want to be when we grow up. So we brought in some coaches who did work similar to what I would imagine you do with companies you work with, and they spent a lot of time with us on what's your vision for Alpine?
How can you personally connect to that vision? What's your vision for yourself and how do you get those two things to sort of line up to the extent that they line up, did a lot of that self work, did a lot of teamwork and a lot of business sort of vision, strategy planning work. The thing that came to light as we did that was Alpine had spent the first ten years of its career getting pretty darn good at the deal making part of the private equity equation, knew how to due diligence a deal, understood how to look for value, were pretty thoughtful when it came to what do we do with these things once we own them?
And so we largely figured out the deal making part of the business. Not to say you don't get benefit from continued pattern recognition and doing more deals.
The real insight that came out of that was the thing that is most correlated with our deal success, our investment success, above all other factors are the people running it. And where we have been intentional and thoughtful about getting the right people aligned against the right value creation priorities, we tended to be doing better than when we hadn't been intentional or maybe have been slow to the punch on making certain hiring decisions or firing decisions or the like. So that light bulb went off to say that what if people are. This seems a little bit trite and sort of silly to say it this way, but people are important to investment success. And what if we dedicate the next ten years of this firm's history to getting really good at the people part?
[00:18:02] Speaker A: I love it, Dan. And the reason I laugh is because my partners have been through a PE roll up. And one of the, like, I think you and I both are mutual friends with Brent B. Shore from permanent equity, and there's a lot of. They're becoming more loud out there as far as different takes on private equity and the people first conscious capitalism. But the privately held business owners have always known that. But then all of a sudden, it's so awesome to hear the PE firms. And this is why I said there's like this intersection of operations, privately held companies and capital finally coming together, saying we need to do all the right things and treat everybody the right way. But my partners and I always say we talk about PE. If you find the wrong partner, you're going to talk about like, hey, we got to, we have constraints or margin compression or whatever it is, and we need to tighten some things up. And they're going to come up with a riff and we need to lay off x amount of people. And you're going to explain all of so and so has been with us. So and so has got the best contacts with all the major customers and vendors, and they're going to let you talk and then they're going to say, yes, we have to do a major riff.
But at the point of now that things are harder, and I think this is where it's interesting, where people do good work in hard times is like people execute the stuff that ends up on the PNL. So we can't just have this PNL that fictitiously go up and the EBITDA fictitiously go up if we don't have the right people executing the.
[00:19:25] Speaker B: Any smart, speaking of private equity, any smart MBA that's in private equity understands that people are important. So I don't mean to suggest that this concept is just totally foreign to and unfamiliar to private equity professionals. What I have noticed is that there's a big knowing doing gap out there.
[00:19:46] Speaker A: Interesting. Yeah.
[00:19:48] Speaker B: Which we can talk about. My observations and reflections on private equity at large when it comes to just people, if that's interesting. But I see this shifting. I see this knowing doing gap closing where more I, for a long time, private equity firms have been aware of the fact. And I'm going to paint in probably unfairly broad brush jokes here, but it's okay.
[00:20:07] Speaker A: And by the way, if they do not understand that these are broad brush jokes to listeners, then they can go like, check out our training or something like that, because we have to speak in generalizations to get some of these topics across.
[00:20:16] Speaker B: Right. I think for a long time everybody understands that people make these businesses tick. What the knowing doing gap comes into play when there's a big chasm across, going from an intellectual understanding that, hey, working with good people, treating them right, creating an environment where good people are going to want to stay and give their all, that's important to actually having the machinery built into your firm, your engagement model with your portfolio companies, the right machinery resident within these companies to drive people power, performance. So there's a big gap. And I think that gap is slowly starting to close in private equity where, and you see this with more heads of talent being hired at a fund level, you see this just, if you go to private equity conferences, you see this just in terms of the amount with which, the frequency with which this topic is talked about. Yeah, I think we're in the midst of sort of a, dare I say, revolution in the private equity space where there's more investment in this area, but there's still quite a ways to go. Love it.
[00:21:17] Speaker A: Love how you frame that up, too. And what's interesting coming from the privately held sector, Dan, I think it's interesting how these worlds are colliding in what I think is going to be a very productive, good outcome. Because I've said now for ten years, I mean, my dad and I ran a $20 million business off of an income statement. It was a distribution with a couple of million in inventory, 115 employees. And the reason I always joke around, I was a copier sales rep, I got a d in accounting. Now I teach finance. And it's like, well, why the hell did what I've been trying to wrap my head around, Dan, for ten years, is like, how in the hell can millions of companies and owners not care about the cash flow statement? And I think it goes back to how we started this conversation in 2008. We hit the printing press and everything went up for 15 years. So you could literally only look at your income statement, project out some sales, your cost of goods, your sg and a, and be like, it's going to be fine, but it's like, wait a like distributions, working capital, taxes are kind of important, and I need to pay my payroll every two weeks. And now that it's harder, because my message fell on deaf ears, man, for like six years, I was like, finance because I went through the hard things because of our family business problems, when everybody else was kind of in this cakewalk time period. And then I thought I walked. I was like, everybody's going to want this. And no one was talking about it. But I say it now because people are going, holy crap, I need to understand how finance works if I actually want to grow, because I can't just assume everybody is going to come and it's going to be easy. Everybody meaning customers.
[00:22:53] Speaker B: Yeah. Did you see a turning point during COVID around business owners awareness that, hey, actually managing cash and working capital in these businesses is a thing that I need to.
[00:23:04] Speaker A: It's exactly the date that it happened. And I've been doing this for ten years, Dan, so isn't that an interesting data point? So my company started off as a training business. So I had a two day boot camp. We still have it. I digitized it during COVID So we've had about 600, 700 entrepreneurs go through it. We teach about valuations, value growth, exits, finance. But what happened was in Covid, and it was literally April 2020, people were like, I need help. And that was the first time they went from just accepting and liking the training to, what the hell am I supposed to do that about this? And then I think a lot of people were like, I just have a bookkeeper, I have a controller, and I don't have a CFO, and I'm running a $20 million company.
And it's not even the CFO services necessarily. It's more of just them understanding working capital distributions. Because interest rates, supply chain issues, all of the problems, the answers are in the cash flow statement.
And if you don'tie, them all together. And so it was just fascinating, Dan, so to exact your point, I've scaled multiple million dollar business in the last handful of years because of this problem. And now things haven't gotten.
[00:24:15] Speaker B: It makes. It makes total sense that when times were good, fundamentals were strong and cash was abundant and cheap, this would be less of a point of emphasis for operators. And then when a thing called Covid comes into play, that really rocks the.
[00:24:29] Speaker A: Boat.
[00:24:31] Speaker B: It creates an awareness that, hey, we need to take a more balanced, expansive view of our business.
[00:24:36] Speaker A: And so how does this. So then it's fascinating. Alpine and your firm decided to figure that out that long ago because you guys could have gone out and just continued to raise money and then find cheap debt and then play the financial engineering game for probably another five to ten years without having to. Because I think, again, this problem, I think, is intersecting both PE firms and privately held businesses where the fundamentals are really important now. But both sides are realizing that now.
I just find that fascinating that your firm did that was that kind of the owner's take and then what was driving it?
[00:25:14] Speaker B: Yeah, I think it was two things. One was at the time we did some of the attribution analysis, as finance nerds tend to, and were able to observe a real correlation between making thoughtful, intentional decisions about who we were putting into these portfolio companies and investment returns.
So that was one part of it. I think the other part of it was, again, like many other private equity guys and gals, we understood that the quality of the team was important to investment success.
I think what separated Alpine at the time from a lot of firms who also understood that was the commitment to taking action on that.
One of the things I think has propelled Alpine's success over time is the clarity of thought on what, in the sort of long term view around what is going to be the next horizon in the private equity space and how do we get ahead of that and really systematic way of attacking that. So this may get into a whole different conversation around just an operating system for running your business, which I know is to what you do.
We established that, hey, we want to get good at the people stuff. So in ten years from now, our goal at the time was to be a billion dollar fund ten years out. And we sort of codified how this people focused strategy was going to play a role in getting us there. We worked backwards from there and said, okay, this year, because we have an annual goal setting rhythm and a quarterly goal setting rhythm, what's one thing we can do to move one 10th of the way in that direction? And let's sort of establish some initiatives, let's put some metrics around those, let's assign some ownership to those, let's work backwards from there and say, this quarter, how are we going to move those things forward? And so it was just a real sort of systematic way of attacking that strategy. And so it was very crude at the outset. It was, how do we. I'm trying to think back to 2009. Once we sort of established this vision, I think it was probably something like, how do we make smarter hiring decisions by just getting better at interviewing. That was something early days, which now I think we've ten years down the line they've really cracked the code on.
[00:27:28] Speaker A: We got to start somewhere. To your point.
[00:27:30] Speaker B: Yes, we had to start somewhere talking the crawl, walk, run thing.
What is the crawl in the direction of this big, expansive, compelling vision, and how do we just get started?
[00:27:40] Speaker A: That's awesome.
[00:27:41] Speaker B: But to the extent that you have an operating rhythm in your business that is causing you to return to every quarter, every year, return to these core tenets of your long term strategy and establish goals and attack those goals, that kind of operating system, whether you use the eos or the gazelles or any other sort of operating system of this sort, that is the thing that separates those that have big ideas but never attain them from those that have big ideas and are able to predictably, repeatedly achieve them.
[00:28:14] Speaker A: And I just think about how that must be rocket fuel for someone in this space that's already driven by finance. Because you know what the biggest problem I see, Dan, is hundreds of thousands of companies are running Eos these days, or gazelles. I think it's less of that because it's too complicated for a lot of people, or okrs, whatever it is.
There's a lot of people that like that concept of ten year, five year, three year, one year, 90 days. And people go into these planning meetings and make shit up, and then they make it up, and then there's no financial metrics to any of this stuff. And going back to the cash flow statement, they have zero idea how they can afford any of this stuff and how it provides a return.
And this is why I'm so fascinated about having these conversations with people like you, is because we're infusing the investment mindset with operations, and it has to work hand in glove. Otherwise you have all these privately held companies going, and like, we're going to do all these things. They get on the planning, when are you going to do it? How are you going to afford it? How does that impact your distributions versus your taxes? And they have no idea.
[00:29:18] Speaker B: Yes, therein lies the benefit of having, within you can apply the same idea to an operating company or private equity firm. Therein lies the benefit of having people around the table who have finance skills and having people around the table who have operational and strategic skills. And to the extent that all of those are being brought to the party, when it comes to the party being the determination of where are we going, how are we going to get there, what needs to happen this quarter, this year, then I think you put yourself in a really strong position to make sure that you're making thoughtful, strategic decisions you're translating those into operational implications and, you know, the financial implications that those decisions aren't going to bring.
[00:29:57] Speaker A: Right.
What were some of the things that were working? Because I know we want to get to where you ended up taking a leap onto your own and some of the stuff that you're doing with your book and everything like that, but it's very helpful to understand the context. And so what were you seeing that was working on the people side? So what were some of the AHA's and then how were you tracking those actual returns?
[00:30:18] Speaker B: Yeah, well, some of the AHA's. So one aha was as we looked back, and I personally looked back, I was relatively early at the time in my hiring, in my hiring career, but I looked back at some of the early hiring decisions that I had made when I was at Alpine and a few before, and I realized that I knew very little about how to scientifically, thoughtfully, methodically make high quality hiring decisions.
[00:30:47] Speaker A: You just made me think about myself and my own.
[00:30:51] Speaker B: Well, that look in the mirror moment caused me and us as a firm certainly to realize that, hey, we actually need to get good. If people are everything to investment returns, we need to first and foremost get good at selecting good people. So we spent a lot of time as a firm, and I personally spent a lot of time learning the science and the art of hiring, of assessment, of interviewing. So that was sort of the price of admission to the people game, was.
[00:31:18] Speaker A: Learning how to do that.
[00:31:19] Speaker B: Well, then once you can do that a little bit better, the next realization, the next horizon before we move on.
[00:31:24] Speaker A: Any thoughts on that? Because I have everybody listening in is probably going, okay, well, I haven't mastered that because I've hired probably 100 so people and having beers with them and them being nice is not how you should hire a controller like I did ten years ago. But I think a lot of people try to figure out how do you balance the systematic versus the rapport trust.
[00:31:47] Speaker B: Building those two things. So this is a little bit of the art of doing it well. So the school of hiring that I was raised in, there's a book called Top Grading. Have you ever heard of the book top grading? No. I like it.
I think it was probably written in the maybe early ninety s or something, but it was turned into a book, a much shorter, more digestible book called who. That was written by Randy street and Jeff Smart. And I mean, the short answer to your question of how you do that, like how do you get better at hiring is go pay 99 to buy a copy of who and follow who got it.
[00:32:18] Speaker A: Awesome.
[00:32:19] Speaker B: Now it takes just cycles and using that methodology and refining it and adapting it to your own business. But that book is a great starting point to your question on how do you balance being really methodical and rigorous about interviewing while building and maintaining rapport. That's where a bit of the art comes in.
Late last week, just a couple of days ago, I spent five and a half hours with a CEO candidate, taking him through a structured interview process. This is a CEO candidate for a private equity backed business. And on the surface of it, you would say, well, like five and a half hours. How does any experienced CEO ever want to sign up for that? That's sort of like highly rigorous in depth process. And a couple of things I think cause people to lean into that. One is the recognition that if your private equity sponsor is being that thoughtful about interviewing you and you're the sort of CEO that gets the joke when it comes to the importance of hiring good talent, it probably means that that in and of itself is a signal that there's value.
[00:33:24] Speaker A: Just saying I agree to do that arguably passes a threshold that a lot of people probably wouldn't want to.
[00:33:31] Speaker B: Totally.
[00:33:32] Speaker A: Yeah.
[00:33:32] Speaker B: And in doing so, in having your private equity partner be the recipient of hours and hours of synthesized data on who you are, how you operate, how you roll, it's going to put them in a much better position to make you successful. It's going to accelerate the often painful getting to know you process that occurs in the first six months of any sort of new professional relationship is just a good thing all the way around, including for the candidate.
[00:34:01] Speaker A: I just love that because it's the same reason I love the long form podcast these days, because you can't fake being yourself for more than like 90 minutes.
[00:34:11] Speaker B: Right.
[00:34:12] Speaker A: And you're going to end up figuring out who they are over that period of time.
[00:34:16] Speaker B: Yeah.
It's also just like approaching interviewing in a spirit of.
In a mindset of care, with a spirit of curiosity and interest, I think can cause any of the, can allow any of the squirreliness or sort of fear factor that can come into play when you're talking about interviewing somebody for 5 hours to quickly dissipate something. I think I've gotten really good at this. Took a lot of cycles, but I got really good at was just building rapport, building trust in that setting, and using that as the gateway to really understand the balanced 360 degree view of person.
[00:34:53] Speaker A: Yeah, I like it, man.
So why did you end up leaving Alpine?
What was the reason?
Why did you start your own thing. And what was the reason for writing the book and everything? And feel free to kind of give everybody like a cliff note of how you got to and what you're doing right now.
[00:35:08] Speaker B: Yeah, so the short version of what I'm doing right now. So I spun out of a full time role at Alpine in 2021. I think it was to start my own thing, largely doing a lot of the same things I was doing as an operator or a private equity guy, in a sense that the core of what I'm doing today is helping private equity sponsors and their newly acquired companies to answer three questions. One is, where are we going with this thing? This thing being a new investment?
Call that your vision, call that your bhag, call that your whatever, but where are we taking this thing? Second is, how are we going to get there?
And I think of that as your value creation plan, which is really the basis for this book I wrote. And then the third is, once you answer question one and two, who do we need a board to make that happen?
So all the work I'm doing today ties back to some combination of those three questions, mostly with 90% of which is with newly acquired PE backed companies.
Why? On your own variety of reasons.
I've long had an entrepreneurial itch that I wanted to scratch to take you back a little bit. One of the things I realized towards the end of my time in a fund level role, something felt sort of like discombobulated or just off track about the path that I was on. I loved the people I worked with. I believed in what we were doing. I loved a lot of the elements about the role I was playing. And I can't explain it other than to say that viscerally, sort of deep in my core, something just felt. I felt like I was sort of on a path that was not the path that was meant for me. And again, I'm a pretty logical guy. I'm not really super intuitive, but something in my intuition at the time was screaming that, hey, you need to take a step back and pay attention to that signal. So this was during COVID had just set in when I was spinning out of a. To take you back to the moment I was spinning out of an operating role with an alpine portfolio company.
[00:37:16] Speaker A: You had actual operating roles with some of these companies, too?
[00:37:18] Speaker B: Yeah, had a few of them, had probably three or four operating tours of duty. So my first CEO role in the mid 2010s played a coo role in different sort of CX.
[00:37:30] Speaker A: What kind of companies?
[00:37:32] Speaker B: First one was with a gaming business casino gaming technology business. Never thought that was never part of my career plan was to get involved in a casino technology business. But great learning benefits, administration business, an educational assessment business, continuing education business. So across a bunch of different industries, that's awesome.
But I was spinning out of. I'm sorry, you were just getting out.
[00:37:59] Speaker A: Of one of the roles?
[00:38:00] Speaker B: Yeah. So I led the carve out together with a team that we brought in, led the carve out of a division of a formerly publicly traded company based in Chicago. My job is to go in and get the thing carved out, get the team stood up and get the business separated from its former parent. So we did that in 18 months. I transitioned out of there and I was sort of talking with Alpine and others about what I wanted to do next. And I decided that, hey, I'm going to take, this was in like May that I was wrapping up there. I'm going to take the summer off. This is during COVID Things were weird out know. I have passed up during different transition points in my career in the past where I'm going into or out of an operating role, I've passed up the chance to take time off and for.
[00:38:46] Speaker A: Whatever reason, good time to take some time off.
[00:38:48] Speaker B: I'm going to take the summer off. So I'm sitting there in the summer of 2020, I guess it was. I don't have any super interesting hobbies. I'm a terrible golfer. I'm sitting there, day four of my summer sabbatical, twiddling my thumbs, gazing at my navel and just wondering, what am I going to do with a summer?
And I'll tie this back to your question in a second, but I think.
[00:39:11] Speaker A: This may be tracking. Oh, it's good context.
[00:39:15] Speaker B: One of the things that I had always wanted to do was write a book. And I didn't know at the time that I had anything especially interesting to say. But I committed to that summer. I'm going to take a stab at writing a book. So I was all in, and next I had to figure out, well, what the hell is this book going to be about? So it's like the proverbial, like blinking cursor moment on the screen where I've got my word document pulled up. It says book in the header and I'm like, okay, wonder what this thing is going to be about. So I got to thinking back through, I knew I wanted to write something on leadership because that's always been a passion of mine. It's something that I do think I have a thing or two to say on the topic. And I got to thinking about what is one thing. I don't want to put it some dissertation about leadership or some 19 point leadership model out there. The world does not need another one of those, right? What's one actionable, practical thing that has worked for me as a leader that I could pay forward to other leaders? And I got to thinking about, this is not the book winning moves.
This is a more recent one that I wrote a couple of years back. But the first book I wrote ended up becoming called the Blue Flame.
And it was about this practice that I had used as a manager, as a leader, whereby whenever I had somebody on my team who was either not performing and or disengaged in their role, I learned to call the same play. I would bring them into my office or in their next one on one, I would bring this up and I would say I would not make it about their performance. I was pretty disciplined about dashboarding and having individual goals and red, yellow, greening, though, so everybody knew where everybody stood good. So I didn't need to bring them in and beat them up over their goal already.
[00:40:52] Speaker A: Objective at that point.
[00:40:53] Speaker B: Yeah, I bring them in and I say, hey, we both know what the dashboard says, but let's put that aside for a second, and let's go back to talking about you, and let's talk about what you're great at. Let's talk about what energizes you, and let's talk about what brings you a sense of meaning. And inevitably, the answer in why somebody wasn't performing or was disengaged in their role was found in the answer to those three questions. They're either doing work that doesn't align with what they're fundamentally good at. They're doing work they don't find energizing and or they don't see a sense of meaning in their work. So I would, through this sort of coaching conversation with my teammates, I would sit there. I'd draw three intersecting lines on the whiteboard. I'd put talents, mark one talents, one passion, and one purpose, which were shorthand for, what are you good at? What energizes you and what brings you a sense of meaning? And I would use just questions and a little bit of coaching skill to draw out of them the answer to those three questions. And inevitably, when you did that, myself and my teammate would arrive at the same conclusion, which is, I actually now understand why you're not performing. It's that year, if you imagine those lines intersecting and wanting everybody on your team to play at the intersection of those three lines, the reason why somebody wasn't performing is their dot was off center.
So that then opens up a conversation around how can we get your dot back on center? By either repurposing your skill set or recrafting your job description to get you plague and closer to the things that you're good at, or helping to give you some job assignments that you're going to find more energizing, or moving you, in some cases moving you out of the business to a place where your talent, your purpose, your passion can be applied better. So I bring this up, this is a bit of a detour, but I bring this up relative to what caused me to spin out of private equity role. Because as I was sitting there writing this book in the summer of 2020, I realized I now know why. I was feeling discombobulated. My dot was off center. I had drifted from the work that best aligns with what I can do best, what most energizes me, and what gives me a sense of meaning. And so as I'm writing this book in parallel, I'm thinking about how can I?
[00:43:06] Speaker A: When did you realize, Dan, that you're know, I'm writing this about everybody else? And then I look in the mirror, when did that epiphany happen?
[00:43:17] Speaker B: Somewhere along writing the book. Because in parallel, remember, I'm on a summer sabbatical. I give myself three months to take off and I get sort of antsy if I don't know what the next chapter is going to be. So in parallel with writing this book, I'm trying to figure out, well, what am I going to do after this? Am I going to go back to a fund level role? Am I going to stay in an operating role? What am I going to do?
[00:43:38] Speaker A: Pardon the brief interruption. Just a word about how Arcona, my team, can help. If you're interested in running your company like a financial asset, there are two ways that we could help you do what Dan and I are talking about, about running the company like a financial asset. The first one is if you want training and coaching about how to get the right mindset and get clear on your goals, how to identify your target valuation and how to de risk your cash flow. We have a two month training and coaching program. Or the second way we can help is if you actually want a financial dashboard where we build out your financial dashboard. That's custom to you and your company and your goals. And it comes with a couple of coaching calls each month. Those two offerings all start with a discovery call with me. All you have to do is go into the show notes. Use the link below. Schedule Discovery call we can talk through whether you want more coaching and training first to get your head wrapped around this concept and where you want to go and where you're at right now, or two, if you want to jump right in and get a complimentary financial assessment from my team at Arcona, where we plug in the dashboard, analyze your numbers, and come back with some thoughts. Both of those offerings start out with a discovery call in the show notes below. But at the end of the day, you got to understand how to create that sustainable cash flow if you want to get the target equity valuation that you want at a point in time. So you can have a lot of fun, make a lot of money, and make the entire journey worth it. So thanks everybody for listening in and I hope you enjoy the rest of the conversation with Dan.
[00:45:01] Speaker B: So it was really alongside writing this that this started to just become more apparent to, and I felt a little disingenuous at the time, like this was an eat your own dog food sort of moment. Like, I'm writing about this thing and I'm professing that the idea of the blue flame was what I called the concept holds the keys to getting people lit up in their careers. And I'm now realizing about myself, like, I'm not lit up. And so writing this book, the moral of the story is, writing this book happened at a very fortuitous, if you believe in sort of higher powers at play, happened at a very important time for me and caused me to look in the mirror and say, how can I create a world in which a career in which I can spend 100% of my time, or darn close to it, operating in a way that's consistent with my blue flame, what I can do best, what most energizes me, and.
[00:45:55] Speaker A: What brings me what I love about what you just laid out there. When I say part of intentional growth, there are three things that every business owner wants to have fun, create wealth, and make an impact. And it's living in the intersection of those three, Dan. And when they get off balance, then people have a uncomfortable feeling. And what I've realized, too, is after all the work that I've been doing on that, is it's just a fundamental first principle of human cause. Like, it's Itchigaji, if that's how you pronounce it. You're familiar with that japanese term. And then I was listening to Sam Harris and Jordan Peterson have one of more recent interviews and Sam Harris said, I just loved how he worded. He said, I want to have this least amount of distance between doing what I love and doing what I have to. And I was like, oh. And it's like all these different ways. How I wrap it together, too, is while making the income that I want and freedom over my time while growing wealth. So it's like living in that space. And it's interesting for me, as you explain that, what do you think about the business owners that you've bought out and how they deal with this situation? Because that's essentially the problem that I've gone on a mission to solve, is that people have it all conflated, Dan, of their identity and those three things that you're talking about. Their blue flame oftentimes is their company, or it might have gone out because they're sick of the operations, but they still want the wealth, but they don't know how to separate all this shit. So then they make rash decisions, and then they sit there with that proverbial cursor, blinking with no purpose anymore and no job, and they're going, what did I just do?
Have you seen that? Now, if you look back at your past or what you're currently working in, how this situation comes into factor not only with the key executive team, but also the person that founded the business.
[00:47:49] Speaker B: Yeah, I had never thought about this question, this sort of idea of the blue flame visa vis the business owners I've worked with in the past. But as you're saying that a few faces are popping into my mind where for some business owners, for some founders, I can imagine that especially as you hit new ceilings of complexity in your business, where it may call on new skills or new ways of operating.
Yeah. Aren't core to your area of greatest impact, don't really align with your core talents, and that can feel discombobulating. Using the word I was using earlier, I'm thinking about one founder that we bought out, who, before we did the deal, we were sort of underwriting the deal based on, in part on the idea that this guy was important to the business and he was part of what had made this business really successful, as is often the case with founders. And so key man risk was something that we were both mindful of, but also had convinced ourselves wasn't actually a significant risk because he said all the right things. I'm committed to this business. I love this business, blah, blah, blah. Well, when the deal closed and the wires cleared is when we as a firm really started to engage in. Well, okay, you've gotten the business to, I think it was ten or 12 million of revenue at the time. The conversation is now about what does it look like to get it to 30? And as we started to engage in that discussion with the guy we were backing, it became clear, certainly to him and a little bit later on to us, that some of the things that he would have to engage in, his own ways of operating, some of the things that he would have to learn, new skills he would have to develop, weren't actually consistent with what energized him and what he was fundamentally good at. He pretty quickly checked out and stopped showing up for work, both proverbially early on and then literally down the line.
And I don't think that was because prior to closing, he was being disingenuous, ingenuous by saying that very interesting. Was committed to this business, assume best intention. I have to imagine, based on the information he had at the time, he was in it to win it. But as the gap between his blue flame and the needs of the business started to grow post closing, I think he started to realize that, hey, this isn't what I wanted to.
[00:50:19] Speaker A: So what was your blue flame then? What did you realize was misaligned, and then how are you satisfying it now?
[00:50:27] Speaker B: A big part of it was, you asked the question of what caused me to go do my own entrepreneurial thing. A big part of my blue flame, which had been extinguished to varying degrees in different times in private equity, was creativity.
As I was researching, I did a lot of research for the book the Blue Flame, into the human psychology of how do skills get built and what is the impact between meaning and motivation.
[00:50:55] Speaker A: Mihai can checks me high. Did you pick up his book?
[00:50:59] Speaker B: I had to spell his name in the book, which.
But what I realized was that where was I going with this?
[00:51:12] Speaker A: The creativity was not creativity.
[00:51:14] Speaker B: Yeah. Thank you. So what I realized is that a lot of the way that we are today as people, takes root in early childhood experience.
And so if you want to know what is really core to you today, go back, start as early as childhood, and mark your way towards present. And just think about what are the high points in my life? What have been the low points in my life? What have been the themes that have bound the high points? And it's in that sort of self discovery process that you can start to get clear on what do I really value? What am I really good at? What brings me a sense of energy. So as I did that work on myself, I realized that some of the highest of high points in my life have been incredibly creative. I think about the deep sense of joy and satisfaction I got when I was, like, six years old, sitting there for hours on end with one of those pieces of graph paper in front of me, building houses, like, full floor plans for multilevel.
[00:52:10] Speaker A: That's awesome.
[00:52:11] Speaker B: Houses. That was creative. It was creating something from nothing. I think about later on in life, when I was in college, I've always been a musician, but I played my way through college, made my rent money and my beer money by playing in bars and clubs on the weekends, playing music.
[00:52:26] Speaker A: Would you play?
[00:52:27] Speaker B: I'm sorry?
[00:52:28] Speaker A: Would you play?
[00:52:29] Speaker B: Guitar is my first instrument, but I've played some bass, played piano, the utility player. Not really good at anything, but you can play, man.
[00:52:38] Speaker A: It's a lot better than not a huge respect for music because I can't do any of. It's like a completely foreign language to me.
[00:52:45] Speaker B: Yeah, but some of the highest high points in my life have been being on stage. When I say on stage, this is in front of a crowd of dozens of people, vast crowd of dozens of people in these old, musty bars, just making music with people, creating from nothing. So that awareness. There were other realizations I have about things that are core to me that had sort of drifted away from in my career, but that was a big one, was what would it look like to have more creative liberty to build something that. To build something, period.
[00:53:20] Speaker A: That's awesome.
I'm excited to dive into your winning moves book, too, but I think about this five hour interview that you're having with this executive, is that kind of really core and fundamental? Is like, what you're trying to do is find out how they're managing their blue flame and how the alignment happens with their blue flame and the role and responsibility that it's in front of them.
[00:53:47] Speaker B: Very closely related. Like, if you believe that the core principle of the blue flame was put people in a position that aligns with the key to unlocking people powered for performance in your company, is put people in a position that aligns with the answer to those three questions.
[00:54:01] Speaker A: I love it.
[00:54:01] Speaker B: What are you good at? What energizes you? What brings you a sense of meaning? And so, to your point, these deep dive interviews are about extracting from somebody's life history and career history the raw material you need to understand yourself and help them understand what am I great at? What energizes me, and to what degree do the answer to those questions actually align with the needs of this role?
[00:54:25] Speaker A: That's awesome.
Now that you're doing it, by the way, I got to say, did you see that thumbs up?
You have a Mac, obviously.
Did you know that the emojis happen in your os?
Yeah, go like this.
I got to love it. So the people that are listening in with the new os, I've done it a couple of times, Dan, on mine, I had to go in and turn the emojis. Oh, that's awesome. That's fantastic.
We're going to leave that in there.
[00:55:04] Speaker B: Just because I'm going to abuse that feature now.
[00:55:07] Speaker A: You should not have gave me that. That's too funny.
The double thumbs up is fireworks. Okay, that's too good because I want to get the take on the winning moves, why you wrote that book and this value creation theme that you're beating this drum on, and the people part of this for private equity. And so given the fact that we've probably got about 15, 20 minutes left before we wrap up, however, we want to navigate this next section of the conversation, because I think what I think the listeners value is the perspective that PE firms have, or what I think people appreciate about what I do is that there's a meta level view of a lot of things going on. So I think there's a lot of trends changing, different forms of capital, different intents of one of the things that our listeners tune into is like, okay, so, great, I want to sell my company or part of my company, or I want to create value. I want to take a plate or I want to take a playbook out of private equity to apply those things to create some value for myself, then pass it on. So it's essentially like we're all trying to read the same playbook.
[00:56:12] Speaker B: Sure.
[00:56:12] Speaker A: And so how did you take, then go from the blue flame to the winning moves and then also what you're doing now? I don't know how you want to start this conversation, but I think you've got a lot of value that you could provide here.
[00:56:24] Speaker B: Maybe I'll tell you a little bit about the book just as a door opener to this, and then we can help you figure out what would be most useful for your audience. But basically, the core idea of the book is the purpose of the book is to help private equity investors help their portfolio company leaders to make value creation happen in their companies more predictably, more consistently, more reliably. And value creation, I don't know if the word value creation means as much to founders as it does to private equity. It's sort of an overused private equity.
[00:56:54] Speaker A: Okay, I know, I got to add to. Because, say those three words again, because I'm going to tell you my three. This is so awesome. We literally are coming at this for the same level. Yeah. So what are the three things that you said?
[00:57:03] Speaker B: No, I have to remember them consistently, consistently, predictably, reliably, create value.
[00:57:09] Speaker A: The drum that I beat of intentional growth, Dan, is you have to grow the intrinsic financial value of your company by creating sustainable, predictable, transferable cash flow. And it's like, what I want everybody to do is I don't give a crap if you're planning on selling or not. Come up with a target normalized EBITDA at a point in time, reverse engineer everything, and then create the target equity valuation by increasing cash flow, derisking cash flow and paying down debt tard to that target equity valuation. And then between point a and point b, create sustainable, predictable, transferable cash flow.
[00:57:45] Speaker B: Boom.
[00:57:46] Speaker A: That's probably like breathing oxygen for the private equity world. And actually, a lot of that was from a bunch of PE firms that did some panels with me, and I'm just trying to inject that into the business owner's mindset, but you're then spinning around and doing it to the same thing from the people that have been breathing the finances, and you're trying to insert it in with the people part. I just absolutely love it, man.
[00:58:06] Speaker B: I love the way you think about that. I love the way you've sort of adapted the same idea for the founder audience. And to your point, it's all the same stuff. The objectives may be a little different, whether you're maximizing for cash flow or lifestyle or exit value. The objectives might be a little different, but I think the common Universal theme that unites the way you describe it and the way that I preach it in this book is, I'll go back to those same three questions I had shared earlier that really guide a lot of the work I do today.
Where do you want to take this thing? I call that your I'm getting a thumbs up emoji again.
[00:58:47] Speaker A: I'm just going to keep leaving. I love it.
[00:58:49] Speaker B: It's a great affirmation. I need it. My fragile ego needs it.
Where are you trying to take this thing, which I call your vision? Other people call your vision, too, but I call your vision. And then once you know the answer to that question, it really becomes an exercise. To your point, in reverse engineering that outcome, 90% of the book is geared towards providing the quote, unquote, winning moves that operators, whether you're a founder or whether you're a private equity operator. Operators can use to drive each of the drivers that propel a business from where they are today to where they're trying to.
[00:59:26] Speaker A: And as you keep going, too, Dan, what I've been trying to explain to my listeners and everybody that goes to our boot camp or online academy is like, you are private equity, right?
You own an asset, unless you literally just want a job with a bunch of assistance. If your goal is to create an asset, you are actually in private equity. So the same strategies apply. You're just doing it for your own capital.
[00:59:50] Speaker B: Totally. Well, in the same way that I think private equity can learn a lot from entrepreneurs about a lot of things, not the least of which is how to stay nimble and agile, I think entrepreneurs can learn a lot from private equity in terms of how do you take a more disciplined approach to, quote unquote, value creation. Even though value creation is a private equity word, it means the same grow asset value.
How do you grow equity value? I don't care if you're a founder, a business owner, a bootstrapper, a private equity. We're all after the same thing, part of which is to grow the equity value of your business. So even though this book is geared towards a private equity audience, because that is the audience that I most serve, and that's the world I know many of the principles are. Most of the principles, if not all, are as applicable to a founder.
[01:00:40] Speaker A: Is this safe to say that your clientele are people that have funds and then are working with ceos and operators and stuff like that? But I find it where the listeners in and our people that go to our boot camps, they want to consume all of the material. That's why they love the Adam Coffey podcast interviews or the Nick Bradley's or the Brent Beeshores is because to your point, the thing that's majorly different, I would say, if I were to pinpoint one major thing, that's the difference is even if someone shifts their mindset, so let's say they go through our material and they're like, okay, now I do want to target normalize e but a target equity valuation, this is what I'm going to do at the end of the day. Like end of the week, they're like, you know what? I don't want to fire my GM because that sounds like it's going to be a pain in the ass. I'm going to have to deal with all that crap. And then, you know what? I have to then find another person. I might not be able to hire that right person, and I think I'm just going to go to the cabin.
You don't have to do any of that stuff. We're like, in private equity, you got an IRR and a timeline, man.
So I think when you say insert the discipline, that's essentially what we end up doing with our clients that have our coaching dashboard. It's like we're inserting that discipline.
[01:01:52] Speaker B: You said that this is your goal.
[01:01:54] Speaker A: And we're going to hold you accountable to your goal. But then all of the strategies are the exact same.
[01:01:59] Speaker B: Yeah.
[01:02:02] Speaker A: In the winning moves, in order to create that value creation, what are some of the core fundamentals? I mean, obviously there's people, but how are you when you say, because you can reverse engine the financial statement. So what are some of the operational things that you tend to focus on?
[01:02:17] Speaker B: Well, the first thing I try to do in the book is the language. Value creation gets talked about a lot in private equity land nowadays, and for good reason.
Maybe I'll just give you the short view of what's going on out there in the PE landscape, which should be relevant to your business owner audience.
[01:02:35] Speaker A: They're going to care a lot to.
[01:02:37] Speaker B: The extent that they ultimately want to sell to private equity. So here's the skinny. Tons of capital out there, tons of private equity firms, not enough deals to deploy that capital into. Again, I'm painting in broad brushstrokes here, but you take a 15 year view of this industry, which I have from my starting point in 715 plus year view, there are tons more firms, tons more capital out there. And all of those firms have the same issue, which is we need to find high quality places to deploy that money.
[01:03:07] Speaker A: Well, can I add to that, Dan, because I just love how you and I are like we're in different. The multiverse, man.
I bring up the census bureau every single time I do a boot camp for the academy. And I say there are 6 million privately held entities that have 120 employees. And out of the 6 million entities that have employees, only 21,000 are above 100 million in revenue. Between 5 million and 100 million, there's only 300,005.6 million underneath 5 million. And if there's 1.5 trillion raised in PE firm coffers, and the reason it's raised is because there were 0% interest rates and no returns for 15 years. If I say, okay, well, you take $1.5 trillion, let's say you have a 20% down, they can buy the whole damn market over twice with debt, and I'm going like, there's only 20,000 companies, over 100 million in revenue. So I go like, well, no shit. And multiples on veterinarian clinics are 28. I had a guy say, I got a 28. I'm like, did you invent horse cancer?
[01:04:08] Speaker B: What the hell?
[01:04:10] Speaker A: But the reason I know this stuff, Dan, is I can't wrap my head around it, and I had to learn the context of it. So you go, all that money was raised because, I mean, pension funds went from 8% exposure to 35% exposure over the last nine years. So all these firms were able to raise the money, and now they're chasing. So I go to your point, what I've said, and the reason I've stayed in my lane for ten years is I'm going, if I raised the money, I don't know what the hell I'd do because I don't want to go overpay for these companies.
Yes, sorry.
You can tell I get passionate about it, but I find that so fascinating because the people going to buy these deals are going to have to do things for their investors.
[01:04:52] Speaker B: And I think that's the core point. That's the why behind the book is gone are the days of being able to cost cut value by and financially engineer your way to alpha or outperformance.
The inefficiency.
Again, there's still pockets of inefficiency, and there's probably some counterarguments to this, but I think by and large, the inefficiency has been sucked out of that market by way of just tons of capital, tons of firms, lots of competition. And so this market backdrop has brought to the fore the importance of, quote unquote, value creation, which I define in its most simplistic terms as things that create equity value. But private equity refers, private equity uses the term, I think, a little differently to really represent taking a proactive approach to making these businesses more valuable than when you bought them, such that you don't have to rely strictly on the rising tide of multiples or financial engineering to make your returns. And so my thesis at the time that I wrote the book was, this is going to become value creation. The importance of it, the investment in it, is going to become greater and greater in this era of private equity. And so somebody needs to advance a point of view that is private equity tailored on how can firms go about that? And so to answer your question more directly of how do you even dip your toe into that topic? The first thing I do in the book, after I paint this sort of picture of why this is important is take this broad, vague idea of value creation and break it down into its component parts such that we can approach it more surgically. So if you define value creation as things that create equity value, it turns out there's like, in a private equity business at least, there's five ways to create equity value. You can grow your revenue and expand your margins. You can do strategic acquisitions, you can pay down your debt, and you can expand your multiple when you go to sell it.
[01:06:47] Speaker A: Five things.
[01:06:50] Speaker B: So knowing that in and of itself isn't good for anything because it doesn't tell you how to actually go about creating value. But the first stop on the value creation train is to actually define what are we talking about on value creation and how do you break it down into its component parts. What I've then done in the book, which is 80% of the pages in the book are dedicated to proven, actionable winning moves. The name of the book that private equity investors, private equity operators and founders, to your point, founders alike, can use to make those five, to drive those five drivers and make.
[01:07:27] Speaker A: It's such a good feeling, Dan, because I've wanted for so long, I wanted the fundamentals to matter, you know what I mean? And it sounds like that's kind of what you've seen over the years, too, where instead of just moving numbers around and extracting value from a system, let's go create value. Because at the end of the day, creating value means we have happier customers that have valuable goods and services. I don't know if you've ever come across this book called Makers and Takers. Oh, dude, it's Rana.
Look at this picture.
[01:08:02] Speaker B: That the COVID Oh, man, love it.
[01:08:04] Speaker A: There's people that are listening in. There's a picture of a hand taking money out. It's like a hoover vacuum versus the makers. The makers are the people that actually make the value.
I always say to everybody in our boot camp, because I've been knocking the people that have raised insane amounts of money over the last six years, and it's like, yeah, you need to make some cash flow at some point. It's like, this is ridiculous. Minor detail, minor detail. Like I said, I don't know about you, but I have to generate enough revenue, have the right margins to then pay my payroll, pay my taxes, and keep funding the company.
I think it's just nice to know, and I think hopefully, what this will be doing, especially as people like you are attacking and helping the private equity. There's. I think that's more market efficiency, Dan, because the people that I work with, a lot of times they do want to take chips off the table, they do want to partner, they do want to sell their business and evolve over time, but they have this misalignment with someone that wants to financially engineer what they created for 20 years and then they know in their heart that doesn't seem right. And I tend to agree with them. And so I think what you're doing is very helpful on that side of the fence.
[01:09:18] Speaker B: Well, and in the founder world, I know even to this, the private equity space has evolved considerably even since I got involved. Private equity has been around in its earliest form since the 1950s or industry really started to Kingsy Capital.
[01:09:33] Speaker A: You ever read that book?
[01:09:35] Speaker B: Oh yeah. The industry really started depending on when you timestamp it. Maybe the private equity has evolved a lot over even the 15 years I've been involved. Where I know it still has this stink to it in that private equity firms are just in it to cut cost and suck the resources out of these businesses. For some firms I think that's probably still core to their thesis and approach. For others, I work with a good number of firms. I know a lot of firms and there's a lot of people out there who are endeavoring to be makers, not just takers. I love it.
I think for founders who are thinking ahead to what do I do with my business, what's my exit strategy? But are still leery about private equity as an asset class or a potential buyer because of that stink that has long existed, I would just say there's lots of good actors in the space. There's lots of firms that are sincerely interested in how do we take businesses that founders have built and preserve their legacy and enhance their legacy and build them further in the right way. Alpine was one of those.
I'm proud of the fact know whether we got it right or wrong every time, proud of the fact that the mindset we took into investing.
[01:10:51] Speaker A: Your intent was good, it sounds like.
[01:10:53] Speaker B: Yeah, and look, you got to make tough decisions at some point along the way. But the intent was always good, which is how do we build enduring businesses. So I say that because for founders in your audience who are considering the idea of one day selling to private equity, just know that. Know that there's lots. Value creation as a point of emphasis for private equity is becoming a bigger and bigger thing. And that means your business will be made better and stronger under private equity ownership. And this book, I think this is not a way of hawking books which are going to earn me like a 2.50 cent royalty for each one.
[01:11:31] Speaker A: But spread the word, man.
[01:11:32] Speaker B: Yeah, I'm making dozens of dollars off these books right now.
But I mean this when I say I wrote this book in part for founders who one day want to sell to private equity so that they can understand how private equity thinks about value creation, pre position their business, use the principles in this book to actually grow equity value under their ownership, but also position their business in a way that is going to jive with how private equity, the types of assets and businesses private equity want to buy, and how they think about growing and creating value.
[01:12:09] Speaker A: I love it, Dan. And like I said, I think what you're doing is not only a noble cause, but it's super important. And I think what we're both doing is we're creating more efficient market, because if people create more value, then everybody can win.
I'm also trying to help eliminate some of this thing, too, because I also believe that the people listening in that don't understand deal structures or how all of the game is played. It's like you're playing checkers when everybody else is playing chess. And we can't have people be upset when something happens when they chose not to understand the game that they were playing. You know what I mean? So there's a little bit of responsibility that everybody, I take full responsibility of what we sold. And it was a mess. That sucked. It was an asset sale on an eight figure deal, and we paid 53% in taxes. I go on and on and on, and it's like, I was pissed for a long time. And then it's like, well, I found out I was playing the wrong game.
So my point is, I think that helps both sides meet, because at the end of the day, Dan, that's kind of like when you were talking about your blue flame, is like, I want a buyer and a seller to go at a deal table and talk about whether they are actually aligned on one of your first things, where are we going? How are we going to get there? And then all the mechanics become let the deal team do the mechanics and let the people get aligned first.
[01:13:36] Speaker B: Such a good point. Such a good point.
[01:13:40] Speaker A: As we're wrapping up here, give everybody a little bit of an overview of what you're doing, because I know there's also some investors and PE firms and acquisition entrepreneurs that listen in, too. So what's your set up for how you help people?
[01:13:53] Speaker B: Yeah, I mean, the banner under which I've built this thing is helping private equity firms and their portfolio companies to drive people powered value creation in their companies. So that's sort of a. I'm not much of a sloganeer, but that encapsulates a lot of what I'm doing in a sense that the work I do tends to track the deal cycle. So pre closing, I'll get involved with private equity firms that are acquiring companies, helping them to do organizational due diligence, which is really about awesome.
The private equity firm is underwriting the deal to a certain thesis. How well positioned is the business from a leadership, a talent, a cultural, and a capability standpoint to actually make that thesis come true. So that's a lot of the work I'm doing. Pre closing. That then translates into the work I will often stick around to support these firms. With post closing, which is once the business has been acquired, it's helping everybody, everybody being the board, the private equity group, and the management team. To get on the same page about the answer to these three questions, with the goal being that, hey, within the first 100 days post investment, everybody has stacked hands on the vision that we're pursuing, the value creation plan that guides how we're going to pursue that vision, and the people plan, which dictates who do we need aboard to make that happen.
[01:15:13] Speaker A: So awesome, man. I got to ask you, and this has been a personal thing of why is it so many people don't know where they're going?
I can't wrap my head around it, man.
[01:15:25] Speaker B: What's your hypothesis?
[01:15:27] Speaker A: I have no idea.
It's been this thing for me for ever, man. As a kid, I just always figured out. I just figured everybody had it all figured out, man. I was a terrible student, and I always figured people had this grand vision and clear idea, and it is one of the biggest takeaways of our boot camp and online materials. Like, yeah, I just got to figure out where I'm going. I'm just like, what?
Now I know it's a thing, but I don't know. I'm not directly answering your question because that's why I asked you.
[01:16:01] Speaker B: My guess is, and I'm projecting a little bit of my own stuff onto you in this conversation right now, but my guess is it's because that idea of being intentional, no pun intended, about where you're going probably just seems second nature to you. It seems second nature to me. That's always how I've lived my life. Intentional is a word, and I haven't always done a good job of this, but I think the people that know me best would probably describe me as being quite intentional about a lot of things, for good or bad, both asset and liability. The idea of getting clear on where you're trying to go and then working backwards from there, it's just how my brain is wired, and probably how your brain is wired.
[01:16:42] Speaker A: Yeah. I can't do anything other than that. There is no other alternative.
[01:16:49] Speaker B: For a long time, I wondered the same thing, which is when I'm engaging in a conversation with a portfolio company or a target acquisition around the vision, sometimes you'll get sort of blank stares.
And at first, I admittedly looked on that with a lot of judgment. But then I realized two things. Number one, my brain is just sort of wired in that way, and not everybody has the same brain wiring as me. Again, for good or bad.
[01:17:16] Speaker A: Agreed.
[01:17:17] Speaker B: And number two, the real name of the game is like, how do you bring some of that there backward? I call that there backwards thinking into a world that tends to and into companies that tend to approach things here forward, recognizing that there's great benefit to having both of those things married up.
[01:17:35] Speaker A: Wow.
[01:17:37] Speaker B: I'm less of a here forward thinker, but I've learned over time, and I think I've sort of modulated and found a good, happy medium of being able to preserve what is good about being long term focused and intentional and goal oriented and vision oriented, with a real ability to think about what's the next ten yards we have to really nail, and how do I not necessarily need to know the answer to the question of where am I going long term, but how can I just get after what I think is the right next ten yards? What my instinct is telling me is the right next ten yards, and then sort of pick my head up and reevaluate. I think there's benefit to both of.
[01:18:10] Speaker A: Those styles, dude, so good. That was very helpful for me, man, because I accidentally have it become the lie. I mean, it's a liability. And like you said, it can show up in weird ways of judgment, resentment, confusion, all that stuff. But it's meeting them in the middle. Just like you also said, there's another big takeaway of the doing and the knowing gap. Dan, this has been a blast, man. I know we're running short on time, but we'll maybe have to do this again, man. I really, really enjoyed it. Where can people find you?
[01:18:44] Speaker B: Link up with me on LinkedIn. I put a lot of stuff up on there, pretty actively traffic LinkedIn, so link up with me there, and that's where I do most of most of.
[01:18:53] Speaker A: My stuff, and we'll put all the link to the book and everything in the show notes Dan, thanks so much.
[01:18:56] Speaker B: For the conversation, man. I've really enjoyed it and I've learned a handful of things that I see my note page here, things I'm taking away from this conversation. So thank you and kudos to you for the work that you're doing in the world. I think it's really cool and inspiring.
[01:19:10] Speaker A: Thanks for listening into that conversation. I hope you found the time valuable. If you enjoyed the conversation, please leave the show a review on your podcast player. We're constantly trying to up those reviews. It helps a lot with the visibility and if you didn't catch the commercial in the middle of that episode, there's two different ways that we can help you. One is if you want that kind of clarity, we have a coaching program that is based on the five intention growth principles and uses the material to help you get that kind of clarity on your target, equity valuation and income that you need on the way towards that valuation. What you want from the business long term and why and then how to get aligned with your leadership and your partners. So that way everybody's working in the right direction to get you what you want. And the second way is if you want to jump right into the data and you want to actually build out your financial roadmap with your three statements and tie your financials and your operational data to that target equity valuation, my team offers a complimentary financial assessment. Either way, all you have to do is go use the link in the show notes below, schedule a discovery call with me. We can walk through your situation, figure out if there's a fit or not, and if not, I can point you in the right direction. Thanks everybody for tuning in and I hope you enjoyed this episode and I will see you next week.
