Ep 495 Inside the Mind of an Acquirer: Brent Beshore on the Private Equity Trap and Being Long-Term Greedy
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Hi there, and welcome back to another edition of Built to Sell Radio, the podcast designed to help you punch above your weight in a negotiation to sell your company. I'm the executive producer, Colin Morgan, and today's episode is part of our Inside the Mind of an Acquire series.

John sits down with Brent Beshore, founder of Permanent Equity, an investor who shuns debt, holds companies for decades, and warns owners about the private equity trap. Brent explains why...

being long-term greedy can create more wealth with far less regret. If you liked our episode with Adam Coffey, you're going to love today's conversation. You'll find links to everything Brent references to, plus the Adam Coffey episode and other resources inside the show notes section over at BuiltToSell.com. Without further ado, here's John's interview with Brent Beshore. Enjoy. ♪

Brent B. Shore, welcome to Built to Sell Radio. Hey, thanks, John. Appreciate you having me on. You know, I've seen your name like a thousand times on the internet, so I feel like I'm kind of touching fame here when we chat. So I'm really excited to have this conversation. We have had all kinds of acquirers on the show. So we've had a few private equity buyers. Adam Coffey came on and talked about the private equity playbook. We've had

through acquisition experts. So we've had the two guys from Harvard that sort of pioneered that program there. Talk about ETA as a sort of model. And your business, Permanent Capital, feels kind of similar, right?

And I'm hoping you can sort of disabuse me of that. I'm hoping you can explain to me what it is that you guys do and how it's different than, say, traditional private equity. Yeah. Well, so I didn't come from a traditional financial background. So I've joked many times I'm like the Forrest Gump of private equity. I've never taken a finance class in my life. I can barely open up Excel. Yeah.

I never worked at another firm. So I came at it, I was an entrepreneur myself, right? So I think that a lot of your listeners are kind of small business owners. I was a small business owner. And then I got introduced to a guy who wanted to sell his business. And I'd never thought about buying a business before. The way the introduction came, it seemed obvious that that's what I should try to do. And that was in 2009 and ended up buying the business in early 2010, so 15 years ago. And then I was a small business owner that owned two businesses.

And I was trying to make a go of it. I had no idea what I was doing. I mean, you understand, John, I knew nothing to the point where my lawyer said, we got to do diligence on the firm. And I literally typed into Google, DO diligence. Like I got a week out from closing and I realized that I was like, wait a minute, if I give him all my money...

And he takes all the money out of the business. Like, what do I do for working capital? And so I asked the seller, I was like, what should I do? And he was like, well, you got a working capital line of credit. I was like, no, I didn't get one of those. Like, what do we do? And so he ended up loaning me money out of the transaction to keep the business afloat. Like I knew nothing.

I actually didn't even know there was private equity until after I bought that business. And I researched. I was like, man, this whole acquisition thing is kind of wild. I wonder if I'm the only person out there doing it. I'm like, oh, there's this whole other industry called private equity. So like what I said, I knew nothing. I'm coming at it. I can very much relate to your audience. I came at it from a very first principles. I was an operator. I'm not an investor. I don't even consider myself an investor now.

I love deals and operating and building and making things. So what was the first business you had when you got a promotion? What was the second business that you bought? Yeah, so I had been running... I started and been running a...

Kind of like a regional marketing for a marketing services firm. So 2007 and 2009, got that up and running. And then 2009 got introduced. And the firm that I bought was a military recruitment marketing firm called MediaCross. And we still own it today. Great relationship. The woman who's the CEO was a longtime employee when I bought it 15 years ago. We've got a great relationship. It's going and blowing still.

It's been an incredible success story and really has fueled a lot of the, what became permanent equity came out of that. So yeah, so when you ask me, what is traditional private equity and how are we different? I mean, we're kind of the inverse of traditional private equity in almost every way. So if you think about the traditional private equity model, I call it the buy, lever, strip and flip model. So you're gonna buy a business for whatever the price you can get it for, you're gonna lever it to the moon, you're gonna try as little equity in it as you possibly can.

You're going to try to strip it of as much as you can to make the financials look as good as you can. And then you're going to try to figure out who to sell it to as quickly as you can. And once you sell the traditional private equity, your business is always on a trajectory to either be resold or subsumed up into something bigger. It's just a fact. Like there's no off ramp from traditional private equity. Now, for me as an operator, I

I didn't think that was very attractive. I was like, man, I can't imagine the stress of having a bunch of debt on the business. I mean, I never ran my business with any operating debt. So having a bunch of debt on there, having a very short timeline. I mean, we're talking most private equity firms want to try to resell as quickly as they possibly can. Really, the only limitation of how quickly they can sell is just how much work they can get done. If they can get the work done quickly and there's a buyer who's ready to buy from them, they're going to put points on the board and go sell that thing.

I can't imagine as an operator of the business, that would stress me out so bad. I couldn't sleep at night. I wouldn't have a good family life. And I think that's the pattern that I saw as I did more research in private equity. And so, I mean, permanent equity is literally the opposite in almost every way. So we raised 30-year funds. So we have the capital from our investors is for 30 years. And we actually have an option to take it longer than that if we want to. We typically use no debt in our transactions for the last...

gosh, I don't know, seven, eight transactions. We've used zero debt at closing. We'll use a little debt around working capital if the business is growing a lot, maybe a little bit on the real estate if we purchase some real estate. But we're not trying to put in less equity at closing and trying to use debt to make up the difference.

And then we're trying to hold these things indefinitely. We have no intention of selling the business when we buy it. We want to partner with the sellers in whatever way maximizes the opportunity for them. And we want to treat people really well long term. So we've been at it for a long time. We raised outside capital in 2017 and another big round in 2019 and been operating out of that. And it's been great. I can't imagine going back...

Yeah, I couldn't imagine going to doing traditional private equity at this point. On Built to Sell Radio, you hear founders reflect on what made their business truly sellable. That's exactly why John Worrello created the Value Builder Score, a 15-minute assessment that shows how your company performs on the eight factors acquirers care about most. If you're already working with a Value Builder Advisor, ask them for your score. If not, visit valuebuilder.com slash score and we'll connect you with someone who understands your industry. That's valuebuilder.com slash score.

Okay. So that's awesome. Really clear distinction between the two. I'm going to play a little bit of devil's advocate because I can hear Adam Coffey on my shoulder and my ear saying, ah, but the leverage and the flip is where we make all our money. So Adam Coffey, for those of you who haven't listened to that episode, is the guy who wrote the book, The Private Equity Playbook. It stands, I think, the most downloaded episode of Built to Sell Radio in history. I'm sure Adam would be happy to hear me say that. So-

A lot of the levers they pull, again, they're looking to buy low, strip out all costs, take advantage of efficiencies, lever it up so they can increase their return on equity and then flip it. And they make money along the way.

So, when I was listening to Adam talk, I'm like, wow, this is like a license to print money. This is a glorious business model. I wouldn't want to be one of the businesses he buys, but gosh, if I could somehow get a hold of this business model. So, I guess the other side of the coin is, yeah, that all sounds great. Permanent equity sounds great. 30-year funds, no debt, legacy, employees, all right, warm and fuzzy message. But

How do you make money? Like if you're not using debt and leverage and flipping, how do you actually make any money? Yeah, well, so this is the question I wondered when I first started doing research on private equity was, wait a minute, why do they do things so differently than families? I mean, every big business started as a small business, right?

And families are the ones that drive most of the wealth in this country are the business owners. And so when you look and you say, okay, well, how did families make their money? Did most people who started a business say, okay, in order to make money as a business owner, what I need to do is I need to put in as little equity as I can. And I need to grow this thing as quickly as I can keep my costs as low and I need to flip it as quickly as I can to somebody else.

No, that's not how families built dynastic wealth. How'd they build dynastic wealth? They invested in their communities, invested in their people and generated cashflow.

And so that's the basics of business. The private equity model that Adam's talking about, look, it works. It makes money. I just don't think it calls to the better angels of our nature and it doesn't create a system that's long-term sustainable, which is why private equity has to continually be hopping from one project to the next project. It's a series of short-term projects. And most people in private equity don't stay in it very long because it's so stressful and they can't wait to retire.

Our whole model is we want to serve these people long term and we want to live our lives as permanent equity staff. We want people to have a great home work-life balance. And we also work hard. But we're not stressed out about the next sale. We're not stressed out about what's the next immediate... How do we squeeze the most IRR? What we're doing is we're working with these companies to generate...

gobs of cash that we can either reinvest back into the companies or redistribute it out to us and our investors into them. So we're operating exactly like a family does. Exactly like how family businesses get built is how we make our money. Okay. I want to come back to the family analogy because I got some questions. Just talk me through the limited partner value proposition. So

you know, if you're buying, like for some of our listeners buy businesses, right? And they're like, they don't need to make a lot of money in the short term. They know that over time, one day they're going to sell the collection of businesses and they're going to make a truckload of money. And so that's a model. It doesn't sound like that's your intent, even by the name permanent equity. It sounds kind of like you're, you know, you're buying and holding kind of forever. So how do you make money, Brent? Yeah.

And then how do, as a limited partner, one of the people that have invested giving you 30 year money, how do they make money? Yeah. We pay everyone in rainbows. We found that's a really great use of rainbows are really the currency that everyone wants to get paid. Yeah. No, we, um, so I'm like, is that some term I've never heard? No, it's just, just rainbows. Um, yeah, no, this is a, this is a common question, especially people in the finance industry. They're like, that's all sounds great, but like, how do people get paid? Um,

So it's very, very clear. So what we try to do is we try to create as much alignment as we can between our investors and us and the companies, right? The most alignment you can possibly generate. Now we can talk about it. There's one weakness in our model, which most people don't get to until they really get to know us. Happy to talk about that and what that weakness is.

But the model that we have is so we don't take any fees of any kind. We take no reimbursements of any kind. There is no cash that comes from either the portfolio companies or our investors to us as permanent equity, except we take a percentage of free cash flow as we return it back to investors. Okay. So there's no cash. So our entire operation is self-funded, completely self-funded based on our own balance sheet. And then it's only, we only get paid once we distribute cash back out.

Now, what does that do? You might say, well, doesn't that give you an incentive to strip as much cash out of the companies as you can so you can make money? No, in the same way that families wouldn't do that either, right? If we get a percentage of that free cash flow and we can reinvest that dollar pre-tax at high rates of return, we'd be idiots not to do that because when we get to share in every out year of that compounding, right?

Now, if there's not something good to do with the capital, then the dumbest possible thing we could do is keep the capital and sit on it and find something to do with it, right? This is how you get into fiefdom building. So what I love is we pattern permanent equity literally after how families built dynastic wealth. It was they did things with it if there were things to do with it. And if not, they got it out and they did other things with it. And that's the way we treat our investors. That's the way we get paid as well is we first look for high probability, high return reinvestments back in the portfolio.

We're trying to generate really great solid returns by reinvesting these businesses, but a lot of them are asset light. They don't have a lot of capital needs to grow. Some do, depends on the opportunity and the situation. If that's the case, then we don't try to force them to grow. We don't try to stick capital back in and make it sort of artificially grow faster. What we say is no, no problem at all.

No worries, just operate within the constraints naturally of the business. Take the capital out, we'll distribute it back to our investors. They can go choose to invest in something else or buy a boat or choose to give us the capital in the future if we need it. And when we do that, we get paid as well. So twice a year, typically, we're distributing out pretty large amounts of free cash flow based on the free cash flow, the aggregate number of the companies that we have in the portfolio. So it's really simple. Okay, more questions. So with regards to...

Let's maybe use a hypothetical example. So what would a typical deal size be like $10 million of revenue, $2 million of EBITDA? Is that reasonable? Or what would you get thrown in? Yeah, well, so let's just say for argument's sake to make the numbers easy that it's a million dollars of free cash flow. We're typically buying on the low end about three and a half million dollars of free cash flow. We go up to 1520 on the high end. So it's a little bit larger than that. But let's just for the math's sake, make it easy.

And say we're buying a million dollars of cash flow. And we'll say for argument's sake, we're going to buy 100% of the company. We rarely buy 100% of the company. But again, just for argument's sake, let's just say that we're buying a million dollars of cash flow. Let's say we're going to pay $5 million for that million dollars of cash flow. So we're going to pay a five times multiple. Okay. It's like fairly reasonable. It's a middle of the road business and a million dollars of cash flow.

ish, kind of in that range. We can talk about multiples, but so we're paying, you know, five times and we'll say it's true free cashflow. So we can have discretion over reinvesting that capital or not, but we get a million dollars out. So that's a 20% starting cash yield, right? Just to make the math super easy.

We may take part of that and we'll say we take, I don't know, a quarter of that. And we say, look, we've got high probability, high return projects that we can reinvest. And let's say that pretty good line of sight that we're going to get 30 or 40% returns on those. Well, if you and I own that business, John, you would both

both be saying keep the cash like reinvest especially pre-tax like go reinvest it right that means that then we're taking out of that um 750 000 right ish which is about a it's about a 15 return so that 15 return then we split that the investors get the first eight percent raw return right off the top and then we have a catch up and then we split it on the upside and it depends on the size of investment that the investor has but we share in that upside from there now

And so, you know, as the cash gets returned back, we're splitting it. We're getting kind of our take off of it. They get their take and we all move along. And by the way, a lot of our leadership teams are also invested in the same way. So they're also getting bonus on cash flow coming out, which again, we have to remind them and we talk them through the logic of this. That does not mean we want you to extract out.

as much cashflow as you can. We want you to find those high probability, high return projects. And they're like, oh yeah, of course. Because they get to share in it in out years as well. So everyone's perfectly aligned to do whatever makes the most sense. If it makes the most sense to reinvest it, you reinvest it. If it makes the most sense to distribute it out, you distribute it out. There's no incentive one way or the other to do something that doesn't make sense for the good of the business.

So if I was an institutional investor and I've got like three different options in front of me, I could invest in a private equity fund. I could go buy a Dow Jones or NASDAQ index, or I could give Brent some of my money. If I give it to...

The index, the NASDAQ, I think, has done over 50 years or whatever. It's probably done 10 or 11 points, right? So why would I give it to Brent when he's given me a risky eight and then a split on the back end, but that's a bit dodgy or I'm not 100% sure versus I can just give it to NASDAQ and know over the next 50 years, they're just going to spit out 11% every year. Why would I give...

It just sounds like a really risky eight points. Maybe I'm missing it. Explain it to me. Yeah, well, so that's a great question. So I think the way that our investors would look at it and say is there's no impediment between them and getting the first raw 8% returns out of the portfolio. And there's no leverage and there's really nothing saying there's no fees, nothing standing in the way. So traditional private equity also typically has an 8% hurdle, but there's a waterfall of fees and all kinds of things and expenses sitting on top of that.

Right. So we don't have any of that. That's just the first raw 8%. And then there's a lot of upside. Right. I mean, I can't go into our exact numbers, but, you know, we beat the S&P by a huge margin and we actually are in the top. Gosh, I think nearly 1% of private equity firms out there were using no debt.

Right. So we're out competing. And I think that's when people look at our track record as a potential investor, that you look at our track record and say, wow, you're out competing traditional private equity at the game they're playing, but playing it in a way that's far less risky and far longer term. And I think that, you know, look, not, we're not the right fit for everyone. Um,

But families who understand it, I mean, our two investor types are families and endowments. And both of them are incredibly long-term oriented. And they look at that and they say, well, we get the first raw 8%, then we get a big call option all the way up. And look, these returns can get outrageous. I mean, we've had individual investments that return back 15, 20x on the initial capital, right? So you get all the way up from there. So it's very, very different though than buying...

kind of a higher multiple, higher priced, higher leverage type bet, I think is what they would say.

What do you mean by a call option all the way up? I don't understand that. Yeah, so a call option. So meaning they're getting the 8% and they're able to stack on the way up as the performance of the companies increase over time and we compound. Because you got to remember, it's not like we're just generating that, you know, whatever that percent of cash yield at closing is. We're reinvesting that cash, hopefully at a high rate of return. So on that million dollar example, right? The next year, maybe we're generating...

You know, maybe it's a million dollars of additional and then it's like a million five and then two million and two and a half million. I mean, you know, 10 years later, you know, it could be we've got investments that are like this, that are that are generating a multiple of the total invested capital that we have in there, generating those every year in free cash flow.

And so, you know, as you grow, I mean, the numbers get pretty silly as you grow and that's without using debt. And in fact, we can talk about, you know, most of my private equity peers think I'm a complete idiot. I am for different reasons, but maybe not in this particular reason for not using debt because, I mean, the math is super easy, right?

If you knew what the future held and you know exactly what's going to happen, of course, the most logical thing to do is use max debt as to run that razor's edge between doing something stupid and doing something very, very smart. Right? We all understand how the math works. It's true.

What we would say is we have opportunities that present themselves irregularly in the portfolio to use large reinvestment capital opportunities to generate really big outsized returns. And I'll use a great example of this. We bought an aerospace business in 2019. Now, I don't know if you know this, John, but aerospace never goes down. It usually is either flat or on the way up ever. I mean, it never goes down.

Something had happened in 2020 that maybe caused a little slight blip in that. And we were told, hey, look, you guys are idiots. You're not using debt. Like this business never goes down. Like this is the perfect opportunity. It's asset heavy. You got a tremendous amount of inventory in this business. Use debt. And we said, no, that's just not the way we do things. Now, we did not foresee COVID. No one did, right? But we knew at that time that we couldn't guess what the future held. And we were like, okay, look, what is the humble thing to do? The humble thing to do is pay a reasonable price and not use debt.

And it served us well. All of our competitors, when I say all of them, literally every single one of our competitors was negotiating with banks while we were able to make reinvestments back in the business. And we made about...

Gosh, about 10 years of progress in two years. That business is 7x the size five years later than it was in 2019. Seven times the size. It is dramatically outpaced. If we had used debt and tried to put in as little equity as we can and then looked at the opportunity cost, that is a clear opportunity cost of what we did generated way, way higher returns with way less risk.

for our investors. And we think that that happens irregularly in every single one of our businesses. Now, there's nothing inherently wrong with debt. You can use debt. Look, if you have a software business with 10-year contracts, yeah, use debt. It's highly predictable.

But I think the world's a lot less predictable than we think it is. And so what our position is, if we can generate really good returns in normal circumstances and then we get a chance once every five to 10 years of making huge leaps while everyone else is sucking wind.

Like this fantastic. That's like the dream come true for a compound. Kind of reminds me a little bit of a Buffett's sort of idea. Like we don't usually do great in great markets, but boy, we clean up in sloppy ones. Let's go back to this example of a business with a million dollars of EBITDA that you buy for five. You mentioned you don't usually buy 100%.

So I'm assuming you get the owner or owners to roll some equity. Maybe walk me through that model. Yeah. So, I mean, we want the leadership teams in these businesses to be highly incentivized to win alongside us. Like we are not trying to win at the expense of our leadership team. In fact, if anything, we would love to be generous with them and have them win with us.

So what we try to think at closing is, okay, how do we design the deal? Yes, we got to deal with the seller and the seller has certain needs, but we also try to be way more holistic and think about all the other players at the table. So the leadership team, the employees, the local community,

Our suppliers, our customers, maybe even regulators, depending on what the industry is. Okay, how do we craft a win-win deal for all of them? Because if we're going to not sell this thing, it's got to be sustainable. And to be sustainable, it has to be win-win for all the key stakeholder groups. And I think this is what most people miss in dealmaking is they're only trying to do a deal between the buyer and the seller.

And that's a huge mistake if you're trying to operate this thing for the long term. You have to think about all the other people at the table. So what we try to do is we try to say, OK, what would incentivize us if we were in their shoes to be with us long term? And so we're trying to get the leadership team to have a very meaningful stake. This is not about us paying less. We have plenty of cash, right? We raise capital from outside investors. So this is not about writing a smaller check. In fact, if anything, I think our investors would like us to write bigger checks because

What we're trying to do is we're trying to say, hey, John, you're selling us the business. What is ideal for you? And you say, well, to be honest, I'd like to be CEO for another five years, maybe be chairman of the board for five years after that. Okay, well, I'm going to 10 year relationship then.

John, you're in a superior position of knowledge to me as the buyer. I mean, you know where all the bodies are buried. You know all the dynamics, right? I would love for you to take 15, 20, maybe even 30% of the business, depending on the situation, and roll that forward so that we can win together. Here's how we do that. And by the way,

You're probably as a business owner, you don't have debt on the business now. I mean, we've literally in the history of the firm, maybe seen a handful of businesses that carry some sort of operating dividend debt that they dividend out. It's extremely rare. And so you're used to having heavy cash flow. And we say, great, we're also going to keep that cash flow cadence. So if you can retain 30 percent as that grows over time, we're just going to you get your para pursue 30 percent distributions of whatever the profits are.

It's a great way to align people in the moment and sort of over the next, you know, whatever period of time to do that. And then we try to have that cascade down into the business where...

You know, they're either holding equity or synthetic equity of some type that gives them the ability. Synthetic equity being like phantom shares? Yeah, phantom shares or some profit sharing. As you know, it's really hard to gift people equity because it gets transferred into taxable income. And so if I, John, let's say that, you know, you were the CEO and let's say you're a newly hired CEO. And we were like, we'd love for you to have 10% of the business.

And the business was a $5 million business. And let's say we just said, okay, as part of your comp every year, we're going to have you vest in, you know, one fifth of that. That's $200,000 a year of additional comp that you're getting on top of your other comp.

that you got to pay taxes on. Like you don't get to, the IRS doesn't say, okay, well, until it turns into cash, it's free. No, no, no. They say, as soon as it vests, you get $200,000 of stock. You got to pay tax on $200,000. Practically, it doesn't make sense because you don't have the cash to pay your taxes. Basically, the only one who wins in that situation is the government. So what we would do is say instead, hey, John, why don't we get you to a 10% ownership stake

where it's more of a profit sharing in the event of a sale, which is the economics of the deal. I mean, there's two sides to ownership, right? There's the economics and then there's the control. You're not going to have control anyway, right? 10% is not going to be the majority. You're not going to be in control of the business. So kind of put that off to the side. What we're really talking about is economics.

We try to get you in a position where you can share in the economics and as things go great or terrible, you get to share in the pleasure of the pain of that with us. We like to have everyone around the table in some way is eating at the same table with us as opposed to some sort of waterfall that's complicated that if this happens and that happens and you might get this, you might get that.

You know, contrary to traditional private equity that usually does a lot of different classes of shares and, you know, after this share class gets paid and this debt gets paid and this gets paid and if, if, if, then maybe the leadership team gets paid. We don't like to do that. We like to have everyone eat at the same table and say, look, if we're winning, we're all winning together. If we're all losing, we're all losing together.

Okay. Let me ask, and I'll play a little bit of devil's eye. Yeah, of course. And push a little bit on this hypothetical example. So we've got this business generating a million dollars a day, but-

And we're going to pay 5X for that. So we say, look, the owner, you know where the bodies are buried. We'd love you to roll 30% of the equity, right? So we're going to pay you 70% at the time of close to 70% of 5 million. I think it's three and a half million bucks, right? So I pay some tax on that. Maybe I walk with two and a half. Okay. Why would I do that deal if...

You're only going to give me two and a half million bucks. If I wanted to roll equity, work for you for 10 more years, I just own the business. I don't want to be your partner minority. Now I'm not making the decisions. I got this whole cast of characters. Like, no, I'll just continue to own it. I'll take my million bucks. It's not capital intensive. I'll just kind of, if I feel like I've got a 10 year runway, why?

Why don't I just hold on to it? Yeah, that's a great question. We actually try to talk people out of selling us their business all the time. And we tell them, yeah, for sure. Every single person that comes to us directly that's not somehow intermediated, banked or brokered, we try to have this conversation with them. And in fact, part of the book that I wrote called The Messy Marketplace literally has a chapter on why you shouldn't sell your business. And it literally goes, John, through the exact logic that you said. Let's just say this for your audience. It will always make you more money.

always to lever your time against your money. Always. If you can pair your time and your money together and attention on something, you're always going to make more money if it goes well than otherwise. So the question is, why would somebody ever want to do that? Well, one, they can de-risk. They can get cash out of the business that's free and clear. There's no way to claw it back. There's nothing that happens. I mean, they can get it out and they can do other things with it.

And depending on what your individual cash needs are, life needs, I mean, we've had people go through situations where they're like, look, I just need to take chips off the table for some very specific reason. Or my risk tolerance, I'm just getting older. My risk tolerance is I don't want to go this alone.

Like I want to have a partner. I want to have somebody that I can rely on and that can help me. And hopefully if we're doing our job, I mean, we want to be good long-term stewards of the business. But on top of that, we do bring some pretty unusual skills to the table and we can talk about how we've done that. But we're hopefully actually value additive. We have every incentive in the world to be value additive because if we want to be in this long-term and to make the math work, we've got to be putting the business on a different trajectory than it has previously, right? If it's just doing the same thing that it's always done,

we're not doing anything really to add any value and we're not buying it a multiple that's cheap enough to make all the math work out, right? We've got to have the business increase in value over time. And there's very specific ways to do that. I mean, we've got 16 portfolio companies. We get to see a lot. We've got some very interesting practice groups within our firm that really go to work with them. And if we can bring those to bear on the company, and by the way, not all companies can we bring to bear. We turn down deals all the time because we say, look, you seem great.

I'm not sure that we can do anything to help you. We want to be humble and honest about what we think we can do and not over promise. And so let's not anonymize it, right. And tell me about a business you turned down. What was the situation and why you turned? Yeah. Okay. So recently there was a, it's about a $4 million free cashflow, small business. They made a technology that went in cell phone towers. So yeah,

I'm giving away too much. Very important technology that was used by the big telecoms to track people between cell phone towers, right? Okay. So...

Really, it had peaked in its distribution. It worked with all the big telecoms. It was kind of a staple on all the cell phone towers. And there was really nothing that we could do to increase market share. We could maybe take that same technology. You can port it over to potentially adjacent networks.

industries, we didn't think we were going to be the ones to be thoughtful and useful on that. The technology could go away tomorrow. And if you told me like that business is a $30 million free cash flow machine in 10 years, I'd be like, great, that's awesome. If you told me that thing went to zero in six months, I'd be like,

Well, I guess it happened. Who knows, right? I did not have any background and neither did any of our, you know, colleagues here to make a proper assessment on the sort of long-term viability of it. And we didn't think we could help it. And so the owner came to us directly and said, hey, this is something that I really think that I'd love to have you, you know, a long-term owner. It's a family-owned business. You know, we have a manufacturing facility in sort of rural America that we want to keep going. And we said, that's all awesome. We love that.

I don't think we can do anything with it. And you seem fantastic and like very difficult to replace, which we can talk about the pros and the cons of having a very dynamic, excellent leader as the seller. But in that situation, we just said, we don't think we can be the ones to really take to the next level and we can't really do anything with it. And so, sorry.

Yeah. So if the plumbing and guts of a cell phone tower is not your wheelhouse, what would be a better description of your wheelhouse? Yeah. So we if you look at our portfolio, we have manufacturing, we have construction, we have a bunch of bunch of niche kind of services businesses. So we own the nation's largest single location swimming pool builder.

We own the nation's largest backyard fence builder. So fences for residential for homes. We have the highest in matchmaking firm in the world. Really unusual business. It's like executive search, but for love.

right? So crazy business, never thought we'd be in that. We have a picture frame manufacturer. We have an aerospace business. I mean, we have waterproofing businesses. There's a tremendous array of things that we're involved in. What I would say is the common theme is they're all very easy to understand what the core action of the business is. What is the business actually doing and what is the sustainability, the need for that business long-term, right? So the

The one I always like to say is every business has some sort of like base level need in the market. So our swimming pool business, until people stop dipping their bodies in water for pleasure, which has been going on for thousands of years, I think we'll be fine. Like that business is positioned in the oven, right? It's in the Phoenix desert.

Like, it's getting hotter. People like dipping their bodies in water for pleasure will be fine, right? Fences. The fencing business is in Dallas, right? It's actually required to have a fence by law in these neighborhoods. Seems kind of odd that that would be the change anytime soon. And people have been building fences for a while. Like, people need love.

So airplane business seems to be something that we're going to sustain for a pretty long time, right? These are the types of things that we think about in terms of the driving need underneath them, that we can understand the core action, what is the core of the business. And then we're doing a lot of work to validate that they're good at the thing itself, right? They're good at the core action. And then there's this whole layer on top of it. We call it the everything tastes like chicken layer.

Doesn't matter what business you're in. It's the same things that's needed every single business. Those are the things we like to work on. So like probably the most profitable thing we've done as a core practice and sort of in our business, and we can talk about the different types of practices is just recruiting talent.

We can get access to talent that are very, very unusual for small businesses to get. We have it. Our secret is we have six excellent full-time employees that are professional recruiters that do nothing but build and comb a Rolodex of people who want to work in smaller companies who have the skill sets and abilities to do so. And then we have the story that

That company is a part of a much larger organization that has a lot more prestige. Typically, we're paying more. We have all the advantages of having a larger organization, but you actually get to run your own thing. And there's lots of incentives on sort of the upside as well. So we're taking people that are latest hire for one of our portfolio companies with somebody who's an executive vice president at a publicly traded business that was in an adjacent industry.

You know, we were able to port him over with about the same in-year cash comp, but much bigger upside and much more freedom. So there's the types of people that if that small business owner went out and said, hey, I want to try to go recruit somebody, they would never, ever, ever have gotten access to somebody like that. And so that's something that we can bring to the table that, again, everything tastes like chicken layer, that it doesn't matter which business you're in, you're going to need the same talent. Yeah.

Such a great expression. But okay, let's go back to your fencing company in Dallas. So fencing, like most home services business, whether plumbing or electrical or garage door, they're getting very, very hot.

and very over-invested in. Every private equity group, if there's an industry, a home service industry, there's a private equity group chasing a roll-up in that industry. Those private equity groups have synergy because they're buying multiple businesses in the same industry. So they can take one business and you don't need five CFOs, you don't need five VPs of marketing. And so there's immediate synergies. Obviously, they're buy low, sell high. They're using debt. I mean, we can just go back to the Adam Coffey model and

How do you guys compete with that? Because that private equity group buying that fencing company, who also is asking the owner to roll some equity, they're paying really high multiples for those businesses these days. How do you guys compete?

Yeah, we love to compete against traditional private equity because it's a completely different thing. And look, if you're a seller that all you care about is the most cash at close, fantastic. There's a whole lot of people who would love to try to compete and pay you more and more and more. That's awesome. We pay competitively, but we're rarely going to be the highest bid. What we love to say is, do you care about your legacy? Do you care about being involved in the business in the future? If you care who you sell to, we're an amazing fit.

We're going to grow that business in a way we're not a roll-up shop. We're not looking to buy lever strip and flip. We want to keep intact the core culture that you've developed. This is the people's babies. I mean, the guy that we bought the fencing business from, who by the way, rolled a huge chunk of equity forward in the deal, he started his garage 40 years before. His family works in the business. All his friends work in the business. He's friends with all of his suppliers and all of his customers. Like,

If he is going to sell the thing and it's just going to be subsumed up into a beast and we can talk about synergies, right? Like I think most synergies are bullshit, but we can talk about that. The reality is that it's easy to talk to. It's easy in a boardroom to talk about synergies and not a spreadsheet. What we're really talking about synergies is firing people.

Like, let's just talk about what it really actually means is destroying people's lives. And so what we do is we say, hey, we don't want to come in and destroy people's lives. We want to actually support them in flourishing. Like, we try to think deeply about how are we going to help not only them do better at work,

but also be better in their marriages and with their relationships with their children and have like a better holistic life. Now, is it an instant thing where we come in and like immediately shift them? No, because that would hurt culture as well. But we're trying to move them along a spectrum because we need them to be healthy. We want them to be long-term, right? Like we don't want to burn people out. And so what we're trying to do is we come in and we talk about a lot of this stuff and either it resonates or it doesn't. And if it doesn't resonate...

No problem at all. Like no worries. But if it does, it resonates deeply. And it's just not the same product that traditional private equity is putting out. It's interesting because, um, my day job is I run this company value builder. And we ask a question on this assessment tool that we have, which is what is your greatest fear around exiting your company? And you know, a small percentage of business owners say it's, it's no one will do things as well as I can. A small percentage say that, uh, I'll have nothing to do in retirement. Uh,

that my kids won't be able to run it, that no one will care as much as I, etc. That my legacy will become something I'm not proud of is about one in five of the cases, about 20% of the time they say that's their number one fear. But in 50% of the cases, so half of the cases, their number one fear is leaving money on the table. So for our audience,

Leaving money on the table, not getting what my business is worth is more important than the legacy they leave.

Now, when we've looked at it by age cohort, we found something interesting. Our assumption would be that baby boomers were the most likely to care about their legacy. In fact, the opposite statistically was true in that baby boomers were most concerned about not getting what they think their business is worth. And it was the millennials, the youngest people we profiled who were the most worried about the legacy they were going to leave.

I guess I'm curious, have you seen a type of business or an industry or any sort of

Any sort of nuances or characteristics, patterns that we can see where legacy is more important than the final cash price? Yeah, I would say that I think your research, I would back up anecdotally what your research shows, which is about one in five people really care at all about their legacy. Most people, and this sounds very jaded and cynical, but it's not. It's just true.

Most people do want to just, I've worked my tail off. I've sacrificed a lot. Like, pay me my money, right? Like Jerry Maguire. He's like, show me the money. Show me the money, right? And so, and look, I respect that. And by the way, sometimes we do deals where, I mean, we bought the aerospace business from a 95-year-old woman who said, hey, at the end of the day, I care who buys this, but I'm like, I'm not interested in earn out. I'm not interested in rolling forward. Like, you know, I'm not interested in employment contract. Like,

You need to pay me my money and you need to go take this thing on. Of course, right? It's 95, right? We get it. There are situations where that occurs. What I would say is that the people who we resonate most with, we actually want people to be in some ways long-term greedy. If you're going to sell your business, we've had this happen quite a few times where people retain a big chunk of the business and it ends up paying out more of that smaller chunk over the next 10 years, pays out more than the initial money they got.

If you believe in us and what we're doing and the culture we're trying to bring and the tools we're bringing to the table,

You know, I think there's an argument to be made that you're leaving money on the table by taking the most now. And that's what we try to tell people. Like we say to them, I'm not going to argue with you about what you think the future holds. What do you think the future holds? Tell me. And they'll say, oh, well, you know, next year the business is going to do $3 million in free cash flow and then it's going to do $4 and then it's going to do $7. And in 10 years, I bet it's doing $10 million in free cash flow. And we say, great. The dumbest possible thing you could do is sell to us. Are you sure you want to sell?

Yes, because I need cash right now to do X, Y, Z. I want to take ships off the table. I want to partner. Fantastic. The next dumbest thing you could do is sell all of your equity out.

do you want to sell all your equity out and we say to them and look some people are like look i just i'm not good with other people involved i i don't want to get this messy i'll take a tiny bit maybe just kind of as a flyer okay that that's maybe a deal that we could work out a lot of people though say yeah i actually do believe in where this thing's going and yes even though i'm i want to be ceo for the next three four five years and maybe chairman of the board after that

They just say, hey, look, I just want to have this anxiety off my chest that I'm the only person that this thing's dependent upon. Like, I don't want to be the guy anymore. I want to have a team around me and I want sounding boards. I want to help. I want somebody else to help push with me.

That's a great situation. We want to take care of them. They want to take care of us. And we all have incentives for the deal to work out well for everyone. That's the ideal situation where we can grow together. And man, nothing makes me happier that a couple of times that's happened where the person gets paid a ton more in the future. Like what a win. They're thrilled. They've been going along for the ride. The business has grown a ton. It's like it's a dream come true for everyone.

I wanted to know more about Brent. You strike me as really fascinating. I love where you started our conversation, which is when you had to buy the first business. You typed in due diligence into Google and it was like D-O as opposed to D-E. Oh, it's so bad. I need nothing.

Yet in 2025, you sound very, very knowledgeable about the business that you're in. You've raised a truckload of institutional money from endowments, which takes a degree of polish that most private equity companies have, most partners have that

Oftentimes founders don't have that same business school. So walk me through. And the other piece that I love about what you've shared today is you have a wonderful way

way you describe the things that you do. So I've just written down a few long-term greedy. It's like you're a marketer's marketer because that's a really good term, right? Long-term greedy is a nice slick little, not slick, it's a pejorative term. It's a nice little hook, which is

beautiful. Everything tastes like chicken. I love that. It immediately, like I get it, immediately perfect. Even the name of your company, Permanent Equity, it sounds like a bedrock of, you know, capital. You are a marketer and I, as a marketer myself, that is the highest compliment I could pay you. So please take it in the spirit in which it's offered. But

You've learned a lot about being an institutional investor or an investor at this level. Walk me through that journey. How have you learned from due diligence being not spelled with an OO at the end to now

buying aerospace companies, like walking through that journey. Yeah. I mean, truly. And I say, when I say that I'm the force comp of private equity, right. I think people are like, Oh, he's being falsely humble. And then I get to tell them like the whole story and people are like, Holy crap, you really are. Um, like I, I,

I do owe most of my career to Google. I've always been curious. I just tried to figure out from first principles. I mean, I think, you know, at my heart, like I'm a builder and operator, right? Like that's what I want to do. That's what I love to do. The like moving pieces of paper around doing stuff on spreadsheets. Like it just has never appealed to me. I wasn't, my undergrad was, I was a politics major with an emphasis in poverty studies. I had no financial training. Right. And,

And look what I came out of the marketing background. So, I mean, you know, thanks for the compliment of marketing. Like I got to learn, um, what worked and what didn't by running campaigns for clients. And I remember having this aha moment, um,

I was running a campaign for a fairly large regional firm that I thought we just absolutely killed it. All their metrics were amazing. And they came back and they were like, yeah, we're going to let you go. We're going to move on with somebody else. And I was like, what are you talking about? We killed ourselves for you. We did a great job. What happened? And they're like, look, the shade of green that you guys used in the last campaign just really struck us odd. It didn't seem like the right shade of green. And I was like,

What are you what are we even talking about? And what I realized was the connection between the work we were doing and the outputs we were getting was was at best tenuous at best. I mean, we had other examples on the exact inverse. I remember we completely screwed the pooch on on on this one campaign. I mean, it was so bad.

So bad. We made mistakes. We put up, there was like a graphics all over trucks that had errors in them. Like, I mean, it was, it was a nightmare. I was so embarrassed and that owner thought we were the best thing ever.

They were like, we can't wait to be with partners with you long term. I was like, why? Like, we're terrible. Like, you should have fired us. So I think on both sides, those years of doing creative work and in the marketing space just really made me realize that I didn't want to serve those customers. I wanted to be the customer.

I wanted to be able to use these. And that was honestly the thing that we did early on. The pool business that we bought, you know, we did a tremendous amount of marketing work. And that was our original thesis was take best-in-class marketing, lead generation techniques. And by the way, when I say best-in-class, I'm talking about very basic stuff. But again...

Most small business owners are really, really good at the thing they do and really quite bad at everything else. That doesn't mean you should assume that you know better than them because I've seen a lot of Harvard MBAs get smoked by coming in this area of the market. They're all brash. I know everything that's going on. No, you don't. Like, you don't. There's a lot of really smart people that operate these companies and let's not discount that. But,

We do know some things that typically are unusual for this area of the market. And as an example, you know, we buy the pool business 2015 and, you know, they didn't, they really can contact them through their website.

And so we were just like, hey, guys, this is a crazy idea. But could we take control of your website? And could we make it to where you could be contacted through your website? And they were like, OK, like whatever. They didn't really care. And so a colleague of mine and I, we got into a room and over about a two, three week period, we completely reoptimized the website for lead generation. And turns out first day we flipped on the switch. It's kind of like hold your breath, flip it on, see if the lights come on. 16 leads came out that first day.

And we were like, holy crap. And these aren't like crappy leads. These aren't like putting your email for free pizza leads. These are like a real deal. Like I live in the Phoenix Valley. Here's the size of my pool. Here's, you know, here's my budget. You know, here's my address. Here's everything about me. These are real deal leads.

it doubled the size of the business over the next three to four years. And so that's a good example of, okay, did we come into that with a reasonable multiple? Yeah. Did we come in and do we have to use a bunch of that? No. If you can double the size of the business within a short period of time by kind of pulling a few levers that are maybe not obvious, and to their credit, by the way, these guys had hired like four ad agencies, lead generation firms over the previous like five, seven years, and they just kept running through them. Well,

John, me as a marketer, you know this. If you can work with bigger clients, you typically work with bigger clients, bigger budgets, right? So there's this really nasty selection bias in the small business market where the talent that they have access to either to hire full-time or as a service provider, it usually has a pretty bad selection bias where when people say to me, well, marketing sucks, it never works. I'm like, yeah, for sure. The people that you're hiring with $100,000 budget

They don't know what they're doing, which is why they can only work with people like you, right? If they actually knew what they were doing, they'd be working with a lot bigger clients and getting paid a lot more money to do that. What percentage of the deals that you do, is there a significant marketing lift and marketing improvement that you make?

as part of the value creation? I'd say probably 60 or 70% of the time. I mean, you know, we're pulling that sort of the major levers I'd say are talent. Talent's a major lever that we're pulling. And that doesn't mean we're switching out leadership at the firm, right? What we're doing is we're trying to augment around where we see needs

So usually the financial controls and financial reporting is quite poor in these companies. We're going to try to upgrade talent in that area. Technology is a big one. I mean, we have a full-time director of AI on our staff. He's a PhD in AI. He's a hacker by background. He's an amazing guy. And so we take all these...

wacky concepts that you couldn't imagine doing. And we're able to run experiments in the portfolio. We're implementing ERP systems. We're trying to, I would say is we're trying to renovate the technology as it supports the business. We're not just technologists just to be technologists. We're trying to do everything very intentionally, but we have kind of these levers in marketing and in technology and in recruitment and in finance. And you can kind of start pulling these things over time.

And it really does make a big difference. These are all force multipliers of the core thing that the business does itself.

But how do you get dad or grandpa or grandmother who ran the business the same way for 46 years, who has enormous pride to change the way they do things? I love your family analogy because I think family businesses tend to be a cocktail of disaster from start to finish. There are so many problems in family businesses that we could do a whole episode on the disaster that exists underneath the sheets of family businesses.

But part of it is dad or mom did it this way for 36 years and they don't want anybody telling them what to do. And they're resistant to change.

So Brent comes in with all his whiz-bang marketing ideas like, hey, maybe you want to have a phone number on your website, for example. Like you, I'm assuming that in some areas you run into a lot of resistance. Absolutely. Of course. I mean, I also think we're screening for these people. So you got to remember, we're not just like blindly writing a check and being like, OK, great. We own the business now. I mean, we're going through a pretty intense diligence period with these companies. How do you vet them?

Yeah, we're spending time with them. I mean, genuine relationships. This is where, you know, for me, everyone's messy. You're messy. I'm messy. We're going to be maybe messy in different ways. When you get people together, the mess compounds. And if you look at what is a company, it's just a bunch of messy people that are trying to do something together. And so, of course, it's going to be messy.

What we try to do is we try to come in and develop a genuine relationship with them. And we want to be like high truth and high grace. We want to like not just dial the truth, you know, knob all the way up to 11 and be like, look, you don't know what you're doing. I know what you're, you know, blah, blah, blah. You know, of course not. And also we don't want to dial...

The grace up to 11 with no truth and just be like, oh, sure, you guys are fantastic. It's the best thing I've ever seen. You guys are amazing, wonderful. There's nothing more that can happen. It's like, look, it's got to be in between, right? You got to dial them up together. And that's where you can only dial up both truth and grace together if you're in relationship.

And so what we try to do is just genuinely get to know them as people. What are your hopes? What are your dreams? What are you fearful of? What if you could wave the magic wand and this goes amazing? What does that look like? Okay, well, you just told me you'd love to see this thing double in the next five years. Are you on track to double now? No. Do you think there's maybe changes that need to be made in order to double? Yes. Do you know what those changes are? No. Would you be open to us coming in with some suggestions based on what we've seen in our careers? Sure. Great.

That's the first step. Now you come in. Now you present specific ideas. No, that's idiotic. We've already tried that. Great. Tell me about that. You probably have. And maybe we're wrong, by the way. But tell me about that. And they'll say, well, you know, 16 years ago, my brother Billy tried to do the same thing. It's like, okay,

Things might have been a little bit different 16 years ago, but tell me about it. Tell me what went wrong. Well, he didn't do this. He didn't do that. Okay, great. Could we maybe try it again, but make up for it? And maybe instead of Cousin Billy running it, it's like a professional that we recruit in that maybe has done this 15 times before. Oh, yeah, that sounds great. Where do we find that person? We'll handle it. We'll get three candidates. We'll present you with all three. All three will be deeply qualified. You're still running the show, but we're helping support you in the best way we can.

I love it, Brent. I feel like we could riff for hours. We might have to do a part two at some point. We should. It'd be fun. Yeah, no, for sure.

But time is precious and I know yours is. Where can folks reach out to you? The Messy Marketplace is the book. That's probably a good place to start. Yeah, Messy Marketplace is the book. Yeah, permanentequity.com is the website. I'm on Twitter a lot less these days, but I'm at Brent B. Shore on Twitter. I'm on LinkedIn. I mean, kind of all the typical places. Yeah, permanent equity. We have a lot of information on the website. I mean, we didn't really talk about this. What makes this kind of unusual is we...

We have a complete open kimono. Like we have no secrets. So we put everything on the website. In fact, if people are out there wanting to buy a business, I literally wrote a piece called how to buy your first smaller company that's on the website. That's probably one of the most well-trafficked pieces. And it's a very in-depth guide to like, if I was restarting and thinking about trying to buy a business, how would I think about it? Maybe sellers could even use that as like a counterfactual to understand like what would, what do they need to think about me selling the business? So I don't know, just try to be helpful. However I can.

We will put all of those links along with Brent's contact information, the LinkedIn profile, the Twitter feed, as well as the article he referenced in the show notes at builttosell.com. Brent, thanks for doing this. Thanks, John. Appreciate it.

And there you have it for today's episode between John and Brent. Thank you so much for listening. If you enjoyed today's episode, be sure to hit that subscribe button wherever you're listening to today's show. And to help support this podcast, we'd encourage you to leave a rating and review. For show notes, including links to everything referenced in today's podcast, you can visit Brent's episode page. Again, which you can find over at builttosell.com. There you're going to find links to everything referenced in today's podcast, including Adam Coffey's episode, along with other resources just for you.

As a reminder, you can watch this full video interview over to our YouTube channel at Built to Sell. Special thanks to Dennis Labataglia for handling today's audio engineering. And thank you to our community of certified value builders who help us bring our message to you. Our advisors are experts in helping you build the value of your company. To get in touch with an advisor or learn how to become one yourself, head over to valuebuilder.com. I'm Colin Morgan, and I look forward to talking to you again next week.