#196 Brent Beshore: Business Brilliance and Happiness at Home
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All investing at the end of the day is the assumption of risk. The ideal investment scenario is you are assuming a risk that is knowable. You are being paid more to assume that risk and you have some ability to mitigate that risk. So we all have three basic moves in conflict. It's called move against, which is like the second one is... And then the third one is...

And so if you watch, all of your conflict will follow that pattern. Let's talk about incentives. How do you set incentives for the CEOs? I think the ideal system is... What have you learned about hiring people that most people miss? I think that's probably been the biggest leap forward. What most people get wrong is most people don't understand... What's the playbook when you take over a company? So we are...

Welcome to the Knowledge Project Podcast. I'm your host, Shane Parrish. In a world where knowledge is power, this podcast is your leverage for mastering the best of what other people have already figured out.

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My guest today is Brent Beshore. Brent is the founder and CEO of Permanent Equity, a private equity firm that buys and grows boring businesses. And by boring, I mean the kind of businesses that most people overlook, but that are essential to making the world go round.

Some of his companies include Ace Fence, the largest residential fencing company in Texas, Chance Rides, the leading amusement ride manufacturing company in the United States, and Pacific Air, which has one of the aerospace industry's largest selection of on-hand inventory.

I first met Brent about 10 years ago now, and we became friends right away. I've met a lot of people in my life, and I remember flying home after the first time we met, thinking how incredibly special he was. After this conversation, when Brent was flying home, I felt so grateful that that chance encounter had turned into a great friendship.

Not only does Brent love the details, he can talk about any company they own or their competitors at the 50,000 foot level or the one inch level, but he's also one of the most thoughtful and kind people I've ever met. He's bigger on the inside than the outside. While his conversation is one continuous episode, it comes in two distinct parts. The first part is about life and the second part is about business and his wisdom is equally profound in both.

We discuss the small changes and mindset shifts he's made that have had a profound impact on his personal life. And about 45 minutes in, we switch to business. We cover operating out of abundance and what that means, why longevity matters, why debt is not a source of return, why not having debt is actually a strong signal of a good business, what it means to own a business, incentives, his first deal, taking outside capital, the advantages of personality testing, and so much more.

In a world where everyone is chasing the next big thing, Brent is focused on finding value in the overlooked and underappreciated. And that's a lesson we could all learn from. It's time to listen and learn. Some of my favorite brands operate on Shopify, including Allbirds, Outweigh Socks, and Aeropress.

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What's changed in your life in the past two years? I would say my marriage has changed a lot. My inner life has changed a lot. My physical outer life has changed a lot. Ironically, the business has not changed a lot. It's been interesting how the different seasons do and don't overlap, but there's been a lot of changes about how I approach work that have changed, but the actual work itself has not changed. Let's dive into that. What's changed in your marriage? What's changed in your exercise? Let's tackle exercise first.

Yeah, well, I think maybe all of it is connected to a walk I went on. Gosh, I'm probably pushing now three years ago. And there's a gentleman on this walk who was at like a small gathering of people in Colorado. He kind of picked me out. It was like 40 or 50 people in the crowd. And afterwards he said, hey, can I go to a walk with you? I was like, sure. And he said, hey, can I speak truth into your life? And he said, yeah.

I see a lot of shame in you. I see a lot of fear in you. And I worry that that's dramatically negative and impacting a lot of your relationships. It was more in depth than that. I mean, we talked for, you know, another probably 20, 30 minutes about what he saw. And I just try to take posture. I mean, initially, when somebody says something like that to you, like cut you, right? Like, how dare you?

I have great relationships. You know, you've known me for a long time now. We were talking about this at least 10 years, if not more. Yeah. And, you know, I wouldn't have said six or seven years ago that I had bad relationships. No. I would have said I had really good relationships. If you'd asked me how my marriage was five years ago, I would have said, oh, like a six or seven. You know, we have our challenges, but like we get along and, you know, compared to where it is today, I would say it was like a like a two.

I just didn't know. You know, I think about this idea of, you know, everything's relative. So like world-class is the best you've ever seen. You know, you ask somebody who's only eating at fast food, what's their favorite restaurant in the world. They're going to tell you a fast food restaurant. Right. Um, so, you know, the question we have to ask ourselves is like, what do we have to compare it to? And are we talking about relative or an absolute terms? And to be honest, I don't think I had been exposed to.

three years ago to what was possible in relationships or what was possible in marriages. Like I had not seen marriages up close where I was like, I was comparing my marriage to what I'd seen in other marriages. And I felt like we were doing fine. Like we were probably right in the middle of the ballpark. I think what this person did for me was open my eyes to like, there was a lot more out there. There's a lot more possibilities that I, that I didn't know. That was like a seminal moment of like,

a warning shot across the bow of, oh my gosh, like I need to probably go and look and study like who am I? What makes great friendships? What am I giving to my relationships? How do I think about my marriage and like what am I doing in my marriage and like how should it be? And am I willing to settle for an interior life filled with anxiety and shame and fear? Am I willing to settle for a marriage where things are being hidden and there's disconnection and division, right?

Am I willing to settle for friendships that maybe don't go that last 10% and create that really meaningful, deep connection? Am I willing to settle for a physical body that is overweight and out of shape and likely going to become diseased? And so I think that was a major moment. And then that led into really finding these different people who have shaped and changed my life, including an incredible counselor who I started working with and a

bringing to the surface a lot of these issues that I didn't even know were there. Yeah. I mean, I look back on the person I was even three years ago and I, I was certainly far better than I was 10 years prior, but I was compared to sort of where I was now. I felt very shut down and,

and frustrated and irritable and competitive. I feel a lot of those things myself in terms of competitive and maybe a bit more anxious than I should be. What was the next step that you took in this journey that sort of like, okay, well, I realized something. I feel it. Now what? I don't want to sit here and pretend this self-reliance is the thing that got me through this period of my life because it felt like it happened to me

And it happened for me. It didn't feel like that I somehow figured out, like outsmarted the world, outsmarted my shame and fear. It felt like I had these sort of people be put into my life and these revelations that started to occur that.

All of a sudden, I mean, I think there's a, there's an old adage that like when the student is ready, the teacher appears. Right. And I think there's very much, there's a choice I had to make three years ago. It was like, am I going to pretend like I, like everything's fine? Cause that's what everything in me, that's what my false self wanted to do. No, screw you. You're wrong. You don't know what you're talking about. Who are you? You just met me. You can't, you don't know. You don't know me. You don't know anything about me.

And it was like, I remember having this very distinct choice to make. And I remember being like, if I, if I continue on the path that I'm on, that would have denied, you know, it's sort of this idea of like self-promotion, self-protection, right? That's what, that's what our false self wants us to do. Go around, self-promote, self-protect. Cause then we don't have to really be vulnerable.

Now we also are shut down and we can't have great relationships. We can't figure out the real sort of us that comes through. But that was the choice. And I remember kind of it was an act of surrender of being like, I have to take the risk that I'm going to take a look at myself and I'm not going to like myself very much. I'm going to admit things to myself that that are ugly and that I've done more wrong maybe than I'm willing to admit.

And that I've hurt people that I care about. That was the choice that I had to make. And I, and, and I remember very clearly saying, okay, I, you know, I surrender and I want to know. And then things started to change ever so slowly. I mean, there's a weird dip that occurs. I feel like when you, you know, when you go from denial to awareness it's, it's actually way worse. So like the awareness of your,

faults and awareness of your shortcomings without the healing of those is actually puts you in a far worse position. And so I would say that, you know, that sort of the period of time from three years ago to two years ago was horrible. Like it was a, it was not a, it was not a year of joy. In fact, if anything, it felt like harder. My relationships felt more strained and

And I think it was because I was becoming acutely aware of how broken they were as a result, mostly as a result of me. I mean, yes, other people's brokenness to mostly resulted me, but I didn't have any healing in it. I didn't know how to get healing. And, you know, that season was just an awareness building season. Looking back on that. But it's awful if you if you gain awareness without healing, it's way worse than not being aware. Give me an example of.

Something that's changed in your friendships. We were talking about one last night. Actually, that's a perfect one where you always want to pay the bill. Yeah. Talk to me about that and the revelation behind it and how it came about. Let's see here. About two years ago, maybe a little less than two years ago, I had a friend who was going through some really tough times and personally, professionally, and a mentor of his said, hey, you got to go to this got to go to this intensive program.

counseling retreat and he kind of reluctantly this he's not a touchy-feely uh he's a finance guy you know he's he's not a he's not this is voodoo yeah this is not it is exactly this is ooey gooey squishy stuff is not is not his his ball game and i watched him go into that hard and hardened and just sort of like shut down shut off um again very protective self-protective

And he came out of that week, like changed, like distinctively different. And I remember thinking to myself, like, wow, I don't know what happened there. That's incredible. He'd worked with this woman and the whole week. And he was like, you changed my life. Like, this is incredible. Like how, you know, first of all, I never be able to repay you. Thank you. You know, like, I don't know anything about you. Who are you? And she said, uh, I've got, you know, I've got these kids and whatever. And I live in Columbia, Missouri. He's Columbia, Missouri. What?

He said, one of my best friends lives in Columbia, Missouri. I live in Columbia, Missouri. And so he said, Brent, I'm telling you, like, you have to go see this person. And it was right around this time that I felt like I hit rock bottom in my awareness of like my own brokenness and like how I didn't really see a path forward. Like I kept like sitting in this dismal state where you're like aware of how messy everything is, but there's no way to clean it up.

And all the self-help stuff, like none of it works. Like at least for me, like I can only speak, I'm an N of one here, but like, you know, the self-reliant thing doesn't, doesn't work. And so he said, Hey, I think you should meet with her. And I'm like, man, this is a true godsend. Like I had no idea that somebody of that caliber national international quality caliber was in Columbia, Missouri. I started going to her and doing these three hour sessions and dredging up things I didn't even know was there and

um, that we're all connected to the behaviors. If you, if you think about like the way that I, I think about it now is like, we have these, we have these behaviors that other people can see and that we can kind of measure, right. Am I doing good or am I not doing good? Um, the reality is there's so many layers underneath that though, that are influencing that behavior, right? Like, oh, something terrible happened and I really don't feel anything.

That's weird. Right. Or something very small happened and I'm triggered into this like spiral. That's weird.

And what I would do in the past is I would just kind of like shove it down. Right. Like, Oh, I don't know. I don't get it, but life's weird and whatever. Got to go on. Yeah. You got to go on. And so anyway, through this series of, of sessions, and I mean, I've done a lot now, like probably 25 or 30 of these now three hour sessions. So a lot of time we got down to one of the sessions and it was actually probably about four or five months ago out of the blues, kind of seemingly unconnected. And we were talking about friendship and,

And my counselor said, do you always pay? And I said, yeah, of course I always pay. She was like, hmm, I got out the last hundred times that you shared a meal with somebody. How many times did you pay? And I was like,

Like a hundred. And she kind of sat back and I was kind of proud of myself, right? I'm a good person. I pay for the bill. I care about people, right? This is like the thing I told myself in my head. I do the exact same thing. Yeah. And, and by the way, those, those motivations are, I think real and true. They are bad, but she said, yeah, I wouldn't be your friend. And I remember just being rocked by it. Like you wouldn't be my friend. She goes, I was like, what, why? And like totally broke my paradigms.

And she said, because in a friendship, in a real relationship, you cede control to the other person. The other person concedes control to you. It's not you're always controlling. The whole point of a friendship is that you can trust and you can be vulnerable and you concede control. And so paying the bill is merely just a form of control that you're exerting over your friends. And I remember being like, oh, crap. Absolutely right. And she goes, yeah. And I suspect it's not just paying the bill.

You like to have your environment. You like to have your way of doing things. And I was like, yeah, I do force a lot of relationships. Again, this is only like five months ago, right? I force a lot of relationships into these boxes where it's like, I want you to be in my box. I tell myself because I can provide great hospitality or because I can do these interesting things, right? And I'm caring for them well. And generally sometimes, and I suspect the same for you, like those are real motivations, but we are this mixed bag. And I think that's what I've realized is like,

We hook the good and the bad together and then we do things that come off to other people very differently and confuse and frustrate and constrain. And it's really hard for somebody to be frustrated at a friend who's always buying them lunch or dinner or whatever it might be. So what it does is it builds up resentment and frustration in the other and they don't even understand, right? Like we're all confused. It's very hard to see ourselves clearly. We can see each other clearly, right?

We can't see ourselves clearly. Um, I think that we're designed like that because we're designed for relationship. Like we need one another. No one is an Island. No one is self-reliant, right? We need one another. So how do you handle dinner now? So what I say only if I mean it, by the way, um, sometimes I don't say this. Um, but if I don't mean it, I won't say it now. I say it would give me great pleasure. I would enjoy being able to buy dinner tonight, but

If you don't want me to buy dinner, I will respect your choice. I give them the choice. And sometimes I buy dinner and sometimes I don't. But if they say, nope, I want to buy dinner tonight. I say, okay, thank you. And the key there is they have agency now. They have agency. And so the resentment doesn't build even unconsciously. Correct. In kind of psychology circles, there's this idea of a triangle where you have a victim and a hero.

and like a judge or a prosecutor. And heroes are those who are without knowing the good, like they tell themselves that they want to do good for other people. And what they're really doing, and by the way, I relate very strongly to this. This is a lot of action that I see myself having done and do is to cover up my own shame and insecurities and sort of to

to push down the pain that I feel. It's like, well, I'm going to go external and go try to help somebody almost against their will. Like they didn't ask me to help or if they did ask me to help, my response to them is so outsized that it removes agency from them.

And so buying dinner is like a very small example of this. And I've got, you know, unfortunately a lot of bigger examples of this. You know, I probably, I probably have really engaged in, I would say dramatic heroics five or six times in my life where I perceived somebody was in grave danger. They needed my help and I sprung into action and did this dramatic thing for this other person.

And, you know, in my head, the thing I'm going to get is, oh, thank you so much, Brent. You're amazing. I'm so grateful for you. Now, if you hear even the thoughts in my head, it's all about me. So it's actually not about the other person.

Yes, I can justify it based on the other person, but really it's about me. Yeah. Five out of five or six out of six times it has been met with initial, oh man, thank you so much. Like this is incredible. Wow. I'm like blown away at your generosity. And I'm like, oh, got all the good feelings. And, uh, and then I end up not having a very good relationship with those people. And it shocks me. And it almost feels like a slap in the face. Like, okay.

How could they, how could they do that? How could they not be better friends with me as a result of this? And then when I started doing these sessions and started working with her, it became clear this like, Oh, heroes create victims because you're removing all agency from them. And you are telling them that they can't help themselves, that they are helpless. And when you do that,

You are creating somebody who is diminished and insulted. And now, again, in the moment, that's not how it feels.

But that's where we're constantly chewing on and assessing our environments. A great example of this, and this is not a close personal relationship. I remember my wife and I, one Christmas, we had a public school teacher who we knew and got to be friends with. And we were kind of sitting around the dinner table one night and she was sharing. She's like, it's heartbreaking. She's like, you know, these kids around Christmas that I work with and this particularly poor school district, you know, they don't have any Christmas presents. They don't need Christmas. Like there's no joy there.

And it really like touched my wife and I were like, wow, like what if we did this dramatic act? And anonymously, of course, we bought like $30,000 worth of Christmas gifts for like every kid in that school. And in our heads, we were like, this is amazing. This is wonderful. These kids, you know, you can imagine the kids who were like, oh, we wouldn't have had Christmas, but now we have Christmas. And wow, somebody cares for us and loves us. Like that's what we were hoping to have happen.

done. And, and so we did it. And the response from the, you know, small group people that knew about it was like, this is incredible. You all are so generous, you know, pat, pat, pat on the back. We're feeling great. We're in the, we're in the Christmas spirit. Oh, what joy, you know, all this stuff. And then it was about a month later and I followed up with, um, the teacher and I was just like, Hey, how did that, how did that go? And she was like,

It was really good. You know, everyone was grateful, you know, whatever. There's a few people who, who had some challenges and I was like, had challenges with us giving, giving gifts. She said, well, some of the parents of the kids felt, felt really insulted by it. And then it like hit me and I even like, man, I'm trying not to get emotional that it like hit, hit, it cut me so deeply because I realized what I'd done, what we had done, my wife and I had done.

We had taken away the dignity of those families. And yeah, they couldn't buy their kids Christmas gifts. They were going to do something for them, whatever they could do for them. And instead, like any kid, you give a kid a present. Kids are like, amazing, you know? But then it started asking all kinds of questions. Well, why can't you buy me that present? Do you not love me? Why do these other people care more for me than you do? Kids don't understand how money works. They don't understand how some people have more and some people have less. They don't understand anything about that.

And so what I'd inadvertently done when I was trying to be kind and generous was I didn't put myself in the position to understand what the real consequences were going to be. The second, third order consequences. Yeah. A kid would have had, you know, less toys to play with at Christmas. That's not the point of Christmas. I missed, I missed the plot. The point of Christmas is to show love and care. And in doing what I did, I short circuited the ability for those families to experience love and care. And I hurt them.

And there's a great book out there called when helping hurts and it afterwards, actually somebody gave it to me and I read it. And I mean, you talk about being cut deeply. It's a book about when you try to help and it hurts people. Um, it's one of the, one of the best books I've ever read on sort of philanthropy and how to think about, um, caring for those who you don't have a relationship with. And I think that's the bottom line is like,

It all comes down to, we, we can't go wrong if we're in deep relationship with somebody and we are respecting what their needs are. Um, where if somebody asks me for help, you're not a hero. If somebody asks you for help and you rise to meet the need, that's called being good friend where you become a hero and you create victims is when you don't know somebody and don't know their needs. Um, they never asked you to do something.

And you rise to meet a need they don't have. And in turn, you take away agency and dignity from them. So it's things like that. I mean, these are deep waters, right? These are things that are challenging. Stuff that we don't talk about a lot. But this is the stuff that I've like

It's been a joy and it's been awful in some ways to explore the stuff in me and to see how frequently I am engaging in this maladaptive behavior under the name of goodness and virtue and all these things that we tell ourselves. Yeah, the story we tell ourselves to justify sort of what we're doing because we want to be the hero in a way, unconsciously in a lot of ways, right? Like we're not consciously trying to save somebody. We see a friend in need and then we want to jump in and help them. When's the last time you asked somebody for help?

This morning, I'm asking, I'm learning. There's a new learned behavior, though, because in all the years I've known you, this is like this is different. Wow, this is different. I yeah, I would I would always be the one who would be eager to help, but rarely ask for help. And again, that that that destroys relationships. There's not just there's no way to have a real relationship with somebody unless it's bidirectional. It can't be you helping somebody and never needing help.

Cause then again, it's the exact same principle. You're creating sort of a, a hero victim dynamics, the power dynamics in any relationship are super sensitive and where we have best relationships where we're on equal footing.

different but equal right so um i always think about it as like you know the x-men or whatever you know you have everyone's got different powers but everyone can like fight the battles together right um and you respect the other's opinion right you respect the other person's skills and talents but if somebody is always the one who can shoot laser beams and you know blow stuff up and make stuff happen and the other person is just oh thank you i appreciate that thank you for helping me

it's not a real friendship i had never thought about any of this until dinner last night with you

And I stayed up late last night just going over all the different ways that I do this in my own life with my friends from, you know, always offering like not even offering to pay for dinner. It's like I'll race up to the waiter and, you know, everybody's sitting down. They go to the bathroom to make sure that I and I'd like I was just replaying this stuff in my head going like, oh, my God.

This is crazy. Yeah. I went on an apology tour after I had that realization to a lot of people. And I said, Hey, I'm really sorry I did this to you. And of course people are kind of caught off guard because I don't even think they realize it. But when I said it to him, they were like, yeah, thank you. And so now like my close friends,

Like I, we had this understanding and oftentimes I still am able to buy lunch or dinner or whatever. Right. Because I enjoy it and they know I enjoy it. Like I love hospitality. I love the, the, to be a provision and provide care for people. It's like a core part of my personality, but sometimes they say, thank you, but no, thank you. And you know what? I feel super loved in that. I feel super loved. So I, so the, the, the cool part is before I didn't feel loved

Either way, if somebody else bought a meal, I would feel frustrated and sort of irritable about it. And they took something away from me. Right. And if I bought how everybody else feels when you do it, right. Exactly. And vice versa. Right. If I did buy the meal, it was a little bit like you start playing with ideas in your head. Oh, am I only a checkbook?

Do people really like me? And it's like, well, you're the one who insisted on buying dinner. And you're like, well, but the other person could have insisted on buying dinner more, you know? And you start getting into this like weird psychology. You didn't fight back enough. Right. You get the old alligator arms, you know? And so now it's like the inverse of that. And I think this is like a good metaphor for life. Like I think that the more that I meet what I would call elders. So there's a difference between elders and elderly. Elderly are like

Self-focused in curve blaze Pascal would call it in curvature right there and curved on themselves. They're irritable. It's all life is all about them and what they need and they're scared and fearful and you got elders who are the inverse of this right who are outwardly focused right the more I meet these types of elders that are like genuinely caring and loving the more that I see them exhibiting this type of behavior right.

the more that I see them, like no matter their circumstance in good circumstances or in bad circumstances, they live with a joy and a lightness and a freedom. And then you see elderly and sort of now I can pull it back and see in my life that like, no matter my circumstances, like I'm living in fear and shame and, and hiding.

And so it's like, I think that's the, that's the thing that we're really talking about here is like, these are all even like maybe the second tier down or the third tier down, like at the, at the basement of all this stuff, at the very core of all this stuff is there really only two ways to live. You're going to live out of fear or you're going to live out of genuine love and care for others. And.

Love and care for yourself. And like, that's it. Like everything else rises between those two. Like, like fear driven is scarce. It is the way of the world. It is, uh, um, uh, a famous author in the seventies. Uh, she said that the, that nature is red and tooth and claw, right? It's like this idea that it's like, there's nothing, but you're either going to be a predator or you're going to be prey. Everything is a battle. Everything's a battle. Everything's about competition.

Right. And, and believe me, like that's when I am at my worst, that's who I am. And by the way, the world loves my false self. The world loves that fear driven self. I can get an extraordinarily incredible amount done in that time. A friend of mine calls it clean fuel versus dirty fuel. Like it's very difficult to see like the car looks like the car from the outside and very difficult to understand. Is it clean fuel or dirty fuel that's operating the car?

And I can, I mean, that car can go fast. It can take a lot of people with it. If I'm on dirty fuel in some ways, dirty fuel is a, for me, uh, I'd learned through my life to be it's, it's a more potent fuel in the short term for me. Like I, I get more stuff done quicker and

And usually even sometimes with higher excellence out of dirty fuel than I do clean fuel. That fear is a heck of a mistake. It's higher octane almost. It's higher octane. The problem is it's got all kinds of contaminants in it and you eventually like torch yourself and the car breaks down and you go off the rails and blow yourself up, whatever analogy you want to use.

And so getting back to the original question, like what's changed? Like, I think that more and more I'm trying to operate on clean fuel. I'm trying to be self unconcerned. I'm trying to become an elder. I think people listening resonate a lot with this. So I'm curious what other ways you found yourself.

subtly controlling your relationships, whether it be your marriage or your friends. Uh, the paying is an example, but I'm sure you've got other ones. You get older and you get better at hiding your motivations, right? And you end up wrapping them sometimes consciously, sometimes unconsciously in these maybe good packages. But the reality was, it was like, I was demanding control. I was demanding care. I was demanding people to see me and sort of praise me. And so

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

And always be running down all these different rabbit holes of what ifs might happens. And I haven't, I've been given an incredible capacity to do that, which makes me like my day job as an investor. It's really useful because I can run down a tremendous number of scenarios. My personal life, it's terrible. And I, I hate it. It's the dark side of creativity.

Right. When you have vision and creativity, you can envision a future that is beautiful and bright and loving and wonderful, or you can envision a terrible future dystopian future. And so, yeah, I mean, examples of this. I mean, I would go into meetings and I would I would need to take over the meeting to get praise. And by the way.

I've been given a gift to be able to say things and think quickly on my feet that people genuinely were praising me. It's not like I hope, I mean, no one's perfect, but like I, we create an organization of permanent equity that's like very, um, kindly confrontational about ideas. Like we want to be, uh, we, we want a lot of friction. And so the last thing in the world I want to do is create an organization of yes men or yes women, right? Like,

We want divergent thinking. We want a lot of variety. And so I don't think that they were doing it because it was like, oh, boss, you're so good. You know, that type of like, you know, sycophant type type thing. I think it was genuinely like in my false self when I'm really charged up, like I have a capacity to envision a future that a lot of people like.

I know internally, though, my my vision of that future is really driving my need to be liked, my need to be respected, my need to be praised. And so, oh, and I would have had this high anxiety in these meetings. Right. And then I get out of it. It's like, I mean, I'm so wired up. So much cortisol in my system.

Because I craved that. I needed that. That was like my sort of my drug of choice in that setting to the degree that I almost lost my right eye as a result of excess cortisol in my system. That's how stressed and I wasn't stressed in the sense of, I mean, yes, like what I would call normal stresses. Like, I mean, there's always going to be sickness and death. And as we've grown as an organization, there's just a lot of, it's a lot of people and a lot of people are a lot of brokenness. But I would say the vast majority of the

stress I was experiencing was self-induced was because I wasn't okay. And I knew I wasn't okay, but I didn't know how else to cope with it rather than try to get praise, try to grab things from other people. Right. So it was, I was incurred as Blaise Pascal would say, I was the one who was inwardly focused and focused on my needs and what I wanted. I was not on the path to being

an elder. I was on the track to being elderly. And the inverse of that is I get more freedom as I, as I, you know, this stuff kind of comes out in relationships and friendships and my marriage in counseling sessions, you know, as this stuff kind of comes up now and there's healing around it, I find myself sitting in meetings and like letting other people talk. Imagine that.

Not having to always be the leader of everything. Not having to have my identity based on short-term wins. Not being competitive. Competitiveness is the opposite of relationship. It is the antithesis of relationship. Like when we're competitive with somebody, it's I win and you lose. That's horrible. Especially when you're dealing with... Like my profession doesn't have to be competitive.

When I go out and play tennis or pickleball with somebody like I don't have to win, but before I had to win because I'm a winner. Winners win, right? Like, and if I don't win, I'm a loser. If I don't win, I'm a loser. If I don't win, I'm not okay. If I'm, if I don't win, all that stuff's going to bubble up from the basement and I'm going to feel terrible. I used to literally lose in tennis and feel terrible for days. Another thing I would fight with my wife and I would go do a bunch of email. That's an interesting behavior. Why would I do that? Well, because I get praised for doing email.

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

Why? Because I could go online and tickle the ears of people and they would tell me, oh, this is a really insightful thing. This is really cool. Wow. You're so great. You know, whatever. Validation. Validation. It was praise. How many likes did I get? Right. But I found myself, my personal relationships, people who like, are we optimizing our lives for the people who know us best or the people who know us least? That's a question that haunts me. I've watched a lot of people up close and personal who are

The more you got to know them, the less you liked them. And I mean, that's honestly the lie that we all engage in, right? If people really knew me, would they love me? Would they even like me? Right? There are people, a lot of people I've come in contact with. They're bigger on the outside than they are on the inside.

Like, I want to be somebody that was me, by the way. Like, I, you know, I mean, I think we all have this temptation, right? The Instagram pic of, oh, my life's just a vacation. Everything's amazing, right? Twitter's the sort of the intellectual version of that. All I think is these great thoughts. Yeah. Yeah. Have all this wisdom. So wise. No, let alone my like marriage is disaster, my business disaster, you know, all this stuff. It's like, well, yeah, but I can spout.

platitudes on Twitter and people will praise me for it. Right. That's the lie. That's the trap. Yeah. As this healing has occurred, it's like I'm on social media far less, not because like, I actually like genuinely want to help people. And like, when I have something to say that I think could be helpful when I'm engaging conversation, like I'll go on and like I'll engage in it. But like, I don't feel a need now to like,

hour by hour, check and see how many people have liked whatever. In my marriage, I'm trying to be somebody who's focused purely on the good for the other, but focused on the good of my wife. Like, how can I serve her and love her with no expectation of reciprocity? Like, it sounds foreign. It would sound foreign to me. Like the view we have of every relationship sort of in that fear-based, scarcity-based mindset is like, okay, well, Alexis Stokeville called it self-interest rightly understood, right? Which is like, I do things for you so you can do things for me.

Like that's not true love and care. That's loving yourself. There's a rabbi who calls that fish love, right? He says, you know, we treat our marriages like we do a good fish dinner, right? Where you're like, oh, I love this fish because it tastes good because it makes me feel warm because it, you know, satisfies a need that I have, a desire that I have. You're consuming it, right? You're a consumer of that thing. And I think that without

a shift in mindset. And the default assumption of the world is we're all consumers of one another. We are all eating one another, including in our marriages and personal relationships. And it's poison, straight poison. I want to spend a lot of this conversation on investing and sort of running a business. But before we sort of transition, one of the things that you said to me last night that I found super interesting was that you'd stop drinking unless it's a celebration. Tell me about that. Well, yeah, the last couple of years have been

An exploration of...

interior and exterior. Um, and I think a lot of our exterior lives reflect the accumulation of our interior lives. For me, it certainly did. I can remember the first time I was called a fat kid. I was 10 years old and that was an identity that I adopted. Um, I always was just a little more overweight than everyone else. I wasn't like morbidly obese, but I was just, I care a lot of weight. I was athletic, but I, but I was a little bit heavier. You know, when I became an entrepreneur,

it was all consuming. I mean, my twenties were filled with, I had to win at all costs. I had to, I had to put every bit of energy into being successful. I thought that that was gonna make me okay. So my, you know, my twenties were filled with, uh, single-minded pursuit of achievement. And, uh, I put on 50 plus pounds in my twenties. I, I tipped the scales at one point at two 52. I remember hopping on the scale and I was like, whoa,

I've gotten big. I started beginning of last year.

At two thirty five ish. So I was down from my peak, but it was just a battle. I've been engaged in like a decade long battle with like I'd try this diet or that diet. I'd try to work out some. I'd make a little progress. I'd slip back. It was kind of like I had this set range. I really couldn't couldn't get outside of it. Kind of all part of the same transformation occurring at the same time. Right. Like I found out that food.

was something I celebrated with, was something I turned to for comfort, was how I expressed love and joy and care. As my counselor said, it sounds like you eat when you're sad and you eat when you're mad and you eat when you're happy. I think you're going to probably be always eating. And I was like, yes, I am always eating. Like I always have a pull towards food, right? Because I was using food. And by the way, in a like

There are more maladaptive behaviors, right? It just happened to be one that you can't hide very well. But I was using food to do a job for me. And sometimes that job was, you know, in concert with joy and care. And sometimes that was in concert with pain. But food was like the tool of choice that would make me

both feel out of control and in control at the same time. And so as those sort of things started releasing and the junk that was underneath them that caused that pain started releasing, like I felt a real freedom. You know, you, I wrote this publicly in my annual letter this year, like you had a

huge impact on me. And I, and it's funny how we don't often, I don't think when you said it, you realized like how impactful it was going to be, but it was like a lightning bolt. You told me, I was complaining to you. I think it was maybe January 4th or 5th of last year. Yeah. And you told me that, you know, you're working out or everyone's like, oh man. Yeah. Like I've got a news resolution. I'm gonna drop some weight, you know, whatever. And it's just really hard to work out.

And I felt kind of defeated about it. Cause it's like, you, you know, when you know, when you're headed to failure and it like sort of, that's the thing about dieting. And that's the thing about these like short bursts of like new year's resolutions is like they head towards failure because they're not sustainable. And so I remember you saying this one thing to me that completely shifted internally how I thought about health. And you said, well, I just work out every day. It's part of my identity. I don't have a choice.

If I'm going to work out, I just have a choice what I do. And I remember it hit me like a ton of bricks. I was like, oh my gosh, yeah, you're right. And around that time, another good friend of ours, Patrick, I was on the phone with him and the best of friends tell you the real truth. Like the pinnacle of friendship is to tell each other the real truth, the hard truth, the truth that the truth that you gain nothing from and you have everything to lose because that is true vulnerability. That is truly giving the other person control.

And I remember Patrick took a risk and I'd said something, I used to make jokes about being a fat kid, right? This is that identity that was imprinted upon me. And they're funny. People laugh at jokes about being fat, right? Self-self-facing all this stuff. And he goes, would you knock that shit off? And it was like very stern voice. He was like, not okay. Like I've heard you say this over and over again. You've made jokes about you being fat, like not okay. Like you got to quit that. You're not a fat kid. He's like, why do you do that to yourself?

And it's again, this idea, like we can't see each other. We can see each other clearly. We can't see ourselves clearly. That really flipped a switch in me that I was like, I'm not a fat kid. I'm going to be healthy. I'm going to be a healthy person. Who's part of their identity is I'm going to work out every day. Now I'm not putting my salvation in that. I'm not putting my goodness in that. I don't think that people who work out are better than people who don't work out, but I'm going to make it a core part of me that I'm going to like honor this body. That's been given to me. Like I've got one container in this life.

And it's important when I say basically every day, like I am now, I, I work with a couple of people on the fitness side and like their, their biggest problem with me is that I work out too much now. Like literally this is not like a bragging thing. This is like, I love it so much now. And this is something I hated to work out. I hated it. I would dread it. I was out of shape. I mean, I hated working out. And so now it's like, I feel the joy and I feel privileged that I get to work out. Mm-hmm

Like I have an opportunity to move my body and to like experience this world. And so whether it's going on a run or a bike or playing a sport, I love pickleball and tennis and, um, or just getting me on a hike or a walk with a friend. Um, I love it. You know, the Greeks had this very, like, it's like body versus soul, like dualistic view. Like we are embodied creatures. Like we are one in the same. That's not the proper view. Like our physical health impacts our mental health.

And vice versa. Right. And so I've, I've seen this like wonderful, like I have more energy to play with my children and the relationships are better. And like, I can, I can, I feel better just in general. So like, you know, when you feel better and you can move better, it's all this, like, it's like this virtuous upward loop, right. And inverse downward loop when, when those things start to fail. And so the alcohol thing, very long winded way of saying it. I just noticed that when I drank alcohol, things felt hard.

And turns out alcohol is one of men, especially one of the biggest inhibitors of testosterone. And we think of testosterone is like the libido hormone or whatever. And it is. But like, that's not the point. Like, I wasn't like I was like, oh, well, I'm drinking. I was basically drinking almost every day and I was drinking a lot. Like I got the point. I probably drank to say this even now. I would never in a million years have defined myself as like

with any sort of addiction yeah and like i could not drink and be okay but i was drinking like three or four or five drinks a night every night like you know you get home and you open up in a bottle of white and you're making dinner we cook all the time we love cooking my wife and i it's like kind of a core part of what we do and you're making this meal and you know the you know open them you know another bottle of wine maybe a red you have a little bit of that and then it's like oh man you would be really great tonight have a little aged tequila or some cognac or something and

you know, before long, it's like, it really adds up and it affects your sleep. And for me, I just noticed like, you know, testosterone, the best definition I've heard of testosterone, what it does is it makes hard things seem easy.

And so when I drink hard, things seem hard. And when I don't drink hard, things seem easier. Like I can very clearly tell. And so I just said, it's not worth it and try to come up with other alternatives and how to get the ritual of it and the specialness of it. It's kind of like a, you know, you can mark your days, right? I mean, I went for a lot of my life. It was like alternating between like caffeine was one part of my day and alcohol is another part of my day. And now I don't drink caffeine and I don't drink alcohol. Yeah.

for very different reasons, but both of them health related. And my life is way better for it. And I, so I, so my, my, my excuse now, I shouldn't say excuse my, the way I think about it is like when I celebrate, it's the only time I let myself drink. The interesting thing to me when we were talking last night is you mentioned

You used the word rule, which I thought was really interesting. Do you have any other rules that you've adapted in the last couple of years that have really helped you sort of unlock the next level? Yeah, this is actually a huge part of a lot of these changes that I've made in my life as well. What, how we spend our days is how we spend our lives. Like our habits are who we are and habits are very sticky and hard to

to change. Uh, they require a tremendous amount of focus. Um, and it's very difficult to add multiple habits at, at once is what I found. Um, um, I'm also not a personality that loves habits. I'm, I don't love structure. I, I really enjoy, um,

The variety of life. And so in many ways, like habits great on me, but I've really come as I get older to it, to appreciate the value of good habits. And so the habits I, I, I try, and I would say as I, these are most days, um, almost all days, um, I get up and the first thing I do is read and pray.

Um, the, I always try to tell my kids and my wife that I see them and I know them and I love them and that there's nothing they can do to ever move outside of my love for them. Uh, um, one of the questions I love asking my kids now is what do I do when you feel most loved? And then I really try to focus on doing those things for them. Um, that's sort of the magic question that unlocks a tremendous amount of

intimacy with anyone really any friendship if you ask that same question you'd be shocked I think what the answers you get because in my marriage and in my friendships in my relationship my children to some degree like I used to try to love them the way I wanted to be loved and it doesn't work very well because really what you're doing is you're loving yourself by doing that and then I kind of went through a phase where I was like okay well I'm gonna love them the way they should want to be loved that doesn't work well either why don't they love it why don't they love it yeah right

And then I started really being like, okay, I'm going to pretend like I have no preconceived notions of how somebody wants to be loved. And you're just going to ask them. I'm just going to ask them. And do you know what's interesting is most people both can tell you pretty quickly, but it's shocking to them what comes out of their mouth. Oh, interesting. So most people don't actually know how they want to be loved.

It's not something they think about. I mean, you can use this analogy at work too, right? Like, you know, a question I'll ask somebody is like, when do you really feel seen and appreciated? I think this is the question we're all trying to ask is like, how do we want to be loved? I'm like really getting down on somebody's level with them and getting in the muck and the mire with them. Like that's real relationship. Let's switch gears and talk about business a little. But I think that a good segue question is how do you balance love with operating relationships?

And you're one of the best operators I've ever met in my life. How do you balance those two things where we're taught to come at everything from a competitive point of view, which you do exceptionally well or did exceptionally well for a number of years? And it made you a huge success. And then how do you get the same results or better results?

Operating out of love. Well, I think the lie that we tell ourselves is that if we don't act out of scarcity, that there won't be enough. And what that does is it isolates us and it shuts us down and it isolates and shuts on everyone. I mean, anxiety is contagious. Scarcity is contagious. As soon as, I mean, if you look at the game theory of scarcity, as soon as one person acts scarce, the fear ripples through the entire crowd.

And love is fragile. Care is genuinely fragile. This either this fear mindset or this abundance mindset, love mindset, it requires a tremendous amount of protection in order to engage in it.

And look, I'm not going to sit here and pretend that I would often make the same decisions if I weren't already in a position of success. You're operating out of a position of strength already. Yeah. I'm coming. Oftentimes I'm already coming from position strength. I do think though, I would hope if I hit, hit reset and I could go back knowing what I know now, life is just way better no matter how you slice it. Operating from a position of abundance and love and care.

No matter if you have resources or not, but money makes you more of what you already are. Right. And so if you look at people with tremendous amount of resources who made that money through scarcity and through high competition and through stepping on people on the way up, when they get to the top, they continue to exhibit that behavior. I think there are a number of people who experienced that. And by the way, that was.

Me in my 20s, my 20s were filled with doing whatever it took to make it and I would hide it and you know I do it in a more gentle way, but that my heart was scarce, and I still battle this on a daily basis now so it's not like again there's no victory declared here, but what is sustainable long term.

Is not a sort of Mexican standoff with everyone in your life. I mean, that's how most business is done. It's like there's power structures and it's like, well, I'm going to make myself indispensable so you can't get rid of me. Right. And it's like, oh, well, I wish I could get rid of that guy, but I can't. Right. It's like that's a horrible like.

confrontational, competitive, scarce mindset to be in business. I feel like this is the norm. Unfortunately, it's really the norm in the finance world. I mean, I feel like I've I've I fell backwards into finance. I've joked on the Forrest Gump of private equity, and it is as scarce as it gets. I mean, it is all zero sum is how it's treated as we've moved

towards a position of abundance, as we've moved towards an ability to try to treat people with honor and care and create win-win relationships. I mean, that's really what we're trying to do. You know, one of our mentors, both of us, Peter Kaufman talks a lot about this, right? As like the only sustainable long-term path is that everyone has to win or it won't work. If there's any losers in a system,

It's not sustainable. So I think that's just something that we've really tried to pursue. And so what does that practically look like? I think is a question, right? It looks like not protecting yourself always all the time, but giving people the ability if they want to act scarce to do so, but in like lower stakes ways. So like one of my favorite things to do is be almost open myself up to being taken advantage of early on in a relationship.

So if they do, then you're like, okay, great. Like, and by the way, there's no judgment in this. It's not like, how dare you? Or I'm somehow better, you know, whatever. It's just, hey, I just don't think you're in a position right now. I was there before, but you're not in a position right now to be able to engage in our system because our system requires a tremendous amount of mutual trust and care. Mm-hmm.

Now, again, we're imperfect. We screw up all the time. We're asking for forgiveness all the time. We say sorry all the time. It's not I want to paint this picture of like idealistic, like we've got it all together. We got a lot of things to work on. Right. But I think most of the people are trying to operate out of a position of abundance. Most of us are trying to work towards wins for everyone. We're trying to be thoughtful with not just the buyer and the seller, private equity. So we buy businesses and

We're not trying to just think about the buyer and the seller, buyer being us, seller being the person who's selling us this thing. We're trying to be thoughtful about the executive leadership teams at these companies. We're trying to be thoughtful about the employees, the rank and file. We're trying to be responsible and be thoughtful towards our customers and our vendors and the communities, maybe even regulators, depending on the situation. What does a win look like for a community that we purchase a business in?

I don't know. It's an interesting question. I think it's different for every business. What does a win look like for the construction worker on a job business? We bought interesting questions to ask, right? We can't make anybody happy. We can't make anybody fulfilled, but we certainly can create an environment that, that allows more for them to be happy, free, fulfilled. And this is where I think for the rest of my career, the, the engaging part for me, it's not been about money for a long time. Like

Thankfully that was like, I've not had to worry about money for a while now for me. I'm like, wow. What if when we buy a business, not only is the work environment better, maybe we allow them provide the environment, um, maybe show them a better way. This idea of like, everything's relative, right? Maybe we can show them a better way where their marriages get better and their friendships get better and their relationship, their children get better. They're more engaged people. They're more active. Cause like

I don't want people who are working 80, 100 hours a week every week. Now, look, there are weeks where I work 100, you know, 100 hour weeks. Sometimes you got to get stuff done, right? So there's no shame in that. There's no, but if that's your norm, right?

Like you just cannot sustain a healthy lifestyle, healthy relationships, healthy physical body working that much consistently. Just no way. There's not enough time in the day to do it. And so like, I don't want people who are sustainably like, like the, the whole finance world is full of just, you know, chewing people up and spitting them out. They use people as objects.

Right. Then they throw them away when the object doesn't become useful. I mean, my fantasy, and this may be, you know, I look at delusions of grandeur illusions of grandeur, uh, is could we show people a better way that actually you create higher returns long-term by treating people? Well, um, you create higher returns over time by using little to no debt,

as weird as that is in the finance world. And believe me, I know all the people are watching this. I get the math. You don't have to send me the math. I understand how leverage works. I can do the math too. But I think there's real value in examining why is it that we have a system, especially in the leverage buyout world of private equity, where the norm is buy, lever, strip, and flip, right?

I'm going to lever this business to the moon. I'm going to try to use as little equity as I can. I'm going to try to sell it as quickly as I can to generate the highest return I can. There's no way to make good long-term decisions with short-term capital, with short-term time horizons. There's no way. And by the way, what are we doing if all we're... There's no way to create a long-term, enjoyable, sustainable life by having a series of short-term transactional relationships that you move your life through. That's where you end up with these people who...

can buy anything who've made hundreds of millions and billions of dollars who are miserable. Like I've met these people, like they have their IRR etched on their tombstone. Like no one gives a shit. No one cares at the end of the day. Like David Brooks, I think calls them like eulogy virtues. Yeah. Yeah. Like no one at somebody's eulogy was like, he was a great man, made a ton of money, hated his life, hated his wife.

But he got 26.5%. Right. But that net IRR, boy, let me tell you. Yeah. He was one of the best. Yeah. I mean, and look, we admire greatness. Like we're a society that worships outliers. And so you're not wrong to play that game. That is a game to be played. There is a game there and it does lead to certain things that are good. It also makes you lose your soul.

And also, I don't want to give the impression like we're trying to absolutely shoot the lights out in returns. Yeah. Just in a different way. How you go about it. Your way is more sustainable. And there's a couple of things I want to follow up on that we talked about there. Going back to the first part, allowing people an opportunity to almost take advantage of you. Often, I find that the first request by somebody is,

is very telling or the first offer. Here's what we want. Here's what we need from you. And if that doesn't come across as fair, it's like the biggest signal in the world that it's like, oh, this is probably not a relationship that is going to be win-win. I'm going to have to work to try to make it win-win. But you've given me this valuable piece of information on day one without even intentionally doing so. Amen. But I would also, I would say the slight twist I'd make to that is and give grace that like,

I will fall down. You will fall down and make offers to people, even though maybe we actually are like in a heart space. Most of the time that's not transactional. This happens to me all the time where I will fall down and do something transactional. Totally. And so it's like what I often do in that situation is say, hey, maybe this was unintentional. Maybe you're having a bad day. Whatever the reason this came across to me as transactional. If I misinterpreted it, maybe I don't understand what you're actually that sentiment underneath it.

But it feels short term, feels transactional, feels extractive in what you offered. Did I misunderstand? And usually that reaction, the more defensive they are, the more kind of like, what are you talking about? Right. Like the water we swim in culturally is transactive, extractive. It removes control. It says it says you will be OK if you can build your own kingdom. Mm hmm.

So like, it's perfectly normal for that to be the way people interact and transact like that is the norm. So like, I just want to be careful with how steeped in that somebody is and how much they've realized that maybe that there's a better way.

And what I don't want to do is I don't want to, I don't want to come across as judging them or condemning them based on that, which is a real danger, right? Because I mean, you can get self-righteous pretty quickly. It's just a signal, right? It's just a signal. If anything, even if they are highly transactional and sort of my, my, like I have this, like, it's like a weird feeling that rises up in me. It's like a, like, I don't know. Your spidey sense, right? It's that.

I think it's like a protective thing where you're like, okay, I can feel myself rising in, in competitiveness, rising in scarcity to meet their scarcity. And I'm like, Ooh, I don't like that. That's that dirty fuel. I feel like it's almost like a direct injection of dirty fuel into my system. And I'm like, Ooh. Yeah. And then it's like, okay, well, even if I say, Hey, I don't think we're in a position right now to probably do something on this. Or like, I don't, I don't think the system, it would work for you engaging in the system right now.

Try to show them a better way and encourage them. Don't condemn them. Right. I think that's the thing that we try to do now. Oftentimes I think people don't take it as such. It feels, I mean, look, if, if somebody makes you an offer and you decline, there's rejection in that. And again, it's,

I totally get this because I feel this way is when you get rejected, it touches things that are way deeper than just that mere surface level rejection. Totally. So when it travels down and starts ping ponging around and hitting all those things down below, that's where you get these outside of reaction outsized reactions, right?

to things. And, and again, the response that you want to have is when you see somebody have an outsized reactions to be, I can feel stupid, belittle them. Conflict pattern is something that I really have enjoyed studying. So we all have three basic moves in conflict. And actually, if you watch these, it's fun. Like now it's like whenever I engage in conflict, I like, I know my pattern.

And I very much know my wife's pattern. And I try to guess then what other people's patterns are. You can watch people like go through these phases. But there's a it's called move against, which is like, no, you're wrong.

Screw you. I want to like make you submit to me, right? Like it's, it's like very much like a forced submission, right? So this is somebody who gets up in your face, who's yelling or who's like, kind of like talking down to you, like a very, very confrontational, right? And that's kind of like one phase. And by the way, again, we do all three of these.

We just depends on the order, but we all have an order to how we do these things. And then by the way, how they interact with one another is super interesting as well. The second one is, is move towards the person. So the first one's move against second one's move towards move towards is we need to be okay. I'm not okay. Unless we're okay.

Let's just gloss over whatever's happened. It's okay. It'll be fine. You know, let's just water the bridge. Let's just move on. Right. It's avoidant. Well, it's avoidant in a way that is, it feels very relational, but it's actually not because it's not for the good of the other. It's actually for their good. They want to have things be okay. But it actually doesn't address the underlying issue at all. And then the third one is move away. So this is the isolate thing.

And so if you watch all of your conflict will follow one of like, we'll follow that pattern. Talk to me about debt and your thoughts on debt and the optionality it gives you and when it's appropriate, when it's not appropriate. Debt is not a source of return. It is an amplifier of return. So it makes good things be great. It can take mediocre things and destroy them.

And of course it takes bad things and nukes them. The higher your confidence in the predictability of the future, the more debt you can use. I say can use, not should use. In a perfect world of perfect information where you and I own a business and we're like, it's a recurring revenue business.

We are for sure going to make unlevered. We're going to make $2 million this year, $3 million the following year, $4 million the following year, and it will go up exactly $1 million in free cash flow every year into the future. Mathematically, you can create a formula to know exactly how much debt you can maximize in that business. You pull out the equity, the equity returns look amazing.

out of this world, incredible. And because you know exactly the future is there's no risk in that. So businesses that have high predictability of revenues and incomes and feel like that they are, um, well, I shouldn't say feel in this case, since we're creating a scenario, they know that outside events are really gonna not affect them. Then they can lever a tremendous amount and it makes complete perfect math sense.

The reality is that the world, I believe, is largely unknown and unknowable. The future is murky. And so it is a form of pride, of hubris.

to use more debt than you should. Now, this is very broad. This is like 60,000 foot because everything's relative, right? How much debt should you use? In the world I play in, we are buying loosely functioning disasters that sometimes make money. I mean, these are small to medium-sized businesses, call it $3 million to $20 million of free cashflow. My general view after looking behind the curtain at thousands and thousands of businesses is that

All businesses are loosely functioning disasters, like whether it's a not-for-profit or for-profit or government institution, like people are messy. When you get multiple people together, that mess compounds. When you get large groups together, that mess compounds even further. It's exponential. And the volatility of that messiness is tremendous.

And so when you get to a smaller end of the market, these are for-profit companies that are making between $3 and $20 million a year free cash flow. The volatility of them is tremendous. And hence, the price that we pay is on average less because we're paying to accept that risk. All investing at the end of the day is the assumption of risk. Mm-hmm.

The ideal investment scenario is you are assuming a risk that is knowable. You are being paid more to assume that risk and you have some ability to mitigate that risk. And that's what we're trying to do in our business. We're trying to find things that are highly risky, right? Because we wouldn't pay the price that we're paying for them if they weren't highly risky, but that we have talents and relationships and systems that we can diagnose what the risks are.

properly analyze the probability and the magnitude of that risk, and then work to mitigate it. And that's where our returns come from. The math to me is far less clear that over the long term, debt makes you more money. I'll give you an example of this. We bought an aerospace business in the fall of 2019. I don't know if you know this, Shane, but aerospace never goes down.

It's always flat or goes up. We were told by some of the people advising us on that deal. They were like, are you guys, did you guys get dropped on your head as a child or something? Like you're not putting any debt on an aerospace business. Like what is wrong with you? Like this is tons of assets, highly leverable. Like banks would be happy to provide. Predictable. It's predictable. Look at the history of the business. And we said, yeah, we don't feel like that's a responsible thing to do. Again, debt only helps the buyer and the seller.

It doesn't help the leadership team. It doesn't help the employees. It doesn't help the communities. It doesn't help the regulators. It doesn't help your customers. It doesn't help your vendors. There's all these stakeholders at the table that it doesn't help, but it does help in certain circumstances, the buyer and the seller, which again, if you sort of play short-term games, win short-term prizes, area of scarcity, non-recourse debt, heads I win, tails you lose.

There's a lot of incentives to use debt irresponsibly. You know, I think that most private equity firms look at, you know, they're the gas and the bankers are the brakes and they'll just do whatever the bankers allow them to do. And it's sort of up to the bankers to say no. And so our aerospace business, you know, we were called idiots. I mean, actually, even on Twitter, I think when we came out with our annual letter that year, people were like, like finance bros were like, you guys are morons. I was like, maybe.

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

So pandemic rolls around and we're worried. You know, demand in the industry in our segment went off at one point by 88%. We started to struggle and we looked at it and we were like, okay, let's, and by the way, the leadership team there did an incredible job of maintaining positive cashflow every single month through the entire pandemic. Everyone else was negotiating with their banks. Everyone else was firing people and we were the only ones hiring.

And we were building systems and we were taking risk and we were able to do that because we didn't have any debt. Everyone else is tied up. We didn't, we weren't tied up. And the alternative is we levered the thing up. And for, I don't know, four or five months, we get a better return. And then we negotiate with the bank. Hopefully we salvage it. Maybe we have to inject more equity in down the road.

Uh, we're sure as heck not hiring. We're not buying parts packages for pennies on the dollar. We're not setting up for 10 years of future success and growth. Uh, we're not, you know, implementing new, you know, ERP systems. We're not implementing new process and ordering system. It's just the whole thing was basically gave us two years to completely rebuild that business from the ground up and to see the fruits of that is astounding. And the business is dramatically worth more than it was when we bought it.

in spite of having a pandemic and dramatically decreased demand. We can't predict the future. When I was talking to Chris Davis, who's on the board of Berkshire, he mentioned it's a strong signal if you're looking for a good business that they don't have any debt or they have very little debt.

Because debt masks so many things and the fragility involved is just off the charts. And people don't realize the risk they're taking. And there's also a world of difference between debt and

you know, 2% if you can get long-term debt at 2% versus sort of now 7, 8, 9, even higher depending on the circumstances. And when people enter into a debt transaction, they just assume that the world is going to stay the exact same that it is today.

I'm going to make the same revenue. The interest rates aren't going to go up. They'll only positively surprise me to the downside. And then you find out that that's not the case. And then all of your free cash flow effectively starts getting consumed by debt. And it doesn't take much. It takes like a 5% to 10% downturn in the business, which is a perfectly normal... Business cycle. ...reasonable cycle to then throw the business into chaos. Yeah. Like, I would...

I can't imagine being an operator. And by the way, we've never seen a business that we want to purchase ever in the history of the firm that has debt on it. Like when we buy it, that has debt on it. Like no families get wealthy by being like, oh yeah, we have this great operating business. Like let's pull a bunch of, a bunch of income from the future into the present and lever up. Cause that would be awesome. So we can increase our consumption temporarily. So we can buy a bigger house. Like no one does that.

And for very good reason, like it doesn't make any sense, but somehow we've gotten ourselves as an industry and the finance industry into this position where it's like, it makes no sense how families build businesses. And by the way, every business starts as a small business. Every business starts as a family owned business. They then take a business that has been operated a certain way for a very long time, gone through ups and downs, survived for 20, 30, 50, a hundred years, maybe. And then all of a sudden it's like, actually what we want to do now is completely gut the

how the business operates and runs. We need to hit it with the steroid needle. We're going to get, we're going to jack it up with debt. We're going to strip it of a bunch of cost structure. We're going to hire a bunch of new people who are going to do amazing things in a short period of time. And then we're going to flip it to somebody else. And by the way, once you get on that treadmill, like once you sell the private equity, traditional private equity, do a leveraged buyout that that business is forever going to be flipped to the next person.

Or eventually might get sold to strategic, but it forever is relegated to a lack of independence. Like it will never be an independent ongoing concern for very long after that. There's just no examples of this. So for us, like, you know, I don't think we're smart. I don't think we're trying to be geniuses. We just look at like, okay, the whole world is built on an entrepreneur or small group of people, entrepreneurs getting together, creating something that the world needs,

It's hard. They built it over a long period of time. They inherently acknowledge the fragility of it. We just want to continue to honor them, their legacy, honor all the stakeholders, and all try to win together over the long term. And I couldn't imagine a worse thing to do than to put debt on them. And I think people miss over the long term, the lack of debt actually works out better. But over the short term, and I have the saying, which is lack of patience changes the outcome.

And so when you lever up to get your your immediate returns and then you're like sort of like playing with house money, you can sort of justify almost any behavior. And when you think long term, like a family thinks of a business and you sort of go, well, we can't do that because what we want is optionality. You miss the fact that what you guys did, you had a period of two years where you made more progress than you would have in probably 10 or 20 years.

where you're strong and you're operating from a position of strength.

And it's almost playing on easy mode in a way, right? It's like, oh, like now we can expand our business. People are probably discounting parts at these fire sale prices. We can stock up on them and our margin is going to expand because of that. We know the business is eventually going to come back. I mean, I think it depends on how you look at our roles. Are we owners? And I'm not talking about legal definitions here. I'm talking about mindset. Yeah. If you own something, it is your property to do with it whatever you want.

Do anything you want with it. So like the pushback to everything, if I was in a strong man, the opposing argument is, who are you to tell me what risk to take? Oh, you can take it. Who are you to tell me how to how to how to run my business? Like I own it. I can do whatever I want. I used to feel that way. Big shift for me was becoming a steward. Right. It's this idea of stewardship and not ownership. So the way I look at it is families are entrusting us to be stewards of their company. It's a responsibility that we have. Yes, we get benefits.

From being a steward. Yes, we get to share in the fruits of the labor and progress of the company. But at the end of the day, my job is to make sure that these businesses remain intact or healthy. And when you look at it from that position, the world becomes a lot clearer. What's in the best interest of everyone else, but also me. I mean, I don't want to do things that harm us, but if we align incentives properly, things that help us should help everyone else and vice versa.

Like we will be taken care of if we take care of our people. We'll be taken care of if we...

take care of our customers. Like it's not a complicated thing, but I think again, are we owners or are we stewards? Or I think often families take a stewardship mindset of ownership. It's the, exactly. Um, it's interesting to me, the, the, I try not to judge other people for what they do or what they choose. Cause I mean, we're each playing our own game. We're each sort of like doing what's rationally makes sense for us given everything going on in our life. And if we switch shoes, we'd probably see the world very like

very differently than we do. But people, I think they just underappreciate the fact that you are not thinking about really what you're doing over a longer period of time. And if you structure your thinking, stewardship is a great example, over a longer period of time, you eliminate a lot of poor behavior.

that you would otherwise get or a lot of things that can take you out of the game. Yeah, for sure. Let's talk about incentives. How do you set incentives for the CEOs of these businesses? How do you think about them? Uh, walk me through one in detail, for example. Yeah, well, so the, I think the ideal system is everyone's eating at the same table, right? So there's not different tables that the food falls onto one and then falls into the other, right? Everyone's everyone's incentives are aligned to, to achieve the same goals.

And for us, when we look at traditional private equity and the traditional two and 20 model, right? So on the amount of capital that you have either gotten to invest or have invested, depending on the terms of the agreement with your limited partners, you get a 2% fee annually that goes to covering your overhead costs.

and the expenses of the operations of the firm, the seeking out, the doing of the deals, the oversight and governance post-close. And then once you pay them back with a return, typically 6% to 8%, maybe 10% depending on the situation, then you get to share in the upsides of that. And the LPs, the people supplying you with the money, provide you that capital for usually in private equity, 10 years, roughly. Yeah.

Which again, goes back to time horizon. 10 years sounds like a long time. Shane, isn't that plenty of time to buy a business and hold it? Maybe. I think if you talk to most private equity people, they would say, it's not the deals that they did that really hurt, that they did that went poorly. The ones that hurt the most are the ones that they were doing great and they could see a long future compounding that they just had to sell the business. You're like, but 10 years is a long time. The reality is it takes time to find a business.

get the transaction done. There's a sort of initial phase of getting to know the business. Once you buy, you really never know which would you actually buy no matter how much due diligence you do. You don't really know until you get into the weeds post close.

There's a period of orientation, then there's a period of traditional private equity growth and trying to hit some sort of metrics to then sell it to somebody else, which, by the way, selling takes time, too. So you've got to buy. It takes time. You've got to operate. It takes time. You've got to sell. It takes time. So they're really at max. If you if you hit it perfectly in the fund life cycle, maybe you get five years, five years at most. Most private equity firms now are targeting what they'd like is two to three years.

So from the time we buy something till the time we sell it is two or three years. Again, maybe four or five. If you get past five, it's really distressed at that point. Like you're trying to look for, you're trying to get rid of it and you can't. When we think about incentives, incentive for traditional private equity would be, Shane, I'd like for you to come on

I'd like you to run, do a tour of duty, right? The tours of duty is kind of the way that leadership is done in traditional private equity. Once you do a tour of duty, it's going to be two to three years. Look, you're not going to see your family much. You're going to work your tail off. But there's this pot of gold at the end of the rainbow. If you can...

get us our returns, you can get our investors our returns, then you get to share in the upside of that. It's a highly levered bet of sort of your time and attention. And we think that that doesn't make much alignment. And this is where you see private equity detonating companies. This is where you see lots of problems. I mean, private equity, you know, as an industry, when I tell somebody I'm in private equity, it's like we look up to lawyers and reputation these days.

you know, lawyers have a better reputation than we do. And for very good reason. Like there's been a lot of bad behavior. And by the way, the incentives are for the bad behavior. All the polls of traditional private equity leverage buyout model is towards bad behavior, short termism,

treating people poorly, cutting, all these things that hurt. I mean, you're damaging. When you fire somebody, you are hurting not just them, but their entire family, their friend group. Like you're hurting communities. Now, it's also not healthy to keep somebody in the role that they're in because you don't want to fire them. That's not healthy either. That's not kind. Nice, that's not kind. We can talk about that as a separate point. For what we are trying to do though, is we're trying to have a complete perfect alignment between our LPs,

us and the people who operate these businesses on a day-to-day basis. So we're trying to all eat from the same table, trying to use the same metrics. Practically, what does that look like? We are, I used to say unusual in our fee model. Now it's unique. I mean, we couldn't even get audited right out of the gate because no one knew what to do with us. We take no fees of any kind, no reimbursements of any kind. There's no cash that comes from either our LPs or the companies to us.

zero guaranteed revenue, which you're like, how do you run the firm? Thankfully, when we started the firm, again, we were operators. So we came in with cashflow and with businesses and fell backwards into this whole thing of private equity.

I remember, um, the first deal I did is I, it was close to accidental as you could buy a business. I bought it. Um, I remember my lawyer, um, he was like, well, we just got to do diligence. I typed into Google D O diligence. Was this media cross? Yeah, it was media cross. We still loaned it today. I remember getting that deal done and I called up a friend who was like my one finance friend from undergrad. And I was like, Hey, I did this thing. Like, I think it's a good deal.

I don't know. And he goes, oh, you did a private equity deal. I literally Googled private equity. I owe most of my career to Google. And when I started studying it, I'm like, what? This doesn't make any sense. Like all the incentives are off. And so what I said was we came in and we were, you know, we ended up taking outside capital for the first time in 2017. I was like, I don't need your fees. Like, I don't want your fees. I don't want the incentive to gather more and more capital, which forces you to go up market. We can talk about that.

Um, I said, and I don't want to, I don't want to be able to win when you lose. Like I want to win, win or a lose, lose situation. Like I am willing to take the risk. I want to be entrepreneurial because that was my background. Like I was an entrepreneur. And so we have a model where we take no fees of any kind, no reimbursements of any kind from the portfolio companies or from our LPs. We get a percentage of free cashflow as we return cash back. That's how we share with our, with our investors. Well, turns out what that does for us is it gives us the perfectly aligned ability to

If there are high return, high probability projects to reinvest in the portfolio, we would be idiots not to take the cash, defer gratification and reinvest it often pre-tax at high rates of return with high probability. That's what any family would do, right? That's what we do. That's what our investors want. They want to defer gratification. We want to defer gratification. And the same thing, we want to incentivize our leaders to do the exact same thing. So oftentimes the metrics that they're measured on is on free cashflow.

But again, it's not free cash flow in a short period of time. It's free cash flow over a long period of time. So when we don't have things to do with the capital, high probability, high return reinvestments, the dumbest possible thing you could do is keep a bunch of cash. I call the bladder problem, right? The more money you have, the more likely you're going to piss it away. Yeah. This is where you see

These businesses being run in ways that you're like, they are, they are murdering money. They are destroying capital. How in the world are they getting away with this? And it's like, well, they're kingdom building. They're fiefdom building. Their incentives are build a bigger business. Cause by the way, you hire the compensation consultants that tell you, well, yeah, the team that same team and they haven't really made a great return, but the business is bigger. And by the way, bigger businesses command higher salaries. So you play the game. It's a bigger business. It's a higher salary, more comp. It's like their incentives are off.

The firm who bought them, they're two and 20 by lever strip and flip their incentives and the leadership team's incentives often are misaligned. LPs are misaligned. Everyone up and down the value chain of the traditional private equity structure is misaligned. Now there's so much money flowing through the system and there's enough safeguards and there's enough discernment over a long enough period of time. It all kind of has worked. You can make an argument that when rates are continually decreasing for the

Interesting, weird distortions happen in the market. We just want a perfect alignment. So we want that operator in the business to say, the first thing I want to do is keep a healthy business with strong cashflow. Keep the golden goose cranking out eggs. Second, we want to take the proceeds, free cashflow and look for high return, high probability projects in the companies. If we can find them, especially pre-tax, fantastic. Reinvest the cash.

They want to reinvest the cash because now they reinvested $100 and now they've got $25 more every other year following that. We love that too. We'd be happy to defer. We're getting $25 as well ourselves. Now our investors are like, of course, keep the capital. You've got great things to do with it. Keep it. So up and down the value chain, we're completely aligned.

When we should hold cash, we do and reinvest it. And when we don't have anything good to do with it, we send it out. So is it a simple sort of like two variable formula for all your CEOs then or in terms of free cash flow and invest in capital? Yep. Everyone's just incentivized on that. And then do the CEOs get a compensation on the cash distributed? Yep. Oftentimes.

Yeah. I mean, it depends on the situation where sometimes having these CEOs are rolling forward quite a bit of equity depending on the situation. So sometimes they're getting, you know, equity or getting cash kickers on top of that. But oftentimes they're, you know, 10, 15, 20% owners in these businesses. And so the incentives naturally baked in. We love that. We like, we don't want to buy a hundred percent of the company. Right.

Like if we have our choice, we're buying 51% to 70% of the business. And we want, we don't allow non-strategic actors. We want people who are actively engaged in the business to own the remainder. How do you think about hiring and firing CEOs? How do you know you have the right CEO?

And how do you know when it's time to move on? It's hard. It's hard and it's messy is the answer. Since we're talking about comparing us to traditional private equity, I would say it's one of the things that traditional private equity has gotten done better than us in some ways is held people accountable. I think they go too far in one direction. I think we've reactionarily gone too far in the other. In terms of the performance of permanent equity as a firm,

You know, I would say in absolute terms, we're not doing as well, nearly as well as we could. And this is an area of active learning for us. I'm just being honest and transparent about it. We've been tolerant of a lack of performance to a degree that is unhealthy, not only for the companies and the returns, but also for the people that are engaging in that behavior.

And this is an active area of discussion right now in the firm. I mean, I'm giving you a real live view of what we're discussing. And ultimately, it's a failure on my part. I'm the CEO. I'm responsible for setting the tone. And I deferred too much early in my career to the promises and to the optimism that things would get better when things weren't great.

And if you look at where we have really succeeded is working with people who were doing well and making them better, where we've really fallen down as a firm is when things get dicey.

We tend to defer to relationship and we tend to trust the people that we have, even when there are many warning signs that things things are not OK. And I would say this is the nice versus kind principle that we've screwed up. Being kind to somebody is saying, hey, I think you're in the wrong role and they're stressed out.

Their lives are not, they're not enjoying life. They're not enjoying their role. They're fear-based, right? When you get into a position where things are not going well and you don't know why, and you don't know how to get out of it, it's terrifying. And part of what our role is, is to help people. We look fundamentally at like we, our job is to serve and help others. If we can serve and help others succeed, we're going to succeed. Our LPs are going to succeed.

And to be honest, we screwed this up. We have not done a good job of getting people the help and moving people into roles that they should be in or or having them move on to outside roles.

And we need to do better at it. Does it ever work to change? I mean, I don't have a ton of experience with this working out. Maybe you do where you change a role like, hey, you're CEO, but you'd really make a great CTO in the same company because then you create all these internal politics of like, who do I report to and my loyalties to the person who hired me and whatever.

Or is it just easier to sort of like transition and move on? I mean, it would, that would be wonderful to be able to do that. I think that a lot of people's careers would benefit if they had the humility to, to be able to do that. Fundamentally, we all struggle with pride. Yeah. And we can't see ourselves clearly. Like we are a mystery to ourselves and what we, how we see ourselves in our talents and our

is often different than how other people see us. This is why we need each other. This is the whole point of relationship. This is the value. And this is the terror of where we've gone, as a side note, with social media being so isolating, with not having in-person relationships. Like this is...

No wonder that deaths of despair and suicide attempts and anxieties through the roof, right? We would love to be able to take to somebody, hey, you're in the CEO role or maybe the CFO role or whatever it is. And we need you to take a step back, you know, in order to move forward. Careers often die by suicide, not by homicide.

Like it's not double click on that over and over and over again. I've watched this tragedy happen, which is the Peter principle. Someone rises and they rise beyond their abilities and then they can't take a step back. Their, their pride, their ego, they, their identity is rooted now in their title, in their position. And you say to them, we love you. We think you're awesome. We'd love for you to continue to be with us.

The role you're currently in is hurting you and hurting those around you and hurting the company. And they'll acknowledge that. And then you'll say, great, could we get you into this role? No, absolutely not. People fight, claw for territory, kingdom building. It's hard to go from being king. You still may be an important person in the kingdom, but you're not the king anymore. It's hard. It'd be hard for me too. Would I be okay with RLPs coming to me and saying, Brent, I don't think you're the right person to lead permanent equity.

I'm not going to lie and be like, oh, that'd be a great conversation to have. I hope that I would meet it with curiosity. I hope I'd meet it with self-reflection and say, wow, I really want to hear. I mean, I think I disagree, but I want to meet it with curiosity and see what they have to say and see if I could discern out of it. Maybe I'm not in the right role. What have you learned about hiring people that

Most people miss. Well, another journey I've been on speaking of, of, of these like added tools and toolkit is I've really become much more familiar with different personality testing. And, um, specifically like I, you know, I've looked at a bunch of them. I really like the combination of Myers Briggs and Enneagram. If you think about our business as, um,

you know, we, we take money and we turn it into more money. I think you miss the most important thing that we really do, which is our whole business is predicated on predicting the behaviors of people. Like if we can predict the behaviors of people,

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

getting it, distilling it, right? I mean, this is what we're all trying to pursue. And specifically around the wisdom of clicking over these lenses that these personality tests provide and giving you a framework to create empathy and create predictability in relationships. I think that's probably been the biggest leap forward. And what most people get wrong is most people

don't understand why people are doing what they're doing, don't understand how they should think about incentives based on the person themselves and not just the financial incentives, and don't have much empathy for how other people react. So take things personally that aren't personal. Everyone acts rationally in the moment. This is the heroin addict who's choosing heroin over eating a meal or leaving their family. In that moment,

believes they're doing the right thing for them, believes it's rational to pursue that hit versus do everything else. So the question you have to ask yourself is why, right? And same thing in companies, same thing with leadership in these firms. Like the question is why, what do we think, why did that person go off the rails or how did that person suddenly disintegrate before our eyes or why is that person performing so incredibly well?

And so these different personality testing, it doesn't, no one's a box. No one is a, you know,

In the 16 types for Myers-Briggs or whatever it might be, there's no grouping that will perfectly describe anyone. That's not the point. The point, you've missed it if you think that you're going to put somebody into a box and it's going to predict 100% of their behavior. That's why I like having multiple of these that kind of give you a 3D look at people. I mean, my experience is it was an eye-opening. I assume that everyone else operated the way I operate. I assume people wanted what I wanted. Turns out I am weird.

So are you. So is everyone you meet. They're weird because they're mixtures of all these different axes of how we sit on these things, right? And how they interplay and interact with one another. But I can tell you, as an example, once I understand sort of the four axes of Myers-Briggs,

So where do you gather your energy is the first one. So this is introverted, extroverted. This is not how you show up in the world. This is where you gather energy. So introverts can appear extroverted. Extroverts can appear introverted. That's where this like sort of you get these very basic ideas about how the world works and you sort of hear like a little bit of these things and you get misperceptions of what they actually mean.

So it's really important to understand. Are you getting your energy from inner life or are you more solar powered, right? Getting your energy from other people and from the world. The second one is how do you process information? Are you intuitive? Are you high sensing? This tells you a lot about where somebody starts and how they think about life. So sensors think about life in the present.

They're present oriented. They walk from the present into the future. They're very practical. They're very reasonable. They're very rational people, intuitives like maniacs like me. We start into the future and then we walk back into the present. So we get excited about ideas. We're like, oh, we vision this, this, this future. Oh, what might that be? How might that work? What might we do? Who could come along with us? Right. And then somebody says a sensor comes along and says, excuse me,

I'm glad that you're 10 years in the future right now and you have these grandiose visions of where you're going. We've got to make payroll this week. And by the way, that's on fire and that's on fire. And like, we need to be here. So you need both, right? That's the beauty. None of these like being introverted or extroverted.

They're just strengths and weaknesses, right? There's always upsides and downsides to each one of these, but once I can tell, okay, where's somebody powered from, right? How does somebody process information? The third one is how do they make decisions? This is a really important one. So thinkers and feelers, two basic categories. Thinkers are all about ideas and about truth. So they're seeking truth. They're seeking ideas. They're very achievement oriented, right?

They want to get things ordered up and neatly packaged. That's how they make decisions. So they're making decisions based on what is truth and how am I seeking it? Feelers, on the other hand, by the way, most men are thinkers. So 70% of men are thinkers. 30% are feelers. 70% of women are feelers. 30% are thinkers.

When we go back up to the sensing and intuitive, it's about 75, 25 sensing to intuitive. So 75% of people are present oriented, 25% are future oriented. And so I'm like the super weird combination, right? Where I'm external focused. I'm an extrovert who is intuitive. So right there, I'm in the 25%, right? Introvert, extroverts, 50, 50. I'm in 25%. And then I'm in the 30% of men that are feelers, right?

So feelers base everything on relationships and values. So we feel our way to decision making. It's how will it impact the world around me? How will it impact my relationships? How will it make people feel? Now, again, it's not like I don't have a rational side and I can't consider ideas. And it doesn't mean a thinker can't feel anything. That's not the point. The point is, which is the primary lens that you look through in life, right?

And the last one, which is really interesting, is lifestyle. This is a J versus a P, a judger versus a perceiver. And it's really about how you like to move through the world. Do you move through the world in sort of an orderly way? Do you like structure? Do you like to you have a decision to make? You gather information, you make a decision, you move on. Right. You like things structured.

Or are you a maniac like me who is a perceiver who is kind of open for whatever? I loop on things. I need forced. I need to be forced to make a decision. I need a deadline to do things. And so, again, if you understand people based on these these four parameters, then you can really have a lot of empathy. Like my wife and I did this personality testing together in each other's presence and

And I'll never forget my, uh, you know, we're going through these lists of like, are you more like this? Are you more like this? You know, whatever. And she's like, of course this, like only a maniac would be that. And I'm like, yep, I'm the other one. And literally at one point she looked over and, and I could tell the look on her face was like, I have children with this man. Like what, who is this? Right. But again, we're all in our own heads. We think that the world works the same way, but for us, it created a tremendous amount of empathy.

Like she, the, how I made decisions and how she makes decisions, by the way, we're opposite on every single category. You can imagine that might create some friction in a marriage. Same thing in work relationships, right? Right. You asked, what do people mostly get wrong? I think we get wrong is we assume everyone like us. And so if you have a certain attribute set, you tend to want to look at the whole world through that attribute set and say, oh, well, everyone I hire should have that attribute set.

And if they don't, they're bad, they're bad fit. Yeah. Just totally not true. And so we think about a lot of this stuff as we are recruiting. We think about a lot of like, okay, what are the things that we're asking this person to do and what type of person would be good for that? And then the other one that I've really enjoyed is Enneagram because it really shows you what is your underlying insecurity and

And what are your primary drives? So there's nine numbers and each one has a very different set of pluses and minuses, strengths and weaknesses. And so when you're able, again, none of them are perfect. You're not, it's like, oh, I'm a, so be personally, like I'm a three, two, right? Which in Enneagram means I'm an achiever and I'm like a kind of a people pleaser. Like I like to serve, which sounds, oh, he's an achiever and likes to serve people. Like that's again, like, look at it. No, no, it comes with huge downsides. Like my worst fear is,

I'm not enough. My worst fear is if people knew me, they wouldn't like me. I'm adaptive to other people. And so it was like, do I know the real me?

Like my, my serving of others quickly turns into people pleasing. Do you give people personality tests as part of the recruiting process? Yeah, we, we do. Yeah, we, we really, and by the way, we don't automatically ax people as part of that. Like, it's not like we're like, Oh, if they don't fit this exact personality then, but what it does is it allows us if we're getting, you know, it's, it's usually when we're pretty serious with a candidate, right? So we're trying to make sure that we're,

What we don't want to do is we don't want to project onto them what we think they are and then come to find out later that they're not actually capable. And so when we get really serious, kind of down to the final like three to five candidates is usually when we start testing. And they often learn things about it. And sometimes, we actually had this happen recently, somebody was like, I don't think based on the testing that I went through and all that, that I actually would be good for this job. They opted out. I want to switch to acquisitions. So I think a good way to dive into this subject is

What's the playbook when you take over a company? So you go through a process internally, you come to a decision. Do you guys write memos internally? Yeah, we do. What's in that memo? So we are describing what I would call the overall situation of the business.

Who are they? What business are they in? How does it work? We also think about like, what is the core action of the business? So oftentimes things, our favorite deals are ones that look weird or different on the surface. There may be a little furry fuzzy things on the deal or they're misunderstood. And hence the price and the connection between the price and the value is off, right? So we're trying to look for mispriced opportunities, right?

And so in order to be mispriced means that something about it is either risky that we can do our jobs right. You know, this is assuming we're correct in how we do this. Not always correct, but we're trying. Means that there's a divergence between the risk and our ability to mitigate it and other people's ability to mitigate it. Right. Or there's a lack of information that the other parties have based on their ability to dive into the into the

weeds on a deal. And so we like things that are misunderstood. I'll never forget the second large deal I did was on a pool business that we still own. We've never sold anything. So, I mean, we still own everything. I shouldn't keep caveating that. It's not like we've sold anything. So, but the pool business, I remember talking about it with you back in the day. And, you know, most pool builders get big because they partner with

uh, development firms and they go through these massive boom and bust cycles, massive boom and bust cycles. And it's feast or famine all the time.

The other thing that they do is they're tempted to be vertically integrated and do all the work themselves, right? Because you make more money at every step, you know, in the more margin, but you're constantly then in the booms, you're hiring a tremendous amount of people, which creates cultural issues, tremendous liability, all kinds of, I mean, it's just madness. Margins end up not being nearly as good as you ever think they should be. And then in the bus cycles, you're having to let go of a whole bunch of people who are, you want to keep, but you have no choice because the business will implode, right?

And so two unusual things. When I first got the deal memo on this, I remember thinking to myself like pool builder, big pool builder, like largest single location pool builder in the country. So like at the time, it's really large. And I was like, yeah, they partner with they're probably vertically integrated and they probably partner with development firms. And like, that's just not, you know, that's not something we want to do.

And then I started asking just a few questions. I was like, Hey, can you tell me what percentage of your revenue is direct to consumer? Yeah. I was expecting it to be, you know, 10% or 15%. It was 97%. And then I said, Oh, interesting. Like, what is your CapEx capital expenditures on an annual basis? And it was like microscopic. I was like, weird, tiny CapEx, good free cashflow, direct to consumer. It's like, man, that's a really durable business.

That's an example of like the risks we were taking and the way that the company appeared, like the core action of that business is they are in the business of marketing pools, like selling pools and then handling the logistics. But they're, you know, they're subbing out the actual construction, the hiring, the firing, the risk, all those things, the boom and the bust to other people. And that what that creates is a very capital light, highly efficient, high cashflow, high durability business.

That again, everyone else was looking at as a quote unquote construction business. So other people that may be interested in it were turned off. They're like, no, I don't want that because that's a I'm gonna put that in the bucket of construction. I don't want to take that to, you know, my senior partner or to the loan committee or to the to the investment committee and say, hey, guys, I think we should buy a mom and pop construction business in Phoenix. They're gonna be like, what the world's wrong with you?

Right. Versus we look at that and we're like, Ooh, that's really attractive. Yeah. So those are the types of examples where we're trying to put all that into the memo. We're trying to put all in the memo, the things that we think are holding it back. So first principles, like let's go to kind of first principles on an, on an, a business that we would acquire. So this is a business that's long tenured. They've been around for on average a long time and they're still fairly small. So something is holding it back.

We think of it as the kind of lids on the business. And we're trying to figure out why they aren't bigger.

So by definition, there is product market fit if we're acquiring it. By definition, there's some sort of moat. So a moat being defined as you can generate above average returns on invested capital. There's something unusual about the business that has allowed them to get into business, build the business into a successful, again, minimum sort of $3 million of free cash flow. Not a hard and fast rule. We've done some smaller deals, but on average for new platforms, we're $3 million.

That means there's something special about the business. It's really good in some ways. And on the flip side, if it's not bigger and it's been around for a long time, there's something holding it back, holding it back. And so our job is through those memos to collect all the findings of where's the moat? Why do we think it's transferable?

How durable do we think it is? And on the flip side, what do we think the opportunities are for growth and make sure that all of that triangulates with price? Of course, I had the privilege of spending some time with Buffett at one point, and I asked him this like battery of questions. And he kind of, I think at some point got frustrated with me being I was probably being annoying. And he said, price is my due diligence.

And it was kind of like the showstopper, like drop the mic moment. He was like, cause I was asking him all kinds of like, well, how do you think about this? Or how do you think about that? And ultimately he's like, I use price as my major due diligence filter. So that was brilliant. It's like the simple heuristic, like the higher the price you pay for it, the more you're pricing it to perfection, the more things have to go right. The lower the price, the more you can absorb things. And so, you know, we are, uh, because of the nature of these being smaller companies, they're messy, uh,

they've got some weird stuff going on usually in these things they're not bigger so there must be some lids on these things we're trying to figure that out and we're trying to correlate that to price

And the cool part is after close, like all the problems are merely opportunities. I try to remind our team of this all the time because you get in these operating situations. You're like, whew, there's a lot going on. Like sometimes relationships are very strained. There's weird power dynamics, all this stuff's going on. And I say to them, yeah, it's hard, but this is what we get paid to do. Like we're in the business of shaving fur. Do you...

projections in this moment? Yeah. We're, we're, we're, um, do you like do three scenarios like base upside downside or how do you, how do you think about that? Yeah. We're trying to stress test where we think based on the history of the business, uh, it's going often assuming for most of the deals we do that there is no growth. So we want the business to underwrite with no change in trajectory. Hmm.

Um, if it can't stand on its own, like we're not big on quote unquote synergies, we're not big on trying to do this massive change. Like if you've, if the business has been operating a certain way on a certain trajectory for 30 years, it is nothing but hubris to come in and think that within a short period of time, you're going to completely change the trajectory of the business. Yeah, it can happen. There are some tricks and some outside perspective that you can kind of look and see and run a playbook from time to time. Um,

but for the most part, like there's no easy solutions. Like I was talking with a, um, uh, Harvard educated search searcher the other day, actually when I say the other day is probably year and a half ago and, um, bought a business and had all these green plans. I was gonna, he was gonna introduce all this technology, all these like changing systems. It was an old school business and he was gonna, you know, revolutionize with technology. And this is kind of like, if you go on Twitter, the, you know, I don't know what we call it or whatever,

The group of people that are trying to do this SMB land or whatever. This is often the dominant narrative of people who haven't done it. Right. So people who haven't actually been in the weeds, who haven't bought a business, who haven't tried to change it is like, this is super simple. You buy things for cheap, huge amount of upside. You go in and you transform them. These guys are idiots. Yeah. Yeah. These guys are idiots. They don't know what they're doing. It's like, dude,

yeah you may have been to Harvard you may be well educated that guy's been working in the business for 30 years do you not think that he knows everything you know and far more of course not so anyway this guy came in he had all these grand plans and I talked to him about I don't know a year later it's like six months ago and I was like how's all that going and he was like oh my gosh I haven't done anything that I wanted to do I was like oh interesting tell me about that

And look, the business is actually doing well. Like he's glad he bought it. Yeah. But how it went post-close was not filled with, oh man, this is perfect. Now we can hit this huge growth trajectory or whatever. He's like, yeah, our servers went out like the second day on the job. The phones don't work. We have all these issues. You know, the head of sales left shortly thereafter, had to replace, you know, it's like this constant fire fighting mode. It's running a business. It's running a business. The only people who think

Buying a business and operating it are easy. Most of the people have never done it. There's a small group of people who got lucky the first time. Yeah. And usually the second and third time they get smoked. I mean, look, we took the better part of a decade toiling away in obscurity doing things like, you know, I joked that like we were running the world's smallest family office for a good amount of time there. Just,

slowly compounding, trying to learn systems, trying to get, I mean, we were just getting smacked around constantly, but that then allowed us through that decade to get good at this. And then we were able to scale. Like if I'd been given 50, a hundred million dollars right out of the gate,

I would have lost every penny. Yeah. And this market is so inefficient, which is by the way, good and bad inefficiency being defined as, can you make a lot of money or lose a lot of money depending on skill? Right. So like argument is if I gave you a million dollars to invest in the stock market and I said, Hey, I'm going to let you keep everything you lose.

Right. So lose as much money as you can. And I'll give you 60 days to try to lose as much money as you can in the stock market. Yeah. It'd be really difficult for you to lose a lot of money that you might end up making money in the private markets. Like give me 48 hours and I can lose a million dollars. Like it's super easy. Right. Which means skill really matters, which means if you want to have it as a career, there's a lot of value in honing your skill set.

So to me, that's the ultimate mode is it's very simple. What we're trying to do is just really, really hard and judgment matters. And so that's the reason why we put everything out on the internet. Like we literally have our entire playbook on the internet. Like you can go on the permanent equity website and you can see our entire due diligence toolkit. Like not only just the questions we ask, but the why underneath each question, why would we do that? Doesn't that spark a bunch of competitors? Doesn't that help a bunch of people? Yeah, sure. Helps everybody. Helps everyone. Yeah.

And we're stewards and we're unconcerned. There's abundance. Do you go back a year later or is there a milestone, like a predictable milestone where you go back and you review this memo and now you've owned the business for a while? And like, what can we learn? Yeah, we actually do this quarterly. So every single quarter we have, we call them baseball cards. They're like one pagers, maybe a little bit longer than one pagers that explain the overall strategy, the overall purchase price, the rate of return so far,

Where we've done well for the wrong reasons, where we've done well for the right reasons, vice versa. So it's like the entire memo is a constantly updated living document of every single investment we've ever made and how we're doing. Almost like value line for your businesses. Yeah, for sure. And like, but here's the thing is how would we do it any other way? Yeah. Like if we're in the business of investing, of buying small private companies, trying to make them better, like,

we've got to learn. We got to get better. Like how would we know if we, we were getting better or not? How would we know, how would we learn if we weren't doing a look back? So, I mean, to me, it's just, of course, obvious. And I mean, look, if we're not good at what we do, we should do something else. Like don't waste this life doing things that you aren't good at for God's sakes. Like that'd be terrible.

Do the CEOs make that baseball card or does the, cause you guys, what's your structure? You have a, almost like a portfolio managers in charge of multiple CEOs. Yeah. So right now our structure is we have a dual hook and structure post close where our financial team and their financial team hooked together. Okay. And we're constantly getting feedback loops of what I've called information from that. So our, our goal with our financial team is keeping scores. The easy part, the hard part is getting actionable, reliable,

real time information to all the stakeholders to make good decisions. So that's their primary role is to help those companies, which by the way, this idea is completely foreign. We come into most of these small businesses and they're like, yeah, we give all our stuff to this accountant and the accountant tells us how we did. We're like, sure. That's not what we're talking about at all. What we're talking about is on a day-to-day week-to-week basis, what are the metrics you're looking at? How accurate are they? How updated are they? How can you make decisions?

Right. So we've got that group that's working with them to try to increase the quality of those feedback loops. And then we've got, you know, what I call like a board of directors in a box model where there's one point person for permanent equity that, that accesses all the resources of permanent equity kind of is the Sherpa, the guide for the person internally. So, oh, you've got an issue with marketing or you need help with that. Like we've got external, internal resources, recruiting, external, internal resources, legal, external, internal, you know, so we've got all these resources.

sort of helpers that we have. And that person's job is to help direct them as well as govern the business. Those are updated based on the constant feedback loops of the business over that quarter in concert with the leadership teams. But we're mostly doing the authorship of them. And then you don't step in and like start issuing directives. You want the finance plugged in and you want the metrics that they're looking at or you want specific metrics for you or both? We want information directly

Every which way, the more high signal we're trying to separate the signal from the noise. Right. So there's tremendous amounts of information being thrown off these businesses that doesn't matter. We're trying to get down to a handful of metrics that we can agree on, that the leadership team and us that we're working in concert to understand what they're telling us.

That's actually one of the most difficult things post-close is just getting on the same page about what matters. Totally. And when does it matter? And again, we're coming in hopefully with high humility saying you all are the experts. We're not. Yeah. But we're asking questions like, okay, well, if that's the business model, wouldn't it make sense that this would be like a leading indicator? And sometimes they'll be like, no. Oh, interesting.

Tell us why. Right. We try to come at it from that perspective. This is like, instead of just telling them what we want to see, like, do you think this would be helpful? Are you like, what are you looking at and why? Yeah. Why aren't you looking at this? Why are you looking at this? How does this work? Again, this is not rocket science. Like this is like treat people as humans. Be humble, be kind, be long-term things usually work out. Do you,

do anything within the business from otherwise from the first day or you're just sort of what's the reporting cadence back to you? Is it is it weekly, monthly, quarterly? Yeah. So we are usually in touch on a weekly basis, depending on if we're going through periods of negative change or positive change, then we're more active and helpful being supportive, being corrective, maybe if we need to be. If things are

In the box, smooth sailing, no storms on the horizon, then we can be a lot less hands on. We always tell our leaders like we're always available. Everyone has your cell phone. Like, yeah, you can get in contact. We're the easiest people in the world to get in contact with. Yeah. Running a business is lonely. Yeah. If you've never run a business, if you've never been in the CEO spot.

You can look up from in the organization and it looks rosy. Oh, look, that person gets paid a lot more with all the freedom they have. Oh, I want to be the one to set vision and whatever. Looking down from that position, there's usually no one to share sorrow with. There's no frustrations like you. You're isolated. So one of the things we do is just try to be relationally connected with

and offer to be a release valve for the very natural human tendencies we have to be seen and heard and blow off steam and consult on difficult situations. You know, again, it's interesting going back to like the personality typing. You know, we try to understand for our CEOs if they're internal or external processors. That's a really important piece. If you're a CEO as an internal processor, then you can you can go away with your thoughts and be fine.

If you're an external processor and you're the CEO, you have no one to externally process with, or you end up creating inappropriate relationships with people who work for you. Yeah. So that's fraud. So that's one of the things that we can do is if we're adept at that and understanding the people, then we can say, Hey, that person's external processor. Hey, they need somebody to talk to. Come talk to us. Let's work through things. The only things I would say is we're aggressive about post-close in the short term is if there's just any laws being broken.

which is sounds funny to say, my guess is 80% of the small businesses out there are either knowingly or should know that they're breaking some sort of rules. There's a lot of government regulation, depending on the state you're in. And often, by the way,

Federal regulation, state regulation, and local regulation will oftentimes conflict with one another. And it requires a tremendous amount of background and understanding to know how to be in compliance. I wish they'd simplify this. I mean, the amount of stuff you have to keep up with is just insane. It's astonishing. Yeah. Why don't you do a totally hands-off model like Buffett?

This is, it would miserably fail in the scale of business you're dealing with. Why would that fail? People get divorced. People have health issues. People die. Um, people lose interest. Things are constantly changing. The ability to self-replicate is unbelievably rare. And the reason why we are in the position we're in to be able to buy these businesses is because we are the best option for the business to transition. Um, oftentimes there isn't

a family member who has the capacity or either financial capacity or talent capacity to be able to do it or some combination of both. And these businesses are not ones that you can just like leave alone. Like there's, there's no passive income in working in small business land. Another way to think about it is like, you know, sort of buying an index of small businesses, right? I mean,

from time to time is like people come up with this idea of like, oh, what if you just put like a thousand dollars with, you know, a thousand of these small businesses and created like a index? The reality is over a long period of time, that index is zero. Like it's really hard. The governance of these things is difficult. Like the norm for most small businesses is entropy, is decay.

is dying a slow death and being wound down. Like that's, that's a norm in the small business world. You have to fight to grow. It takes dynamic leadership. It takes vision. It takes risk-taking. It takes capital. It takes mitigating risk. You're doing all these things. And so, yeah, the, the, the ability to do that is, is non-existent in our area of the market. And by the way,

Having spent time with both Buffett and Munger, they would say the same thing. Go deeper on that. So when you look at them early on in their journey, so this is like, let's go back to the Buffett partnership. Let's go back to actually when Buffett first met Munger. Buffett was invested in Sanborn Maps and Dempster Mill. Those are the two primary investments. I think this represents 70 or 75% of the assets of the Buffett partnership. One of the things that Buffett and Munger connected very early on

about was struggling businesses, was struggles he was having with those two businesses. The story, I think it's been told a number of times, but it's not often remembered because

where they are now there's been like five seasons of berkshire yeah and where they are now bears zero resemblance to where they were in the early days where they were in the early days is where we are where we like to play and this is where again by the way they said they generate the highest returns right smallest amount of capital highest returns being able to access small companies but uh dimster mill was a disaster like buffett had gotten sideways with relationally with people um and he was

kind of desperate. Yeah. And he met this guy, Charlie Munger, who he started to develop a relationship with. I mean, they actually talked about the annual meeting this year, kind of how they got together and they had a family that brought them together. And when they met each other, it was like kindred spirits. They stayed in touch. And one of the things that Munger asked Buffett was, you know, what problems are you facing? And Buffett was like, oh, I've got this business that like

I don't know what we're going to do. It's upside down. Sandborne Maps is a whole different story and it was kind of upside down in a different way that worked out. But Dempster Mill was just a mess. Like he needed somebody to go to the middle of Iowa. I think it was Iowa.

and fix this company and get it fixed up and make money at that business. And he's like, he didn't have anybody because he was a stock investor, passive investor and become activist and active in that business by the nature of how much stock he bought. And again, this is where the balance sheet was stuffed. Like they had a lot of resources, low free cashflow yield, all these things that we get access to as well in our area of the market.

he got access to then in his area of the market, right? Things just don't work out. And so you get sideways operating issues, the value of the business, it starts to go pear shaped. And so he got in touch with Munger and Munger said, Hey, I know this guy, Harry bottle. Yeah. This is a famous Harry bottle story. They convinced Harry bottle to move his family from Los Angeles to the middle of nowhere, middle of the heartland, Harry bottle fixed the business. They ended up selling it. And that, I mean, Buffett said that,

Without Harry Bottle, without Charlie Munger, without a few of these things going a different way early on, there is no Berkshire. There is no Warren Buffett. There is no institution the way it is today. One is it's good to acknowledge just how much luck plays a role in all this stuff. Totally. I mean, like a big part of humility is just acknowledging like we're far less in control than we really think we are.

Also, when things do happen and you do see a need, talk about it, voice it, see how you can access people and resources. And so I would just argue that no one can take a business that's small, loosely functioning, sometimes makes money and leave it alone. These are highly variable assets with very difficult processes.

attributes about them and it's a knife fight the other story is like Berkshire Hathaway right if you think he was hands off and not talk I think it was Malcolm Chase who took it over yeah yeah like they were talking daily uh and he wouldn't let him reinvest in the business but he knew the numbers better than than chased it he still knows the numbers better than I would imagine a lot of the operating CEOs do for sure I mean Buffalo News like

they were buffing among her were very, very active in many of their situations. Now, as they've gotten into massive businesses that are, you know, you're hiring really high powered, really paid, high paid operators, like they're going to be better at the operating than they are. So, I mean, at a certain point, like it flips and you have such an access to capital and such a need for size that some of those problems take care of themselves. Now you've got the other problem, which is the fact that Berkshire hasn't beat

the market in 20 years, 25 years now. Well, why? Because they're so freaking big. So you got, I mean, there's problems either way and there's pluses and minuses either way. You just get to choose which one you want to engage in. Where do people go wrong doing what you're doing as they scale? They try to go too fast, too soon, assuming they know too much. So we...

uh from the time we bought the first business to the time i bought the second business was four years four years of toiling away and correcting and learning and trying to get a good foundation of capital and into position to do the next deal now we were looking for deals in between but it's hard buying one business one small medium-sized business negotiating it documenting it

closing it, operating it and having some sort of either through distributions or through a sale positive outcome one time is brutally difficult, is a brutally difficult thing to do. Now you get to do that again and again and again. And oh, by the way, this is an interesting dip that happens where. So now you've got, let's say you've done this three times, three brutally difficult and you've just now cash flow them. So you still retain them.

So now you've got a portfolio of three companies. Well, now you can't be a CEO of three companies, I guess, unless you're Elon Musk and, you know, somehow he's figured out how to do this, but most normal people can't even operate one business well, let alone two or three.

So you got to make a choice. Okay, well now I'm going to take my free cash flow from three of these companies and I'm going to build a layer of overhead to be able to then scale and manage. So somebody's got to be out there looking for deals, interacting with capital partners, diligence really matters, legal due diligence, financial due diligence, technology due diligence. Somebody's got to be managing all of that, documenting it, negotiating that process all the way through. And then of course, post-close operating these things, right?

It's a lot to worry about. Oh, and by the way, you got regulators all mixed in there as well. There's a lot of places to hit a pothole. And so you say, whew, I'm working a hundred hours a week every week. And yeah, we're making a bunch of money. Things are going great. I'm making up a scenario. But now you got to basically take all of your earnings, all the free cashflow, your business and go to zero again. So you started zero or very little, you invest it, you do well, you do well, you do well, you run the gauntlet two or three times. Now you got to go back to zero and

Because you've got to take all your free cash flow and you've got to reinvest it in that next layer. That's brutally difficult. Now you've got a whole other set of issues. Now you've got meta problems at the head level. Now you've got personnel issues. Now you've got culture problems. Now you've got technology issues. And now you've got an operating business that's trying to operate businesses. And you've got the same issues in the operating business, the parent co, as you do in all the smaller businesses. It's brutally difficult.

And then you go through another phase where you're like, okay, now we've got a tight group of people. It's a small group. Now we've got three or four or five companies, maybe six. Well, now you've got to build a much larger organization. You got to go through the whole cycle again. So every time on the way at the cycle up, you've got to pass through this gauntlet of over and over, over and over and over again. I mean, it is a miracle that permanent equity has 15 companies. It's a miracle.

It's a miracle that we have a team that for the most part loves each other and cares about each other and wants to do good things. Like it's literally done a day goes by when I don't think it's a miracle. And by the way, the future is not secure. Like we might screw up badly. And so there's always work to be done. There's no free lunch. Nothing's easy. So why do you do what you do given all of that? I think I have the best job in the world. I get to meet people.

extraordinary people from very different cultures around the United States. One day we'll be doing a dinner in New York at a Michelin starred restaurant. The next day we're eating at Hardee's in the middle of Ohio. We will go from Oregon to Florida to New Mexico. It's the cultures are different. The food's different. The people are different. The businesses are all different. I mean, I can't imagine. I mean, we have a blast doing what we do and it's hard and it's stressful and

And it's tiring. Why do I do it? Because I feel called to help families transition. I feel called. I mean, like, you know, in my paradigm as a Jesus follower, work is pre-fall. Work is for our good. Work is something we should engage in deeply. This is our co-creation that we get to do. And I feel that. Like, I feel that on a daily basis. And there's thistles and thorns. And it's difficult. And it's fallen. And it's broken. And it's messy. And so...

That's life though. Like that's what we get to do. And like, I can't imagine a better job than getting to serve the families and the institutions that give us capital, that trust us with their capital for 30 years. The amount of trust that they have with us to give somebody capital for 30 years. There's nothing you can get back 30 years. I don't take that lightly. That's incredible. I feel honored that somebody would trust us that much. I want to serve them. I want to serve them well. The families that sell us their life's work, sometimes generational work.

Like that is a heavy burden in some ways. And what an honor in other ways. And then all of the people who we get to work with, who are trying to be as excellent as they can at their craft. Like I, I, I get to interact with so many interesting people and we get to do such interesting things. And I don't know, like I said, I think I have the best job in the world. We always end on the same question, which is what is success for you? Success would be to be an ambassador of, of,

the kingdom of God. My life transformed when I became a follower of Jesus and I've been rescued. And the thing that I want to do most is to, we're called to love and serve people around us. We worship a God who condescended himself into the physical realm. He was the author who wrote himself into the ultimate book of reality and came to serve, not to be served.

and to, um, to rescue. I want to, with that same love that I've been given, give that to other people and serve them well. What a beautiful way to end this conversation. Thank you. Thanks for listening and learning with us for a complete list of episodes, show notes, transcripts, and more go to fs.blog slash podcast, or just Google the knowledge project.

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