Ep 45: How to Drive Value Creation in PE-backed Companies - Dan Cremons [Accelera Partners]

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Great.

Well, welcome back to another episode of the Buying Build podcast. Today I'm here with Dan Cremens. Am I pronouncing that right? Dan, you are cool. I'm really excited to touch you today, Dan. So we just recently connected over social media. I, I saw a few of our, I guess our mutual connections promoting your newly launched book and I, I took a look. I haven't yet received it yet I have ordered it, but it looks extremely exciting and, and relevant to, to people like myself and probably most of the listeners that may not necessarily have a private equity background. I'm sure this is extremely relevant for people that are doing private equity too. But when I'm looking at these small businesses thinking about value creation.

It can be a little bit foreign not having executed a deal in the private equity space or operated a business in the private equity space or a small business coming from a generic banking role. And I think there's probably a ton of interesting topics that we can unpack here. So I'm excited to jump into it. I thought perhaps the best way to start is just to jump into your background of you, because I think you have a very interesting and impressive background and relevant to the book that we can dive into. Because you had, I guess, the private equity background, but also you had some operating roles. So quite a cool mix there and I think people are going to be interesting to see.

I think people generally think of private equity as capital allocators, but you've kind of worn both hats, which is really interesting. So I'll pass it over to you for a brief background and then we can jump in.

Yeah, cool. Well, thanks so much for having me. When I came across you on LinkedIn and saw what you're doing in the world, I found in you a kindred spirit in A sense that we're doing similar things, playing in the same ecosystem, and from everything I can gather, have similar philosophies on how to serve this audience of business builders. So I've been excited about this conversation. Quick bit on my background. I'm not super interesting, so I'll try to keep it short. I. I was born and raised in the Midwestern U.S. i'm the product of a family and a community and a culture here where M and A and PE were really just collections of random letters. So I, you know, early on I didn't, I didn't know what private equity was. I didn't understand what an acquisition was, frankly, saw myself being in medicine or engineering or being in a rock band or something like that growing up. I spent the early chapter of my career in institutional investment research and then lucked my way into my first private Equity gig in 2007, I think it was, which in retrospect was one of the great blessings in my life. I've met some amazing, incredible people. I've learned how to do business the right way in a principled, value driven, purpose driven kind of way as a product of the environment that I've been in.

And I've had a chance to learn a heck of a lot about investing in small businesses, building small businesses. And as you know and many people in your audience know, you know the learning curve in this, in this domain where you're looking at a variety of industries and different types of business models and different business challenges, the learning curve is steep and exponential and never ending. So I've learned a heck of a lot along the way. And like you said, I've had, you know, the great fortune of having seen the same private equity movie from different vantage points. I've led deals before. I have sat on the board of PE backed investor backed companies. I've been an operator, I've been a CEO and a CXO within PE backed companies. I've worked at a fund level, standing up, different portfolio support capabilities. So I've been able to do different things in the private equity ecosystem, which really means I'm not especially good at any one of those things. But I've just seen the same movie from a variety of different vantage points. And if there's one, one big kind of learning or lesson that seemed to pop up around every corner across these different roles that I've had and things that I've done, it is this. It's this lesson that one of the most important, dare I say the most important key to success in Private equity investing and operating is getting the people part right. It's not all that matters. There are other things that are required to be a successful investor and operator. But if you don't get the people part right, it renders a lot of the other things, the other key success ingredients and factors much more difficult to attain. So I dedicated, I began to move in the direction of my career of really trying to raise my game and sharpen my ax in this discipline of.

How do you support businesses as a leader within them or as an investor in them in building great teams capable of delivering the win. And so much of what I talk about in the book is oriented around this idea. And a lot of the work that I do today with private equity backed companies and their sponsors and search funds and independent sponsors kind of ties back to the same theme around helping these companies drive what I call people powered performance.

Yeah, absolutely. I mean I think we've had on guests in the past that have echoed similar message in one form or the other. And I think in these, in these small businesses, very often family owned, the people dynamic can be quite interesting. And so I thought we can get into various aspects of the book and I'm keen to dive into as much as we can in the time that we have. But thinking from kind of my own journey and probably most of the people listening, there's probably a few key moments where the people comes into play. I think that in terms of kind of when you find a company and start doing the due diligence, then to, I think you put it as your first 100 days post close and then even after that there's these trigger points where people become really critical and making the right decisions become critical. So maybe we could just get into some of those key moments and how you probably may think about some of these moments and how you'd navigate it. Starting with during due diligence, let's assume you found a good deal, you've agreed terms on a good deal, but you know, maybe it's a bit more of a discrete sale so you have access to the owners obviously and maybe not.

Too much more than that. Have you found any creative ways where you can kind of dig into the people.

Without ruffling too much feathers? I mean, maybe not, because maybe the deals you've looked at are a lot bigger than these smaller family businesses. But I just thought that was a. Interesting. You've probably come across some interesting ways to navigate that.

I think you, I think you pointed to a very real challenge in the land of due diligence. Which is that oftentimes it's difficult to get to the, the core of what am I really buying, not only when it comes to the people, but across other, other domains as well. And that's really the art and the science of how do you conduct due diligence effectively, particularly when it comes to the people factor. I mean, you're spot on that. You know, a lot of, a lot of business owners, founders, sellers, tend to approach the sale process in a very discreet way and even upstream of the sort of Jedi tricks that I've learned over time around how do you actually get to truth around who are the people here and what are they good at, what are they not? There's kind of a something I've shared with founders before, which is challenging this notion that you have to actually be guarded and discreet about a sale process. A lot of times, in many cases there's good reason for that. A lot of times the reasons for that tie back to a fundamental fear of, you know, people finding out and running for the exits. And that can happen. That, that, that can of course happen. My experience has taught me that oftentimes that fear is overblown in that, you know, if you consider for a moment another way to approach it, that being letting your people into the tent on, hey, here's my. I'm approaching retirement. Here's my intention. I want to, I want this business to last and I want it to cement my legacy. And that means I'm going to need to find a new partner for you all to work with.

And here's what that might look like. And here's how I want to get you invested in the process of building a company that a great partner is going to want to buy. Just another way of approaching the lead up to a sale process, which I would make an argument is a more advantageous way of approaching it.

Yeah.

The real, the reality, however, is that that's not often the case and every situation is different and they're, you know, in some cases, good reason for why they don't let you know, founders don't let other folks into the tent on the sale process. But in that scenario where you don't have a lot of access to management, it's just tricky. It's tricky to get a clear, high fidelity read on. Who, who are the people that are coming with this business? Who are the human beings that are coming with this business because you don't have the opportunity to meet with them. And so there's the best trick, if you will, that I've learned as to how do you cut through that and try to get as complete of a picture as possible is to leverage some really effective question asking of the CEO, the founder and the people you do have access to to try to get to paint as clear, complete high fidelity of a picture as possible. And there's a lot of underneath of that, there's different questions that I use and are part of my conversation guides, which I'm happy to talk about or folks can reach out to me and I'm happy to share. But it's worth just acknowledging that you are going to be in these scenarios you're referring to. You're going to be limited in your ability to really understand what's going on. And you have to consider factoring that into your risk reward calculation and how you value the deal and how much risk you're willing to take on and at what price.

Yeah, yeah, no, absolutely. I mean, I think the reality is for the, for the most part, I think you at least get access to senior managers. I mean, I would assume so. So you can kind of, I guess your book probably dives into this in more detail, but leverage the questions like you say, in order to maybe in an informal conversation kind of, you know, eke out a little bit of are these people the right fit for the job? Are they in the right seats or do they need to be replaced?

So is it mainly around certain lines of questioning or are there even kind of quantitative ways you can formally assess that or is that a little bit tricky too in these kinds of deals?

You said something really interesting there that I think is a key point, which is you said the right people for the job. That presupposes that you've gotten clear in your mind on what the job is. And this kind of ties back to a big, big idea that, that really defines how I approach this sort of thing. Working with companies as an advisor or as an investor, which is taking a thesis driven approach to gauging how fit for purpose is this team. And when I say that, I mean before you start just kind of sticking your thumb in the air and saying, hey, are these, you know, these people good or not? Go back to the fundamentals of what is the deal thesis here.

What are the different value creation levers that we're planning to pull? What are the different ways equity value is going to get created in this deal?

Investors, the people in your audience, core part of their job in buying small mid sized companies is to get clear on that and develop a well reasoned investment thesis. But I think that the people, you know thought process really has to start there as step one, step two, then the question that I then ask myself, once I'm clear on what the thesis is for a client company or a company that I've invested in, is asking myself what needs to be true about the team in order to give us a high probability of that, that thesis coming true. So if you think for example about just use an example to make this more real. A thesis in which a big part of your.

Strategy, your value creation plan is going to be dependent upon selling more stuff to existing customers, cross sell upsell expansion revenue. And you've said, hey, we think there's X in opportunity within the existing customer base. That's kind of thing number one is what's the thesis? What are you trying to drive? That then begs the question of what needs to be true about the account management team, about the customer success org, about the sales org, about their incentives, about how they're structured in order to give you confidence that we're well positioned for that to come true.

Right?

And in a lot of cases that starts to lead you in the direction of identifying areas where we're actually well positioned and we can just kind of hit go and get on with it. And in a lot of cases in these small companies, areas where there are big gaps, those can be talent gaps, which we'll get back to in a second because it's really the core of your question. Those can be gaps in.

The implementation of best practices around compensation or org design or lacking certain capabilities. Hey, we don't have a CRM that tells us who our existing customers are, let alone what products they have and what product opportunity there is. So it kind of points you in the direction of some gaps. And specifically then when you get to the talent piece, the third leg of the stool on my little three part construct is what needs to be true about the team and their capabilities.

To give us confidence that the business has what it takes. And I've always favored, I learned this from there's a great book called who that teaches a really simple but effective process.

For hiring and for assessing teams, which has become one of the most influential books in my own career. And it teaches you this process for creating a scorecard and saying hey, for the. Let's just take your example of you get access to a senior leadership team of, call it three, four, five people in a small midsize company.

Based on what I know about the thesis, based on what I know about what we're trying to drive, based on what I know about what capabilities we need to have to make that happen. What things, skills, competencies, attributes do I need to see evidence of in these people in each of their functional roles do know they have what it takes and spending 30 minutes per role building out a little mini scorecard. Hey, for the head of customer success, just following this example through, I need to see somebody who is highly commercial, who's not just able to take care of and tend to customers, but is a revenue driver, someone who is proactive, not reactive. These would be the sorts of things that might land on a scorecard for a head of customer success or, you know, leader of account managers.

That then allows you to go, is a long way of getting to the, you know, the core of what you're asking, but allows you to go into these conversations with these people not only interested in trying to understand what they do and how they do it and the function that they lead, but understanding do I see evidence or indicators of them having the things that I spelled out in my scorecard as being important to success in their role relative to the thesis we've, we've developed? Yeah, so that's a very long answer to a short question. But I, you know, I think going through that thought process, which does not need to be a long drawn out thing, it's just a matter of sitting in a room and thinking through this and then knowing around what areas do you want to engage with this team. That's really the, and being intentional about this is really where the, you know, where the magic and value is.

No, I mean, I think it's a, it's a, dare I say simple but really effective approach. So you, so you almost like, because everyone goes into these, I assume most people go into these deals having like a growth plan or, or a thesis of how this will play out. And often, I mean, at least in my experience.

You know, you kind of read a quick bio or maybe have a quick conversation and the quick data points are I've worked in industry for X amount of years for this company for Y amount of years and I have this position. And maybe naively I think, okay, pretty solid candidate or maybe not such a solid candidate based on those facts, but that's not really actually telling you much and how it links back to the thesis and of course, you know, sometimes that's all you can get before close or, or, I mean, in certain instances I'm sure that's the case. So would that, would that then? Because I've seen, we've had guests on that want to Acquire and run the business and I guess, you know, they will lead a part of that. Others that kind of support second tier management and others that have bought businesses and have to replace the owner, but it's not themselves. They almost have to hire immediately or kind of at the same time as due diligence, which kind of scares me. But would you see if you think of these or the people aspect and how that links back to the thesis and maybe you can see, okay, this ticks a lot of boxes, but the people piece is missing. Would that be a red flag for you or would you be comfortable kind of building out, okay, this person, this person and this team needs to be replaced pretty soon after the deal closes. And that's still okay for you because you know how to execute that. So how do you think about that? Is that a huge risk or maybe an opportunity or how do you think about that?

I think you need to have confidence in one or both of two things. The first is confidence in the team you're backing, which we just talked about. We talked about how to develop confidence, how to identify gaps. We talked about the natural risk that exists pre closing and being able to size that up effectively and. Or you need to have confidence in your ability to quickly attack that post closing once you do actually have, you know, the keys to the keys to the business. When I say the confidence to, to, to approach that post closing, it's the confidence to get in there once you do have more access and size up the team and understand who they are and how they tick and what they're good at and what they aren't. You need to have confidence in your ability to move quickly to make the needed changes. And you need to have the confidence in your ability to gear the business in such a way that in an ongoing way will keep this topic of human capital and talent and leadership front and center and cause you to constantly turn back to it and reassess at every juncture along your hold period or your operating tour of duty. Do we have the right people for where we're trying to go next? So you have to have one of those two things and if you don't have either of them, that's a recipe for. That's a recipe for a really, really tough slog.

Yeah, yeah. And yeah, I mean, I. So in terms of kind of having the confidence of being able to replace them shortly thereafter, you obviously have experience in this and are there so things that come to mind to kind of maybe help manage that is like a seller or owner transition to Kind of maybe bridge that gap a little bit. But are there ways that you've found works quite well to kind of hedge that risk? Like, let's assume it ticks a lot of boxes, but you're going to have to replace a few key people afterwards. Are there some structure like the ways you can structure deals to mitigate that risk?

Yeah, when it comes to structuring deals to mitigate that risk, one way to mitigate that risk is just pay a lesser price, which ultimately, if you believe that the valuation you have to pay as a function of market forces, you're limited in your ability to perhaps dictate what you know, what price you're able to pay. But that's, you know, that's a natural place to go. Is, is the, is the valuation that I'm able to pay in this deal compensating me or adjusted for the risk that I'm taking on? So that's of course a place to go. Look, there's different, you know, creative ways that frankly aren't that, frankly aren't that original around. How do you, to the extent that you've determined certain managers are actually important to the business by way of the diligence you've done pre closing to keep them invested, to mitigate the flight risk, to have them playing the long game, there's equity incentives and earn outs and the like that can nicely align interest there. As far as further hedging the risk, I mean, I think it goes back to.

Maybe a little circular here, but it goes back to the idea of wherever possible going into closing with a clear view, as clear as possible in light of the constraints and a plan and being ready to get after that plan immediately post closing. I mean that's ultimately, you know, that's ultimately, I think how you hedge the latent, lingering, spooky people risk that can, you know, often rear its head in these deals. And I think it's worth saying, you know, you said something a moment ago that around needing to replace management and there's this, there's this kind of stigma in private equity land that I've seen and experienced and heard of, you probably have too around private equity just comes in and cuts jobs and turns over management teams and the like. And in some cases you, you need to make changes to ensure you have the right fit for purpose team in place. But I, but I think the mindset here is really important too. Like we've talked a lot about the mechanics of how do you actually do this. But I think the mindset is equally important. Which is, I try to approach this work with a few fundamental beliefs in tow. The first fundamental belief is every human being. This may sound a little meta, but bear with me here. Every human being is fundamentally talented in their own way. And part of my job as an investor and as an operator and as somebody, you know, search fund or somebody coming into one of these businesses is to put people in a position to let their greatest talents and strengths shine.

Absolutely.

In some cases, the things that you're really good at, based on where we're trying to take the business, we just don't need them, you know, or where we've outgrown them, in which case I'm left with a choice. Do I think I can grow you and are you willing to grow into a new role and that's a determination you have to make, or can I help you find a place outside of our organization where you can actually do your best work and let your strengths and talents shine?

In some cases it means, hey, this one, and I've seen this plenty of times, both as an operator and as an investor. But the thing that we have person a doing doesn't actually play to their greatest strengths. So what if we recrafted their role in such a way that allowed them to go over here into the business and take on this new role?

So this whole topic of, of talent optimization and making people change isn't just about moving people out of the business. It's about finding. Finding out what is each of these human beings in these companies. What is each of them great at, helping them get into a position, whether in your business or outside of it, to do that thing.

And that can mean the way that manifests and the moves you have to make.

Will depend. But I just think that's a really important mindset to come from as opposed to viewing humans as human resources. I kind of don't like that terminology. As if people are just a resource, you know, line on a spreadsheet. My job is to optimize the human resource. It's like these are human beings, they're great at stuff. Find, find out what that is and get them, get them into a position that allows them to do that.

Yeah, I mean, I'm just reflecting on my line of questioning now. It seems like, thank you for shifting because I mean, I think myself and most of the people listening, coming from, you know, the acquisition entrepreneurship field, are more along that line of thinking and more thinking, how do we actually. Who do we need to hire? It's not at all about cutting jobs. I mean, that would be silly because typically the incoming new owner is the person who knows the least about the job anyway. So, yeah, reflecting on my line of questioning, I've kind of, maybe just like you said, because of the reputation of private equity, but that's not necessarily always the case. Um, so. So maybe an interesting. Because it was actually going to be the next question. So an interesting pivot there is on the recruiting side. So I read through some of your resources and you have some interesting thoughts in terms of.

You know, how best to recruit and some common, I guess, mistakes people make when recruiting for these key positions. So let's assume you make an acquisition and there's clearly like, you know, the owner did X in the business and you need to replace that. How best can you recruit effectively and what are some of the mistakes people naturally make?

I've been a, you know, student of the game of how do you hire effectively for a while now. We as a little bit of backstory, my old firm, we came to this realization probably 10 or 12 years ago that.

People matter to investment success, which seems so silly to say it like that, but it was that that was not really a conscious realization for us prior to that, or at least one that we were proactively, intentionally acting on. And in order to be successful investors and build an enduring private equity firm that builds great businesses, we needed to raise our game and how do we hire, how do we attract great talent, hire more effectively? And so what I realized is I started to get in the game and focus on raising my own. My own game in this area was there's some stats and facts and figures that really suggest that on average business leaders, whether in private equity businesses or at private equity firms or in small mid sized companies, by and large.

Most leaders are remarkably bad at this. There's some stats out there we can talk about around, hey, you know, on average, roughly 50% of hires end up failing to deliver the expected results within 12 to 18 months. There's a stat from a book called Power Scores written by Jeff Smart and Randy Street, I believe, where they say that only about 15 they studied a bunch of executives and got quantitative about how they studied them. They concluded that only about 15% of senior executives are effective at hiring. And so just the backdrop here we'll get into some of the practices, but the backdrop is that most leaders are actually not that good at this. And I think first it just takes reckoning with that and realizing that and realizing you may not be as good at this as you think you are. This is one of those disciplines where it's like singing karaoke. It's one of those things where everybody thinks they're good at it, but the actual stats or audience reactions suggest that most people actually aren't as good as they think. As I sit up there and try to belt out Born in the USA and karaoke on the weekends. So I think that's. That's where this whole conversation ought to start, is just recognizing that now the question is, what do we do about that? How do we avoid becoming a statistic, avoid the staggering cost of being bad at hiring, which the cost is indeed staggering if you look at some of the research. I like to think about this along kind of following the hiring continuum. The first step in making good hires is to drum up. Actually, there's. The first step is figuring out, what do you need? What does a great hire look like? And this kind of brings us back to this scorecarding idea that we talked about earlier. Once you've defined what good looks like, what an A candidate looks like for the role, the second order of business is to go find those people. And I'm not a, you know, I'm not a recruiter. So in terms of all the tactics and best practices around, how do you use different channels to find candidates? You're going to be woefully unimpressed with my knowledge in that area. The one thing I will say that a lot of companies overlook when it comes to attracting candidates is the question of how do we build the brand? Build a brand that is the employer of choice for great talent. We often think about attracting talent as being a mechanical exercise. We need to go use LinkedIn and use these tools. And we need to put this job description that was just a template that we've had on our shared drive for 15 years. We're just going to go update it and change some of the bullets. And it's like six pages long. And we just kind of go through this process of attracting talent mechanically. And one of the things I try to do when I work with companies on this topic is pull them out of the weeds. Look at this from a higher altitude and say, what would make the picture in your mind the best person out there for this role? What would make them eager, enthusiastic, knocking down your door to want to work at your company? Let's paint that picture first. What needs to be true about our business for that to be the case and find ourselves in that position and then work backwards from that def. You know, that kind of picture of success to say, okay, what do we then need to do about our culture, our compensation, even things as tactical as how do we go pitch candidates, how do we craft a job description in order to make that come true? So that's really phase two of attracting candidates. And then I'll pause here because I'm winging a lot at you. But then you get into the phase of the process where it's about, okay, once I have options, I have candidates in front of me, I've filled the funnel with great candidates. How do I separate the wheat from the chaff and find the one who's the best candidate for this role? And there's a lot we could talk about there, but let me. I'll pause.

Yeah, I mean, just a few comments there, because I read through some of the biases and mistakes managers make in the statistics. And my wife, she. She was heading up recruitment for Ralph Lauren in Europe for a few years, and I chatted with her about it, and she was just laughing because she completely agreed with all of them, saying basically, if she prepared in terms of what should be the cultural fit, the skills to fit that role, and her not having any biases picking candidates, they were far more successful in their roles than if the manager got too actively involved, kind of just ended up choosing someone that looked like him or her and maybe wasn't the best candidate. And her, obviously it's a little bit more anecdotal, but she would actually keep track of it a little bit. And the stats were pretty compelling, too. So I think you spot on there. And.

She quite enjoyed that. Yeah.

To your wife's experience, the. But we. I've kind of reframed how I thought about hiring a few years ago, which is that hiring is. Is much about understanding the process of effect, as much about understanding human psychology as is about having a process for hiring. The biggest hiring mistakes I've made in my career, and I've made many of them, and I've learned a heck of a lot about how to do this the wrong way and the cost of getting it wrong. But the biggest hiring mistakes I've made have not been for lack of process. I've used the same. Roughly the same process. It's evolved and it's iterated, but used roughly the same process for a long time. The biggest hiring mistakes are a product of the 4 inches between my ears called the brain, which is faulty, is riddled with biases, is riddled with these mental lapses that. Lapses that. That cause us. That trick us into making biased hiring decisions. And so I, a couple of years ago. Really geeked out on this topic of what? What are the biases that most sabotage.

Hiring decisions and how can I just become more aware of them? I'm never going to fully debias myself, but how can I just become more aware of them such that when I'm in the heat of a hiring process, when I'm in the seventh or eighth inning of a hiring process in the late stages, and I remind myself that, ooh, this thing called commitment bias tends to pop up right now, I can become aware of it and then take the steps necessary to debias that stage of the process to the degree possible.

Yeah, I love that. I mean, so often self awareness is such a critical piece in all decision making.

No doubt.

Yeah, yeah. No, this is great, Dan. I'm just keeping an eye on time. I wanted to.

Ask just one more in the kind of the practicalities of hiring as it relates to maybe acquisition entrepreneurs, something that comes up is kind of thinking about talent. Let's assume you find that good talent. But keeping costs manageable is something that's always at the forefront of these kinds of acquisitions. Because you're taking on debt, you have to take it for the most part, take a salary for yourself and so there's less institutional money backing you, perhaps. So you need to be a little more prudent. Are there ways you can kind of incentivize talent, attract them from coming from a big city to maybe a pretty. A pretty small town where this business is located? Any interesting ways you've seen that done other than, you know, preparing Kind of like, I guess you touched on a little bit earlier reverse engineering what the perfect candidate would look like based on what you need? Are there other creative compensation plans or kind of some practical things you can put in place to incentivize these types.

Of candidates when it comes to attracting people from that aren't geo located near the company or just creative?

Yeah, I think maybe I'm just assuming that maybe wrongfully so that a lot of. Or I guess the depth of talent in a bigger city would be much higher and often salaries are much higher. So if you're looking for a specific candidate, like let's say it's a cfo, for example.

How do you attract someone like that that may be looking to work at a big four or maybe kind of take a more industrial role in for a company, how do you attract that person to come join your small business? Are they creative ways like profit sharing, some kind of, you know, I don't know, maybe there's some interesting ways that you've, you've done something like that in the past.

Yeah, makes sense. Yeah. I mean I've. I found myself in situations where early in my career I worked with a company. Just a quick story to illustrate.

Company that was based in the middle of nowhere, Pennsylvania, really high potential company, nicely profitable company. They were still small, probably the type of company, size wise that your audience is, is pursuing, but relatively small. And in the middle of nowhere. You had to drive three hours to get to the closest airport to just to paint the picture and just to call it what it was. This was a challenge for us. This company had a lot of potential. We had a clear view on what needed to happen for this business to, to accelerate growth. But it was a real challenge to recruit people to this geography. So, you know, drawing on that experience and there have been others like that over time.

I think there's a couple of levers you have to pull and which ones of these will win the day and ultimately win over a candidate will depend a bit on the candidate in the situation. One is the geography of the company. It's conceivable and we actually, I've done this in a few places. It's conceivable that you actually build a. And this one wouldn't work as well for location dependent companies like residential services companies or those that are, you know, route based or something where being physically located near the hub is very important. But for a technology business or a service based business, it's conceivable that you can create a satellite office in a, in a nearby city that will actually allow you to, to attract people. So that's a lever you have to play with. Another lever you have to play with is allowing executives to commute and telecommute for periods of time. My rule when attracting somebody to a city in which they didn't live in is hey, for the first six months you need to be on the ground. And we'll fly you out there every week and put you up, but you need to be on the ground for the first six months. After that, it's kind of up to you to figure out.

How often do you need to be on site in order to accomplish the mission. And I have points of view on what those guardrails are, but like, it's up to you to figure that out. So if you want to work from home for three days a week or fly out one week and back the other, then you know that that's, that's possible. That's a lever you have to Play with another Another lever you have to play with, as you pointed to, is compensation. If I'm taking on a role in I live in Cincinnati, Ohio, in the United States. If I were to take on a role across the country.

I wouldn't be, wouldn't be unopposed to that. I have a family and commuting is a pain, but I wouldn't be unopposed to that. I also want to be compensated for that. I want to make sure the opportunity is really worth it, both in terms of just is this going to advance my career and allow me to learn and put me in a position to be successful and is it going to give me an opportunity to build wealth? And so that's another lever you have to play with is compensation. Equity incentives as you referenced. I think that's right. There's other ones as well. But I think, I guess the core idea here is just figuring out what levers you have to work with and then getting to understand that candidate, what's important to them, what matters to them, and getting creative and kind of breaking the mold as to how can you shape something that may not be optimal but will at least improve my odds of winning them and getting them.

Yeah, absolutely.

Great.

I mean, I realize the book broadly is about value creation and private equity backed companies and I've been directing the line of questioning to kind of scratch my own edge. So I wanted to just step back for a moment and kind of maybe touch on other topics of the book that are relevant to the broader audience. So I know you mentioned kind of B2B service business, how to optimize value creation more broadly. So can we unpack some other pieces of the book and then maybe there's interesting pieces we can dive into there. But I'm sure there's so much more to the line of question that I've been targeting.

Yeah, well, as you and I both know, there's a lot of connective tissue between the idea of value creation and human capital. We talked about this up front in the conversation. But what might be useful is let me rewind a bit and just tell you the why behind this book, which I think will illustrate how it came to be and how it can be valuable to your audience.

So I spun out of a full time role with a private equity firm about a year and a half ago to start my own advisory business focused on value creation and human capital. And in early chapters of Hanging My Own Shingle and Starting My Own Thing, I of course, as you would expect, I'm out there meeting with new private equity Firms and I'm taking them out to lunches and trying to understand what are they up against, what are their needs, how might I be able to serve into those needs, doing discovery calls with different, you know, prospect firms to understand what's, what are the big challenges they're up against. And now that I, now that I had just a much wider lens into the private equity ecosystem than I had previously, when I was just at one firm, I started to, I noticed really two things. The first is gone are the days in private equity, long gone are the days, I might add, of being able to cost cut and, and value buy and financially engineer your way to alpha or outperformance. The market has become way too competitive, it's become way too efficient. There's anecdotes we could talk about and many that I'm sure you've seen from firsthand experience that suggest that it's just really competitive out there. 6,000 private equity firms in existence in the United States, there's about a billion, I'm sorry, a trillion, way more than a billion trillion of entire uninvested capital of dry powder that's waiting to be deployed into private companies. So it's just, it's very competitive. And so in light of that, firms are having to rely more and more on post closing value creation to deliver the win. So that was first kind of meta observation, macro observation. The second was.

Many firms are actually not well positioned to do that. Now there are large firms that I talk about in the book, I call them the leader firms. And I've learned a lot from them and infused this book with a lot of their wisdom. But there are many large firms that have value creation teams and portfolio operations teams and squads of operating partners that work with these companies and bring best practices and they have playbooks and large companies that have resources to do that are certainly ahead of the curve. As you start to work your way down market, mid market and the lower mid market, there is a lack of resource capability and know how when it comes to how do we predictably, consistently, reliably drive value creation in these companies? And so the light bulb went off for me. I said, oh, big market. I understand the market backdrop. Now this thing called value creation is becoming more important. Many firms aren't actually that, that good at it or well positioned to make it happen. And this is one of the, you know, small number of business challenges that I actually think I have something to say about and some value to bring to the world.

So I, you know, having stood up portfolio ops capabilities at a firm before having been an operator, having built playbooks both as an operator and a PE guy myself, you know, I certainly have some perspective on value creation. And as importantly, maybe more importantly, I have a network of people who have track records of success.

As operators and CEOs of PE backed companies who know value creation and have the, you know, the proof points to prove it. And I know plenty of people at PE firms that are doing some really interesting things when it comes to bringing value creation practices to their portfolio companies. So what if I go tap into my own noggin and kind of bring the best of my experience through but also go draw on the wisdom of it? I think I interviewed 60, 60 or more people in the writing of this book and try to take their combined 1,000 years of wisdom and write a book on it such that these lower mid market, more resource constrained firms don't have to go, you know, break the bank to go hire these big operating teams, but rather can get, you know, get the book and at least start to move in the direction of being more intentional, proactive, methodical about making value creation happen in their companies. That's a bit of the why on the book, but also what the core idea of the book is.

Yeah, I mean I think it makes a lot of sense and thanks for. We probably should have laid with that in terms of what was the genesis for it, but that's really helpful. And so you touched on it started with you spinning out and starting an advisory business and then kind of you saw the opportunity where you could add a ton of value and that was the genesis for the book. Do you mind walking through the advisory business kind of what are you doing on a day to day, who are the type of clients that you, that you work with? A little bit more about that.

Yeah, if I were to. I've kind of productized a few services that sit in this value creation human capital realm. But if I were really to boil it down to lay people terms, it's I help companies do basically two things. One is for newly acquired private equity firms or I'm sorry, private equity backed businesses do a lot of work in helping those companies, their leadership team, their board, their investors figure out where are we going to take this thing.

Just a generic articulation of, you know, of, of things that in private equity land are referred to as the vision, the strategy and the value creation plan for business. So I work with teams early in the investment cycle to figure those out. Where are we going to take this thing once they're clear on that. The work that I then do with them is about figuring out who do we need aboard to make this winning future happen. So there's different, you know, services if you will, or solutions that I have that, that enable that. One is working closely with leadership teams up front on talent strategy and marrying that with the value creation planning work that we've done early in the, in the deal cycle. The second is once they've identified hiring needs, they've gone out and generated candidates as we talked about earlier, do a lot of work with specifically for CEO and C level hires helping private equity firms or the, you know, operating teams to make high quality hiring decisions. So I do a lot of executive assessment type work and then downstream of this and this is perhaps the most impactful work. But it's.

It'S, it's not. The core of what I'm doing today is infusing hiring best practice into these companies such that.

All people that are hiring managers in the business, from the CEO down to, you know, mid level or frontline managers are better positioned to make higher quality hiring decisions more consistently. And so there's some training and some programs that I've created that work with teams to help them raise their game in, in this area. So that's, that's what I do. Post closing. There's this other piece pre closing that we, you know, you referenced early in the conversation around due diligence. There's some work I do and riding shotgun with private equity firms through their due diligence process and helping them to really understand from a leadership, a talent, cultural and a capability standpoint, how well geared is this business to actualize our investment thesis. So there's a due diligence solution, but that then that's really the tip of the spear, the Trojan horse, if you will, to get me into a position to do the work that I love doing the most and frankly can have the most impact, which is this post closing work that I described.

Really interesting. Yeah, I don't know. Have you heard of the company Chenmar Capital by any chance?

I have.

Okay. So we had Trish on a few weeks back now and we touched on kind of their approach because they started. So it's her husband and I guess brother in law, the two guys are brothers, went from Wall street to kind of buy their first company up in Maine and kind of, it's, it's, it's, it's become a pretty sizable portfolio and now they've, well, I guess not right now, but recently started thinking about how to build out a Hiring plan, a recruitment plan to kind of pull more perhaps.

I don't know, white collar, if you will, workforce and to deploy into their portfolio companies and they kind of market that quite broadly and have a very interesting approach and some of the things you were saying, I was trying to think of how that relates to maybe on the lower end of the market and they seem to be doing quite an interesting job. I think Permanent Equity, another kind of company in the space are doing something similar called the Orbit. So it's really interesting and I think a lot of people are, you know, it can be, it can be a challenge for sure and these guys are kind of maybe pioneering it on the lower end, but finding the teams, recruiting and I think what you're doing for the private equity firms, because it's probably a huge like missing market. I think that's, that's probably what you saw and what, what led to the book because you know, the people is the hugest aspect. And I think if you find creative ways to hire those people and effective ways, it's really going to boost returns and have a huge impact.

No doubt. I think you nailed it. And this is one of the least we think about just how private equity professionals and PE operators develop, evolve, learn over time. There's no, you know, you go to an MBA program or an undergrad business program or investment banking training program. There's no shortage of training on the technicals of private equity.

This however, is one of those kind of rare areas where the importance level of getting people right is off the charts as hopefully we've kind of both built the case for in this conversation and the level of training, kind of technical training on how to do this well is remarkably low. So there's a huge gap there. And this is not to say that private equity people aren't smart people. I was swimming in, you know, I am to this day swimming in pools of smart people in the work that I do. But it's just an area you just don't, we just don't have a lot of exposure to in our training. Every person I remember vividly my moment of reckoning. Sure, others do as well. Every, every person in this business seems to have this moment of realization which is like the holy cow moment of wow, this is really important. I just got burned by a CEO hire. I got wrong or whatever and I feel entirely flat footed on how to do this right. And those are the types of leaders who have the awareness, but maybe not the tools that I love working with. They want to get better, they want to grow their craft in this, in this area. But they need some help. And it's cool to hear you talk about other firms out there that are doing interesting, innovative things in this area too. I just, as somebody who is constantly trying to raise my own game and learn from the best, I'm eager to connect with some of those folks and learn from what they're doing too.

Yeah, yeah. I mean, I'm not hugely close to them, but I'm happy to connect if you want. I think you talked about getting burnt and learning from those experiences. Trish talked about a few cases where the CEO basically left and they had no one to replace them, so they had to step in. One of the three of them, I think herself and brother in law are actually taking CEO roles in two of the portfolio companies now for a period. So really interesting to see, kind of going back to my point about being cost effective and kind of trying to hustle a little bit because you don't really have the institutional backing like private equity, how they're trying to do something similar to what you're helping private equity backed companies with. Yeah, I think it's to your point. I mean it's easy to do, like, well, not easy, but it's clear. You need to do quality of earnings, you need to do legal due diligence, all of these things. But the people aspect is, you know, hugely important and kind of that asymmetry in terms of what the amount of time typically, traditionally is spent on it versus the value it adds is huge.

Right?

Yeah. It's funny, I mean like I go back to my conversation I had my wife last night. She maybe I need to recruit her after I close my acquisition, but she was just laughing and she couldn't agree with like everything I was reading, she couldn't agree more with. So that was really fascinating.

Yeah.

Cool. Dan, this has been excellent. I really, really do appreciate the time and I appreciate you kind of, you.

Know.

The line of questioning was more targeted to our audience and maybe that's not specifically the types of people that you work with, but definitely type people that'd be really interested to read the book. So I do appreciate you kind of just tweaking it a little bit for the audience. And I'm excited to get the book. I started reading the resources already and a lot of things were just like light bulbs going off and like, you know, really, really good stuff. So I'm excited to get that. Is there like, I guess it's on Amazon.

Is there.

What's the best place for people to find the book, follow your journey, the resources you put out. Obviously I follow you on LinkedIn, but what are some of the other ways people can reach out and find the book?

Yeah, the book's on Amazon. It's called Winning 105 Proven Ways to Create Value in Private Equity Backed Companies. Search for Winning moves and find it. Just released the Kindle edition today, so it'll be available to people in new markets today. And I'm pretty active on LinkedIn. Love connecting with people, love learning from them, trading ideas. I try to put content out into the world that's hopefully as remotely helpful to folks. So connect with me on LinkedIn and those are the best ways to get.

Me and any, any, any plans to do an audio version of the book.

I've gotten that question a bunch of times now, which, you know, as somebody who's always trying to give the market, give the people what they want, I, I should probably pay attention to that market that, that cue that people want that. I've been scratching my head a little bit in that this book was meant not to be a, it was meant to be a field guide of sorts where I pictured this book being something people keep on their desks and as they're in the day to day heat of battle, working with portfolio companies or working in a business, in the case of some of your audience members, they pull it out and say, hey, I've got a customer retention issue. Let me scroll, let me go to page 93 and just jog my memory as to some of the ways I can approach that. So I didn't immediately think that that would lend itself well to an audio edition, but if people want that, then maybe that's what they'll get. You'll have to stay tuned on that.

No, but I think you're absolutely right. As a reference, we had an author that did a search specific book a few weeks back and I have the book alongside me and something comes up. It's just perfect to kind of flip that page and be like, okay, what are some of the best practices here? What am I missing? Am I actually on the right page? And I think you're spot on. I just had to ask. Running a podcast, I mean, I had to ask that question.

Fair enough, fair enough. Well, Paul, I love, love what you're doing in the world, man. I've been tuning into the podcast since I met you and connected with you on LinkedIn and I love what you're doing. Keep it up. And I'm here to serve and support however I can in your journey too. So look forward to staying in touch.

Appreciate that Dan. Thank you very much. And yeah, maybe we can have you back on sometime down the line.

Looking forward to it. Book number three.

Thanks, Dan.

All right, Paul, Thanks.

Just.

Thanks for joining us for this episode.

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