#301 - Emily Holdman - Managing Director @ Permanent Equity - How To Buy Great Businesses

Chris Powers: Emily, hi, welcome to the show. 

Emily Holdman: Thank you. 

Chris Powers: My most fun moment at Capitol camp was us talking at dinner. It was the second night we talked for two and a half hours. And at the time, I was like; I would love to do a podcast. And you were like, I don't do podcasts. 

Emily Holdman: I did tell you no. I also kept talking and looking at you like, do you want me to shut up?

And then you were like asking another question. We just kept going. So yeah. Thanks, I thought you entertained the nerdiness.

Chris Powers: What came out of that all pre-empt was one of the most well-understood people on business I've come across, the depth, nuance, and everything you had seen.

Emily Holdman: We will talk about a lot of fun nerdiness.

Chris Powers: That's nerdiness. You're okay being a nerd. 

Emily Holdman: I am very okay with being a nerd. 

Chris Powers: Okay. Then that's a great place to start because I want to know how you got into private equity. Cause I know you were a finance major up on wall street.

Emily Holdman: Not at all. 

Chris Powers: How did you get into it? Describe just growing up and how you got to permanent equity.

Emily Holdman: Okay. So I've always been one of those kids that wanted to grow up quickly. So I read outside my age range and was always interested in various topics. And my dad, in particular, instilled in me the idea that nobody is off limits.

So he had me start corresponding with authors when I was seven because our shared experience was like reading books together at Barnes and Noble. And so I started writing to authors. So like one of the creators of Sesame Street. He used to write me typed notes back, and I'm sure it was like his assistant or something.

But for me, it made the idea that you can always reach out to somebody and better understand something feel real, even before the internet. So I was ambitious. I didn't know there were closed doors, but when it came time for college, I optimized for my school.

So I ended up going to the University of Missouri. I wanted to go far away, but for financial reasons, that was the right place to go. And so I optimized for that school. So the journalism school was one of the best programs in the country. So I initially majored in that and went to the honors college to get to small class sizes in some other schools I had looked at.

And so that was the start. And then I ended up missing math. So again, nerdiness is coming out there, so I started studying econ. And so econ was like my way of making sense of the world in numbers. And then journalism was the ability to communicate that and figure out how to get and think about how to position things.

I went down the strategic communication path at the journalism school, which ultimately led to advertising and marketing-related careers. And so my first real foray was. And publicity. So I worked for the Walt Disney studios in Burbank and was involved in significant motion picture publicity.

So working on film premieres, with directors on film launches, was a bizarre life. And this was at the dawn of the great recession. So it was a weird time to be doing anything, especially starting your career. I had a boyfriend back in Missouri, so I was still looking for reasons that might take me home.

And so the convergence is I was looking around at various publications, and I still loved Columbia. And I found this article about Brent, specifically about him buying red one-camera technology. And so, at the time, he owned three companies. He was an entrepreneur and had three marketing and media-related companies.

One was a research and insights company. One was a commercial production company, and then one was an ad agency. So Brent bought the camera technology for the commercial production company. It was a fledgling technology, but I knew about it based on the studios. And so I just reached out to him. I found him on LinkedIn.

There were probably 50 000 people on LinkedIn in 2009, and a great time to be looking for a job. And I was like, Hey, what are you doing? It sounds interesting. And to his credit, he replied, and we had a two to three-day exchange on LinkedIn. And then he said, visit and let's sit down and chat.

And then he grilled me for four hours. And as a result, that did offer me a job. It wasn't looking for anyone then, but we nailed the idea that he could benefit from having a digital division. Within the company, they were primarily media placement strategy and commercial production.

So I came on to hire developers and figure out a PPC strategy and many other things for clients. And that same year is when we made the media cross-acquisition. And so that was what led down the path. And it took a few years. I mostly worked on the existing holdings and some of the other activities we were doing in an entrepreneurial fashion up until 2011. Then I began to focus on investing at that point.

Chris Powers: Were you involved in the acquisition of media cross, like how you diligence it and bought it, or did Brent just come in, and he was like, Hey, we're buying this company, and you're going to work on it? 

Emily Holdman: Yeah. So I primarily got the, you work on what we have. And I'm going to try and figure this out a message. So at the time, we had done some other things and had acquired a small SEO PPC agency, so we had various other activities going on, and media cross was in Saint Louis, and so a part of it was.

And I think Brent said this publicly like there needed to be more diligence before we closed the deal. So part of the first six to nine months was him driving back and forth every week, trying to figure out what we had bought. And so that was a bit of a process, but over time we began looking for opportunities for those firms to work together.

And then what ultimately Mediacrest was going to represent going forward. And then what that meant for some of the other activities we were doing then. It was one of those things like MediaCross is very much the story that I tell people as the foundation of why we focus on what we do because it was one of those things where we had many fun ideas.

We were trying many things during that period as entrepreneurs and operators. MediaCross was the first time across all those activities that we felt we had done something strategic, intentional, and repeatable. And so the combination of those things ultimately culminated about two years later in us saying we should look for more situations like that because we think we can be of service and ultimately, In that case, correct? You had a founder looking to retire, but you had a team who wanted to continue. And I'm particularly proud that the CEO of that business is a woman who was there before our involvement and continues to lead the business now, and we've owned that business for 15 years.

Chris Powers: Was there anything you said about buying that business? You said we could repeat it. We could continue to do it. I don't think the first couple of days probably felt that way. Is there something that happened? Was it financial results? Was it a moment? Was it a series of moments where you said this is repeatable?

Like, what happened to cause you to think that way?

Emily Holdman: So within that team, you had a variety of different people who all had ideas about how to grow the business, but based on the previous owner's lifestyle, it had become a lifestyle-optimized business, and we see this a lot, right? He was older. The business had gone in a direction that needed to align with his passions. So he kept it on the rails and ensured they were providing for the contracts they were ultimately supposed to provide, mainly for the government.

Long-term, just cranking away at stuff. So not super exciting for somebody who got into the industry based on fine art interest. So in that way, part of it was like listening to the employees and trying to figure out what they thought was broken or in need of improvement within the team; part of it was some reorganization, and then from an outsider's perspective, it was identifying that they had skill sets that were marketable to other customer bases.

But again, because it had been a lifestyle-oriented business. The staff had just focused on the existing relationships. And so even just putting a couple of business development efforts into practice was influential in how they could continue to grow, reinvesting back into improving their website and marketing themselves and like solving the cobbler's son has no shoe issue and its basic stuff. It wasn't rocket science, which is part of why it felt repeatable. If it had been, we found some crazy nugget in what they did, but that wasn't the case. And the people there were passionate about the brand, about their clients. They wanted to do more and do better for them.

And it was providing the capacity for them to be able to do that. 

Chris Powers: And just for clarity. When you all bought the business, was the idea to optimize and improve it as owners? Or was there another strategy you were trying to pursue the day you closed? 

Emily Holdman: The way the business was introduced to the brand, it was, you all do marketing in Columbia, they do marketing in St. Louis. It may increase your footprint doing marketing. So it was a geographic expansion on an operational level at some point. But, once we got involved, it turned out that they did something different from what we did. So we did project-based or agency-of-record-based work for brands in various categories.

What they do and still do today is primarily government services-related work, recruiting physicians and nurses into the national institutes of health and branches of the military. That was the core of the business. And they did that on three to seven-year contracts. So they're a GovCon like not, but we ultimately figured out that they can be more than just that because they have expertise in recruiting in a DOD-oriented environment that most marketing firms can't say they have.

And on this standpoint, they understand the military person better than almost anyone in the marketing space. And so that's what they ultimately leverage. So now they serve higher ed institutions and corporate clients looking to recruit active military and veterans into roles they need to fill.

It ultimately was one of those things where, again, it was just trying to figure out what ad and how to reorganize it in a way that allowed them t more.

Chris Powers: Okay, we buy this business and have decided this is repeatable. 

Emily Holdman: Maybe a long journey. 

Chris Powers: If we're not going to go, we'll get to the meat.

I have something big in my notes, but we talked about this as we've been sitting here for the last hour before we pressed record. You decided it was something you wanted to do. And then you described this period where you didn't know what you would do for a few months.

And Brent told you. Why don't you figure it out? And then you guys concluded that your job should be to start looking for businesses to buy. How old were you?

Emily Holdman: I was 23. Classic. It was one of those situations where we had a lot of entrepreneurial activity.

And what you and I talked about is I have a substantial risk aversion, and I love working on the market segment that we do because these are businesses that have already been successful. You're trying to figure out operationally how they can improve and why it's sustainable over time.

At that point in our careers, we did many things that weren't. Yet at scale. And in some cases, we're still operating in the red. You're trying to figure out product market fit. You're trying to find your customers, all of those things, just based on personal experience and my risk tolerance.

I realized that becoming mobile in that environment was not for me. And so, with that, I volunteered. Hey, I'm not particularly good at this, and it's making me feel uncomfortable. And so there was a conversation of, okay, do some research and figure out what you want to do.

Do you want to start something else? Do you want to work on media cross? What do you want to do? And for about four months, I just came into the office daily and did a lot of reading and thinking. To this day, I don't know why Brent gave me that grace, but it was a reasonable period of trying to figure it out. He was figuring out exactly how he wanted to optimize the firm moving forward, and we both knew we enjoyed working together. Some talents were helpful, but we needed to know precisely how they all came together. And so ultimately led to a conversation of sitting down and saying, okay, I think that we're going to focus, which was his decision to make on behalf of the firm as the owner, and then figure out what that meant based on my talents and skill sets.

And he's I think you should look for businesses. That's what I did. And for the first few years, this is like 2011-2012; the lower middle market was still very fragmented, but the wild west back then. We would have all kinds of misrepresented financials.

People who like could barely speak English were trying to sell his companies. We looked at things we would never see today based on the dynamics or the value proposition. It was a whole, a variety of experiences and a lot of just navigating the market. And we ultimately didn't do a deer, a deal for three and a half years.

So it was a lot of hunting. 

Chris Powers: What did you learn over those three and a half years? Cause I think maybe the question I'm trying to ask is, most people think about buying businesses. They need to get a fancy degree. They need to work on wall street. They got to be significant private equity. And you were a journalism econ major at 23 years old.

Emily Holdman: Not to discount journalism, because it gives you a specific skill set in asking questions and thinking about a holistic story you're trying to put together around any topic. And that's the skill set that I honed while doing that. And then, the econ side was trying to figure out how to interpret the opportunity within a company and its ability to scale and maintain a position in the market.

My education did inform what I ultimately ended up doing. But I had plenty of people who told me I needed to go back to school. You need to do the standard track. And it's one of my particular versions when it comes to talking specifically to young women about their career tracks is if you go for something predictable, you're not going to get an outsized result.

And I talked about it. With brands and other people at our firm, multiple times, Hey, do you like, should I bounce, should I go? And it was always like, we have a ton of stuff going on; how could you learn at a faster pace or in a more substantive way than just by being in the middle of the work?

And that was true, right? So my big belief is reps matter. You need to have reps and specifically look at smaller companies. Every company is. Own story and its opportunities that, and you, while there are patterns and specific ways of asking questions to try and figure out exactly what something represents, no one is like the other.

And so you need a volume to appreciate, which is the one you want to bet on and invest in. 

Chris Powers: All right. We're moving along nicely. I promise you, we won't go year by year, but this is important. You all bought a business, realized it worked, and only made another deal for three and a half years.

Emily Holdman: If Brent paid my salary for three and a half years to do that.

Chris Powers: Yeah, but I would imagine. And again, this is just what, and this is why you all are unique, and I have built the reputation you have. In most companies, it's like we got to get a deal done this year. Our goal this year is X amount of deals. Was it this conscious decision? 

Emily Holdman: Action-based optimization has never been our focus.

But what is even more ironic than that, and I don't know if we've talked about this, is the deal we ultimately did next, which we first saw in 2012. 

Chris Powers: Okay. So what business was that?

Emily Holdman: Presidential pools? 

Chris Powers: Oh yeah. 

Emily Holdman: So, as you, it was a great time to get started, but it was a reasonably volatile time in that it's a post-great recession, right?

So companies are doing various things in terms of performance, velocity, and reorganization and like new market dynamics. We're on the very front end of what ended up being a 10-year bull run, but nobody knew that at the time. So then, we're just sitting there going, so what do you do?

So the president could have done better in the great recession. Phoenix did not generally do in the recession. And when we saw the business in 2012, they were on a recovery path and giving credit to the original owner. He had repurchased it. He had sold it in 2006 and then repurchased it during the recession.

And he had begun to take what was a reasonably asset-heavy model and make it a more asset-light model and something that could scale up and down with market dynamics more easily. Ultimately didn't need to do that because it continued to scale up from that point forward. But it established optionality. When we saw it in 2012, we were like, okay, this is interesting, but we are still determining where all this stuff will go. You have grand ambition in terms of your projections and whatnot. So we'd like to stay in touch and see where things end up. So we see it the following year, kept in touch, and he ultimately achieved his projections, which was impressive, but then his expectations had gone up. And then we were like, okay, we're still interested, but we want to see if this is a one-time performance. Hit with the intent to sell again or if this is sustainable growth, and he had ambitions. He was 2nd in the market. He wanted to be 1st. So then you keep going, and he thought he had to deal with somebody else, and he let us know.

I'm going down this path, and we said, Godspeed, we're happy for you. Suppose that's the right solution. We're rooting for you, regardless of whether we end up partnering. But we continued to check in because the business had some fascinating attributes, and we liked it.

And then, when we were in Phoenix, we would stop by and say hello. And anyway, it ultimately came to a swift conclusion in 2015 when he called and said it ultimately didn't work out with the buyer. I'm ready. Can we do this? And there was negotiation at that point to try and get to a middle ground.

But at that point, we had three years of them performing as they said they would. And us forming a relationship with trust embedded. It's evident diligence is a shit show regardless. So it was nice to have had that build-up time to do what ultimately was a much bigger deal than the media cross deal.

And we still needed to be equipped from a literacy standpoint and how to do deals when we did that deal. But it worked out well because we built that rapport over those years. So for me, it was three and a half years of no outcome, but it didn't mean three and a half years of no work.

And we ultimately were able to hone our taste in deals, situations that we were opposed to. And then Appreciate what people were capable of doing, especially on the back of the recession, and what that trajectory of a business will look like over that next period.

Chris Powers: I give a lot of credit to you and Brent. It seems like, and you could almost look at three and a half years is maybe, I don't know, like a miss or like, how do you know if you're successful when you're working for three and a half years, and you're not getting a deal done of that?

Emily Holdman: We still go through periods of that, like of just are we growing fast enough?

Are we doing this? We see other people who have entered the market much later than us. We saw all the HVAC deals in 2011, 2012, and 2013 when they traded for two times earnings. And now we see people buying them 18, 19 times. And we're like, what did, what were we doing?

But simultaneously, you only have finite resources regarding your time and energy. And in the case that there are many ways companies can win. We have a particular style in how we can support companies.

In a particular path of winning, and if they want to go down a different path, we're okay with that, and we support them in that and vice versa. If someone partners with us, we want to be fully committed; we don't want to be partially committed, and we want to be free. Then we want to be prepared, equipped, and partner meaningfully.

Chris Powers: Okay. You said it took three years, and then he called and said, I'm ready. And so one of them, I have in all caps, and this is the theme of the rest of the podcast. So if this interests you, you'll love the next hour and a half. How do we invest, and what all goes into it?

And we're going to talk about diligence. We're talking about Alaska. We're going to talk about how to diligence geographies and industries. But the first place to start is how you know a seller's ready. Because you can burn a lot of time in this world thinking you're about to buy this business all to get to the end in what, for most businesses, you're buying founder-led, family-owned a long time.

Maybe it even sat; maybe they were committed when it started. And by the end, they're like, this is my identity. How have you all gotten comfortable with what we think this business is ready to sell? 

Emily Holdman: There are various ways to answer this question. So first off, the expected answer is that you have a proprietary deal flow with which you can control the process.

And I think that's utter bullshit. We have had plenty of situations where people have come to us and said, we would like to get to know you. We may be interested in doing something. There is certainly value in having direct communication and trying to figure out a path forward.

But Sometimes people go fishing, and when people reach out to us directly, they go fishing. Like they're trying to figure out. Is this the right time? Am I interested in doing this? What does it look like? We're happy to have that conversation but fully acknowledge that it is fishing.

That is not a commitment. You have not financially committed to anybody to do anything and emotionally. Most of the time, if you're reaching out directly, it may mean you haven't involved anyone else. It is different than confidentially doing a deal and is more about controlling whether or not you're committed to doing something, right?

So we take that at its face value. We're happy to have the conversation. We're happy to start forming a relationship, but we do not assume you are ready to sell. Being ready to sell is a path for people, and most sellers need to know if they're ready to sell when they first start talking to buyers.

And sometimes people get excited about the money and still, emotionally, are not ready to sell, right? And for us, it is a series of events and pattern recognition along the way. So to give you specific examples, if we are talking to an advisor first about an opportunity, we want to understand how long they've known the seller and the context under which that relationship developed.

And then we're trying to understand who's making decisions. So sometimes it is the majority shareholder, but sometimes it's not, and trying to understand why that may or may not be the case and what the driving force of the transaction is, which you can check out in a couple of different ways.

We end up asking questions about the transaction priorities, but also, like life circumstances, who makes decisions, who's involved in the day-to-day, really trying to make sure that all the pattern matching puts together a cohesive story. So you can't tell you how many times, especially kind of 2021 to 2022, there were situations where, it's like the business has reached a particular scale, they're ready for the next level, whatever that is.

And then you find out that the owner is like 38, and they want to sell out. And you're like, I don't, that doesn't compute for me. If this is a great opportunity, why does a 38-year-old want out? And there may be an extenuating circumstance, but we need to understand what that is.

Otherwise, we are not committed to moving forward on that deal. So it's always situationally context first. And then, once we start talking to a seller directly, it is about how they talk about the business. There's the cliche, like I versus we type stuff. And then there's How the business has developed over time, who owns relationships, and how they think about judgment within the company.

Suppose they are still a critical man risk within the organization. In that case, that leads very naturally into a conversation of, okay, what does that mean regarding our ability to partner in the business, especially in a majority capacity? What happens if you lose interest when you get that check, right?

What happens if your spouse is telling you to take steps back? What does that mean for us if we're going to move forward? And so it leads to a conversation that's less about being committed or not committed and more about an appreciation for what the transition will ultimately look like, which usually means.

We are working at least as complex, sometimes more, not less, for some time to ensure that the institutional knowledge within that person gets transferred into the business and walking through that with them. And this is like pre-IY. Pre-even talking about valuation helps them appreciate what we're trying to do: stewarding a business right for their team. They start a lot of people, especially on an owner level, underappreciate their value, and so you start to highlight that for them and say, These are meaningful things we're going to have to solve for you to be able to take those steps back. So we get through that, and then we are also pattern-matching to you. Based on how they answer those questions, but also how they answer follow-ups. So we typically prefer something other than quantitative questions. We're having our first phone call with an operator because we want to stay focused on what makes a great business.

And, like, how do you guys make decisions? What do you think? And so then, if we have questions about specific customers or suppliers or financial questions, we'll follow that up. Suppose we get any inkling of a response, that's. In that case, I want to know the value first, and I'm only willing to have you holistically appreciate the nuances of the business after you designate a value to me.

Then we're at, and the reason why is it says I'm fishing right to us. It says I'm not willing to commit to you or try to build trust in your direction, but I want to know what you will do for me. And so, for us, that just has never created a scenario that we've successfully closed.

So today, we avoid it if that's the path. 

Chris Powers: Can you dive, go a layer deeper? I versus we; what do you mean by that?

Emily Holdman: Yeah. So you talk about how a business has been built, and depending on who the owner is and how they think about the business, many of them were founders.

And many of them were vital decision-makers for a very long period and may still be. But when you start to talk about daily operations, if every answer begins with, I do this, and they do this. You would consider it a silo if you discussed any two teams. But the issue is that the owner has the skin in the game, and no one else does.

So whatever the answer is, I do this. Suppose it's consequential to risk management, estimation, pricing, and customer relationships. In that case, how you recruit key talent and manage the team is a problem from a transition standpoint if you're looking to leave. It's a different conversation about effective partnership dynamics if you're not looking to leave.

And you had Mark on Mark is the goat in terms of trying to work with people in a coaching capacity who may have been some combination of an individual contributor and the leader of their own company and trying to help them appreciate how to scale themselves and therefore scale the company. So when we can partner, that's great, but we have to know that the person has the attitude that they want that coaching.

Chris Powers: This is a good time. Also, I should have done this at the beginning. Can you clarify what you do? We know you started finding businesses, but this is ten years later. 

Emily Holdman: Yeah. So I'm responsible for essentially the front end of our firm. So I'm responsible for marketing origination and the deal process.

That means I'm typically the person advisors with a meaningful opportunity will talk to. I'm the person who talks to owners first and tries to assess whether or not we can be a good fit for the business. I make the first offer. And then, if we're moving forward on that, I negotiate what you would consider critical terms.

So enterprise value, how much are we buying, and the considerations for how the money is delivered, and then Taylor takes over into diligence. Tim makes fund-oriented decisions, and then Mark and his team lead post-close operations. 

Chris Powers: Okay. That's important for context. 

Emily Holdman: The only way we've been able to scale the way that we have is to think about it in that way, it's a sequence-based approach, but it allows people to stay focused on what they're best at like I should not manage, teams, I've done it over my career, in the same way, I had the conversation about operating in the red, not being great for me.

Like there, I learned a lot and got better for it, but I will never be on Mark's level, and I'm okay with that. 

Chris Powers: You are what Marcus calls a principle. And I don't know; I just assumed that understanding if it's a willful seller is the first thing you need to be interested in.

When do you know this is something we will dig into? 

Emily Holdman: I wish I could quantify that for you; it's an action of things. So I have a taste of what I like to see in the value proposition of a business. So how long it's been around, who they serve, what its positioning is within the market, how they price, and how money moves through the organization are vital areas on a company attributes level that I tried somewhere in my head.

I'm doing that puzzle, right? And then separately is the competitiveness question. So is this a company that we should be the steward of? And how should we think about that? Because there, people have a lot of options. They have the option to do nothing. They have the option to sell to a strategy and lose their identity.

They have the option to sell to an ESOP and sell to the employees. They have the option to sell to traditional private equity. We are none of those things. But to the extent that those are all options, we acknowledge that people should explore them, appreciate them for what they are, and then figure out what serves them.

But we also need to form an opinion on whether or not we can be helpful. And there are certain situations where we can be more or less helpful, considering what their vision from a company positioning is on a go-forward basis. To take a concrete example, most of the time, food and beverage for us is quick now because it's a bummer for me too.

We have seen a few sorts of specialty foods that we have looked at closely, but most food companies. They are structured and set up to be sold to a significant corporation eventually, so everything about them is trying to achieve a particular scale, not necessarily a specific economic model in that process, to be attractive enough to be bought by a major corporation and the entire industry feeds that right based on buying shelf space at grocery stores, like it's all, based on that. Everybody wants niche brands, but those niche brands will have the power of significant corporations behind them to achieve that scale. So when we see that, it's a question of, why don't they want that?

If we're going to move forward, why do you not want to go down that path? And sometimes there's an incredibly intriguing situation of a desire for independence, a differentiated market that they serve an unwillingness from a corporate standpoint to engage in the type of activity. For a variety of reasons, you can go down the path of there are exceptions to the rule, but on average, when we see that the ultimate goal for them is to get to scale.

And they do that primarily by reinvesting heavily into manufacturing capacity, product extension, inventory, and shelf space to get a corporation's attention. It could be a better fit for us. Oil and gas is not a good fit for us because of somebody in Texas.

We passed on it before we ever saw it, right? And so we acknowledge that we need to be in a position to understand the opportunity better. And there are lots of specialists who probably didn't appreciate it either. And there's probably a reason for that. Having some circle of competence hubris, like we try to avoid the hubris and try and say, okay, we're just going to stay within our lane.

But the same thing is true. So we partnered on a software business last year. None of us write code none of us. And so my first conversation with the specialists was, Hey guys, what do you want help with? Because if you want help writing code, we can't be helpful. So the conversation was then about, that's different from what we want to help with.

We want help with scaling, how we approach major organizations, how we think about the structural hierarchy of our organization, and how we establish incentive plans that keep people we train here, right? It's the more detailed nuanced, like, how do you scale strategy they wanted help with?

And immediately we're like, and we can be helpful with that. It depends on what people are trying to solve.

Chris Powers: And that, does that answer the question of, should we be the steward of this business? That's probably not easy; that's a mix. You can answer that in different ways, but how do you know? Yeah, we should be the steward of this.

Emily Holdman: Yeah, where I mostly get on that question, and that becomes a conflicting conversation in my head, is if the opportunity feels like it will last for decades or not. And so durability matters. The pricing position matters. And then the specialization of the operator matters.

Engineers, like actually accredited engineers, manage some businesses, so no one from our firm could step in and operate the day-to-day of that business in the same way they could. If you think about that, you need redundancy to solve that issue if you can steward it for a long time.

Or it should be something other than something we can be helpful on. Businesses need to find somebody with similar credentials and capabilities. 

Chris Powers: How many businesses do you see before you're at least to think we should steward this? We're interested. I'm just teeing up a question.

Emily Holdman: I had. I see a couple thousand deals a year. At varying stages, like teaser through or somebody sending me an email. And we have made we have put a structural valuation of around 16 deals this year.

Chris Powers: Sidebar question. It isn't what I would ask, but it's interesting.

How many times? The answer may be zero. Does a seller approach you may be with that mentality of all I care about is price, but after meeting you all, you show them? 

Emily Holdman: It's why I want to talk to sellers quickly. So advisors have their incentive structure. Most are incentivized to close a deal for the highest possible price because they get paid a percentage of the deal value.

So for them, we look less attractive. In many cases, for many reasons, we have no financial contingencies, and we have a solid record of closing deals. We go under LOI for them. They want to chase out what they consider to be like the golden goose. If I have one good egg, I will try to get the highest possible price because I'm doing the work either way.

In that, we want direct access to the owner as early as we can get it to try and make sure and really to understand whether or not they have that understanding right around. Are you trying to optimize for enterprise value? Are you trying to optimize for cash at close?

Are you trying to optimize for your quickest exit? Are you trying to optimize for whatever it may be? Just saying I want top dollar doesn't mean anything because there's still nuance to what that means at the end of the day.

Chris Powers: But do they ever change what they're optimizing for after meeting you all being like, Oh my gosh, this is, I never thought I could look at my business this way.

Emily Holdman: Yes. 

Chris Powers: So the answer is you can. Not necessarily that you're trying to change people's minds, but they might have a conversation. You all, maybe they don't, you don't hear from, but they call back, and they go, man, you all said some things that nobody's ever told me.

Emily Holdman: I don't appreciate that option exists in the market for them.

It often only exists when you're looking at a wide swath of what feels like incredibly spreadsheet-oriented financial buyers. So if you can escape that, you start discussing other operational considerations. And once they realize that they can articulate priorities in that arena and have people listen to them, it does change how they think about the opportunities.

That doesn't mean we win every time because there is a; we don't want seller's remorse. So it also protects us, mainly because we partner so often. But I don't want someone to do a deal with us with double the value they didn't fully evaluate because that will constantly be in the back of their head.

When conversing with people, we're typically not the highest bidder, but we're typically competitive, right? And then we talk about the nuance, and the people we do best with have what I refer to as engineering-oriented mindsets in the sense that they care about the details.

They care about where the money comes from. They care about its behavior: how we frame it, how long it's available, how it treats the company, how decisions are made, and all of the dominoes that come from how you are capitalized. And so if they appreciate all of that nuance, we do pretty well as a competitive option.

And then it comes down to what are the deltas, right? And our experience is that when you have deltas that are more than 20, 25%, then Our encouragement is to go chase it out and see if it's real because sometimes it's real, but a lot of times it's not real. And a lot of times, it's a position to move forward, to get something under LOI, to lock it up for 90 to 120 days, and then figure out what I'm going to pay for the business.

And that can be that disillusionment for a seller causes deal fatigue. But we would instead them get that in the real world with other people, as opposed to us trying to educate them in the abstract and then risking them having seller's remorse later. 

Chris Powers: And one thing we talked about that stood out that night at dinner was you look at a lot of maybe your job, the team's job early on is like we are question askers.

We're not making any promises. We're not throwing out numbers like we are asking questions. Does that differ from a lot of other buyers? Are there a lot of other buyers who started promising right out of the gate?

Emily Holdman: I have friends in traditional private equity who will throw around multiples more commonly than we do, and they mean it.

So, there are better ways of operating. It's more prescriptive, so they have specific ways to underwrite and approach different opportunities. So if you have a SAS deal, we are willing to buy 75% at this multiple range, depending on if your ARR is this or this; that's what they do.

And so it's the spreadsheet talking and telling you what they will pay, and they already have the banks lined up to provide leverage by that model. We don't have a standard model that exists for any deal. We want to understand who's selling, why they're selling, how they think about the future, and what they want to benefit from.

We want to understand everything about the business and how cash moves through the business. We value businesses based on their cash flow, not based on EBITDA or some other number. 

Chris Powers: What's the distinction?

Emily Holdman: So from the standpoint of discretionary cash flow is what you can buy beer with if you're an owner.

Chris Powers: Okay. What's EBITDA?

Emily Holdman: EBITDA is something made up of a fountain. So what do we mean by it, though? The rough calculation was EBITDA, less capital expenditures. In the last two years, it's primarily been working capital adjustments in addition to CapEx that have made a fundamental change.

And so anything operating in just-in-time inventory over the last ten years has made a material change in how the business is structured. It's generally meant that part of the earnings for the year is being reinvested back into growing the inventory level in a meaningful way.

So then it's a question: is that sustainable now? Will it continue to grow on pace with growth in the company? Go down the line of trying to figure out what free cash flow looks like.

Chris Powers: Why is working capital consistently what people fight over? No matter who, whether it's reading you all or other podcasts or listening, it's like working capital where everybody decides to disagree.

Emily Holdman: An owner often feels that it's stored value. 

Chris Powers: What do you mean by that? 

Emily Holdman: It's the money they could have taken out but left in the business instead. So they think about it as stored value, and I appreciate that. But the other side is, what is the business capable of if you take all that out?

So it's the metaphor we use is it's a body without blood. You can't do anything with it, and it will only perform based on its historical value if it has what it had before. And so it is sometimes a conversation. So working capital also moves a lot. So the seasonality of buildups of inventory of cash.

What they do with cash at the end of the year and how they think about security is like some people manage their family securities on their balance sheet. So trying to figure out if that is for any business purpose or if it truly is personal, those conversations lead to many nuances.

And we've reached a place where we don't make that decision upfront. That is very much a conversation. And we do so with an appreciation for what the business needs and how to think about it. Positioning it so that post close, it never feels the effect of a transaction. 

Chris Powers: Okay. In the vein of asking questions, this is a good time.

We'll probably pick two stories, but I vividly remember being fascinated by how you all would buy a business in Alaska. And when I started realizing, oh my gosh, the chops that you had are off the charts was, as you started describing to me, the questions you asked to understand whether you would or wouldn't buy that business.

So let's talk about the questions. How would somebody underwrite businesses in Alaska? What are things that stood out to you?

Emily Holdman: So this is part of Hunting where other people aren't hunting is part of what I'm naturally drawn to. I'm more interested in the deals circulated to some private equity firms.

We don't participate in broad auctions. We want to get to know sellers; broad auctions don't provide that. Part of looking for things and untapped hunting grounds means we have looked in some exotic locations. So we've looked in Hawaii. We looked in Guam looked in Alaska.

And I started getting to know advisors in Alaska years ago, saying if you ever have anything that's of enough scale, because there's only 730,000 people in the state. So it has to be a weirdly based economic value proposition, but if you have something that should be stewarded long-term, we are not worried about the geography.

We can and will support a good opportunity, even if it's based there. So finally got an excellent call about it. An opportunity, and I can't tell you exactly what it is, but to the extent that it's a consumer-facing company.

Chris Powers: An igloo builder? 

Emily Holdman: Exactly, and it serves served the state. So they had multiple locations, so there was the opportunity to understand the dynamics throughout the state that helped support the value proposition.

The funny part of the story is in the abstract. It sounds fascinating; it was more exciting when we went up there and met the guy, and this is probably the best way to tell it. So we asked questions to understand why this business could continue to scale and how it had scaled over time.

And the nuances of that, right within businesses, especially amidst COVID, is understanding the supply chain, like the supply chain to Alaska is way more complex than the supply chain to the lower 48 labor and why you have people spending on this particular category. So the crazy part was that we went up there to meet the guy for the first time.

He had just returned from trapping because when you're in Alaska, that's a daily activity. I had never seen a wolverine in my entire life, and he had three in the back of his truck. And so that was fun; we got to talking about that. And that's my thing. I don't like to flirt with people about their business.

I like to nerd out with people; I like to understand why you got into this. What were you passionate about? And how did that ultimately lead to an entrepreneurial opportunity that became profitable? His story fascinated him, and it gave me an appreciation for Alaskan history that I didn't have.

So his family was one of the families that, during FDR's administration, was relocated from Minnesota, Wisconsin, and Michigan were the three states. That had become food scarce, so they relocated people to Alaska under a new deal pioneer program. They set aside 5 million and 200,000 acres for these people to go up there and take a 40-acre-plus plot.

They could buy more acres, but everybody was given 40 and developed an agricultural farm. And this was, like, the first part of the 20th century; there needs to be more infrastructure up there. They had the gold boom, but still a little; it's not a state, right? It's all these crazy things.

It's a frontier, and people go up there. So his family was one of the families that went up there; 20 years into that program, there were only a few families left, and they were one of them. So his family was one of those families that went through the harsh winters, lived in tents, and then started to build a house during the summer while farming their land.

And that was like his entrepreneurial bone. I'm like, okay, you're capable of anything. And now you lay in planes on the side of mountains to go trapping for Wolverine, so cool. Still, we started talking about the nuances of operating in Alaska and what the Alaskan opportunity set looks like.

So the big revelation for me was an appreciation of the Alaska Permanent Fund, established in the 1970s on the backs of them finding oil. And it's an exciting investment study if people are nerdy in that way. Still, on a consumer level, it provides a stipend to any qualifying citizen of Alaska.

It is a sovereign fund on an annual basis. So every year, every person gets a check, so the labor pool at this company was partially made up of American Samoans, which had immigrated from Hawaii up to Alaska as part of another migration effort to populate the state. So with that, Samoans, on average, have much larger families because it's just culturally appropriate for them.

And so they'll have 8 to 12 children. When you get a check, like last year, the check was 3,200 per person. They're getting 25,000 checks from the state, which creates a substantial discretionary surplus of consumer spending within the state. So there are these nonsensical spikes in spending in consumer-facing companies in Alaska.

That is based on when those payments are made, which is crazy and something you can't anticipate from the lower 48. So you start to look for those nuances. So the issue for them was American Samoans were essentially their labor force. And when they would get these checks, many of them would quit.

And then come back a couple of months later. And so there was a vast like supply shortage on the back end of the activity. And so it was like revenue spikes, but then productivity decreases, and customer service issues arise. And so there are a bunch of nuances to understand around that.

And then you start getting into. Okay, so why doesn't a big brand in their category establish a presence in the state? So you've got 730,000 people, only a little in the state. So it could be more populous. So a lot of people underwrite it that way. But you have a significant transient population.

At any given time, there are at least 20,000 troops stationed there. And their families are the actual head count on the military side. That population is highly transient, as is the oil and gas people coming to work on the pipelines there along with other infrastructure spending and related DOD activity, so you get all these people that move out there that are only there for a certain period. They have spending power and permanent state residents, creating this weird constant churn. And because it's so far removed from everything else, people don't bring their stuff.

And then you're stuck inside half the year while it's a tundra. So you buy more stuff on average. And you also don't bring stuff with you. So people are big spenders within the state. But because you're spending within the state, the supply chain matters. The supply chain is somewhat nuanced because the supply chain all anchors out of Seattle but has to go through specific ports throughout Alaska.

And so you get into this Bizarre set of circumstances that allow for differentiated pricing power, low competitive situation, and market dynamics that allow for high consumer loyalty and high spending because they only have limited options within the market.

So there are lots of reasons that we liked it. And we were very excited about it and ultimately couldn't move forward on the opportunity because of real estate. And so it was that ultimately meant that we couldn't move forward. 

But underwriting the deal was thinking about those elements and how they came together to try and figure out if this felt durable or not and based on the permanent fund, based on activity, and DOD spending on that side of the continent. There were a lot of reasons why we were bullish on spending up there.

If anyone has more opportunities in Alaska, we're still looking. 

Chris Powers: Okay, let's pick one more example. We have listed enthusiast businesses. We could talk about Russia. We could talk about luxury and reasonable price points, or we could talk about why I love Texas. 

Emily Holdman: Why I love Texas. We have bought several companies in Texas.

Texas has been an excellent opportunity for a host of reasons. Owners here deeply care about their businesses and the people, and the families they employ. So that's always been incredibly well aligned in getting to know an opportunity. Also, Texans are, I think, process averse as well on average.

So they don't adhere sometimes. We don't do as well when people want to run a strict process; we could be better at that. And if they are closed off to us getting to know each other in that process, it ultimately won't lead anywhere down here. People are incredibly relational.

They want to grab beers, go to dinner early, and get to know each other, which works well for us. If we spend time with people, we can figure out whether or not we can be good partners, and that's our preference. So Texas has been excellent.

In terms of just talking about businesses we've enjoyed getting to know, the enthusiast one is probably worth understanding because it explains a couple of things. So if you ask me what my favorite types of businesses are, they're two categories. So one is high lifetime value.

And then the other is when you have a product or a service that you can sell to multiple people under one unified effort. And that's a very different definition than saying I like ARR. An enthusiastic business is high lifetime value. So you have people so passionate about a particular category that they will outsize their spending in association with that category and your abilities.

You can feed into that based on having an installed base with many options. It can be based on high unique values like limited runs. And it usually means that the price point is not a primary concern. So when you have a tremendous margin, you have much more optionality regarding scaling the business.

So ultimately, that's what it feeds into. So I love high lifetime value businesses. How you get to high lifetime value can be in various ways. Sometimes it's a one-off, just a very high-margin purchase. But even if we take a selective search, which is executive matchmaking for love, people buy 12-month contracts, but some renew.

And some people look at that and say that's a failure. They didn't win, but we look at it and say, okay, if they really enjoyed the process but ultimately haven't found somebody yet, and they're being patient and want to continue to work with the firm, isn't that the utmost testimony to the firm's value? 

Like, that's incredible. So they have highlighted time value customers, who only establish one contract but can establish, Two or three years of contracts. So that's one, so high lifetime value can come in various ways. The other is what you get when you are a master manipulator in the market.

So I looked at a business once, and the frustrating part of my job is that I am subject to like NDAs on basically everything I look at. So I talk around things, which can be very frustrating, I'm sure, for you, but in this case, this was someone who figured out a way to sell the government a specific product under a long-term contract that, as the government finished its use of the said product, they could sell into the private market for a much higher value.

Based on its utilization, previous utilization. So it's getting better with age. It's like wine almost, which is a bizarre thing, where you can arbitrage that. Which are unique businesses and not always subject to power line dynamics, right? They can only sometimes be businesses that will get big. Still, they're profitable, sticky, and enjoyable because they serve these sorts of specific market propositions that are hard to disrupt and need more competition.

And you can usually name your price. So to me, it's it all feeds into the idea that if you think about speed, quality, and price as being the controlling factors, quality, and high price, for me, are the quadrants that we will always trend toward because it allows for durability in a variety of different market positions.

If you're going for speed, you will have to stay on top of technology that can deliver at a much higher rate on an ongoing basis. And if you're going for the lowest price, that's a terminal game. 

Chris Powers: Okay. The last one, to the extent you can talk, you guys just bought a business, which, again, is like a classic.

How I think of you all, you bought a manufacturing business. So obviously, it was a willing seller, you all; how can we talk about how you decided this is a business we want to buy? Because you just mentioned selective search executives, finding love. We've talked about a government marketing business.

We've discussed a pool manufacturer and are building amusement parks, so that's my point. All of these yeses to businesses are still coming out of a similar process that you go through.

Emily Holdman: Yes. So Chance Rides is the name of the company.

It's been around since 1961, and Gen 2 and Gen 3 were actively involved in the business as we learned it, respecting their privacy. The intention was to keep it a family-held business long-term. That was the intention up until the late 2010s. And so Gen 2 was getting older, and he had decided he was ready to take steps back.

And his son stepped in and had been involved in the business for years but became CEO, and he started to take steps back. Unfortunately, the son passed away. It was structurally different from what they had prepared for or understood as their goal. And so it that was hard, right?

For a whole host of reasons, that was hard. It wasn't the plan, but they had done tremendous work following when Mr chance stepped back in. Another son had also gotten involved in the business, and they would continue to steward it. Still, they knew that they would no longer optimize for the business being owned by the family long term.

The business has its family name on the door, and it's in Wichita; everybody knows everybody. So they started to recruit a management team. They spent four years recruiting that management team. We started getting to know the business about 12 to 18 months ago. And by that point, their management team was intact.

And they were looking for the correct type of partner who would appreciate the thoughtfulness that went into who they selected to operate the business long-term. Who would appreciate the heritage of the business and the fact that their family name is on the door and would allow the business to grow over time?

And so those were the things they were looking for, which became apparent very early on. Back to the very 1st part of our conversation, I saw the deal, saw the dynamics, and there were a lot of value proposition-wise reasons why I liked it. It's a high price point and high margin work, but they had various product categories. They were able to change their product offering portfolio and market sentiment for rides.

And from the standpoint that they did look to have a scaled management team. It is essential because that business is stewarded as a CEO by an engineer, and it should be. We don't want to ride roller coasters by people who are not engineers. Let's see if we can have that conversation and if that makes sense.

And so that's what led to getting to know the chances and having that conversation. And honestly, it's a remarkable brand. And I underappreciated even how much love for that company exists in their industry, so in this case, because of some of the stuff that had happened with the family, they had decided they wanted to issue a press release.

We typically don't issue press releases about our investments, but they wanted to. And they wanted the industry to know the decision they had made, that they had a partner, and that the business had a promising path forward, so with that in mind, that's how the press release came about.

And in response to that, we got a lot of inbound contacts from people in their industry saying, you're the lucky ones. Like you guys got lucky, this is a fantastic company. And for us, that was such a compliment. Like it was so cool, it was like; It was one of those things that were like, yeah, we think so too, it was, but it just came full circle, but yeah, it was a situation that very much hinged on establishing trust with the family that, the decisions that they were forced to make.

And it hadn't been their plan, like being sensitive to that and making a plan that protected all the reasons why the business was as great as it is. And as the industry appreciates was very much a collaborative effort.

Chris Powers: I want to know how I phrase the question. Please share 5 or 10 questions you would have asked that group early on.

It's different from the same in that you could ask everybody about where, who's the owner, and how long you have had it, but nuance to the industry. Again, building amusement park rides was something other than what you were bursting in. What is a series of questions you might start asking to understand the business?

Emily Holdman: So it started primarily with the decision-making process. So who asks whom to bid? Are they propositioning customers or customers coming to them saying this is what we’re looking for? And In that vein, how much of the scale and the intricate nature of what they do, right? How much of that is predetermined by the customer?

How much are they responsible for originating? Because that gets to like the subjective creativity that has to exist within the team versus the engineering talent that has to exist within the team. And then looking at that based on the product category. Then you look at the pattern depending on how long those decisions take.

Then what is the frequency with which people buy, and then look at the bid-to-close ratio? So, what is their general success rate? How much do, how much work do they have to do preemptively to win work? How much can they forecast all of those things, then talk about execution, trying to figure out what they are responsible for, what they get other input or other technology or IP for?

As you can imagine, many people are working on the right technology, the right-oriented technology, around the world. A lot of it can be licensed, so what do they own? What do they license? What are the licensing arrangements? How does all of that work, right? Then you get into, specifically, because they work with the central theme park operators, you can also get into character licensing.

So how does that work, and what are you capable of and not capable of? And why would someone choose you, or why would somebody choose a lower-cost competitor? What are the outcomes associated with that? And that gets to, again, from a creativity standpoint, what kind of fine artists do they have to employ?

What is an apprenticeship program look like there? They have an entire paint shop. So understanding the nuance of that, what they do on-site, what has to be validated by them, Their customer, and when things ultimately come together, then talking about competitive forces. So for them, you have raw materials coming from metals.

How does that factor into pricing and execution? What do they preemptively buy? How does the cash flow through the organization do that? So these are like all operational vein questions. That you get into that’s specific to their industry. You are then talking about international dynamics.

So they sell internationally—a great opportunity set for them. There are trend lines within the industry that suggest there are additional product categories that they want to get into. And this is where I get on every call with an owner and say, pretend like I’m ten years old, and you’re explaining what this industry looks like and why you’re positioned where you are. So they have things that they anchor on based on their heritage, right? They were known for carousels for decades. They did all of the rides that could move around with carnivals, but they have developed capabilities over the last 20 years in roller coasters and Ferris wheels, like the big giant wheels and those types of things, and then people movers.

What have you yet to get to as all these things have developed? And why? Why did you prioritize those things? And it starts to translate into a conversation that changes from operations into judgment. And who made those decisions? Why did you make those decisions? Why did you avoid doing other things that are on your wish list?

Why hasn’t that made sense yet? And then figuring out from there, based on who makes decisions, what’s healthy about that, what they think can be improved upon, what resources would be helpful to continue building their success stories, and it all incurs the ideas.

Because we are involved in many disparate industries, they must know their positioning weirdly. We cannot be responsible for saying this should be your position. So they better understand the competitive forces and where they can win and can’t. And you can win on a game theory basis, like you want to play games, right?

So talking with people about, like, how do you think you can win? And what does winning look like? And what do you think about what’s required that you have or don’t have? Because sometimes it’s harnessing existing talent and capabilities in different ways and repackaging. And sometimes, it’s building additional capability or capacity.

But we are just talking through all those dynamics. So ultimately, we get back to what excites you about this brand and this company remaining independent. Cause if you don’t care, we are not a suitable buyer because we intend for it to be an independent brand for 30 years.

At least, and in that way, it was a conversation around, okay, where does that lead to? 

Chris Powers: And it’s if I was to ask you questions about real estate and you were giving answers. I’m in real estate. I know they’re good answers. How do you know that the answer they’re giving you is good?

It would help if you had other amusement park manufacturing businesses to benchmark that again. So are you then taking answers, talking amongst the team? Is there an advisor that, how do you know you’ve been given a good answer by something you know nothing about?

Emily Holdman: That’s a fair question. It harks back to journalism, but I often ask a question in three different ways, and if the answers aren’t congruent, then I’m following up on Why did you say this and this?

Don’t those things like combat each other in some way? So there’s the in-the-room conflict that you try and check out and figure out if you can get a clear picture. And then, we do external research. And try to understand the market dynamics and look at who are the players that they mentioned versus who are the players that regularly show up in the news related to the industry.

What are the latest innovations that are being touted in the industry? How well do those relate to them? And then, looking at it, this is not specific to them, but like in some industries, you can see the pace of bidding—macrostructure of like volume of spending and all of that kind of stuff.

And look for honestly, what we’re looking for more than anything is not the macro trends of the category as much as it is like pricing structure and understanding where they fall on the pricing structure. So are they at the higher end? Are they ahead of or behind the pricing trends?

And how does that shake out in terms of the work that they win and in the future from there? So it’s a lot of different things, but I would say that we, I’m not shy about looking dumb. I’m fine looking dumb. And I’ll ask the question three different ways. I’ll ask it on two different phone calls.

I’ll ask it again in person, and we’ll just. Keep trying to figure it out and make sure we understand it. And if we don’t understand it, we also want to know. Sometimes, we’ll end the conversation by saying, this is what I understand. Did I understand that correctly? If someone’s being disingenuous about momentum and whatnot, which does happen?

I had something recently that somebody was like, look, we’re scaled. I’ve talked to a bunch of private equity firms. I’ve turned down offers, but maybe you’re the one. And that, again, goes back to I will nerd out with somebody, but I won’t flirt with somebody. And I was just like, great, I would love to see it, and then I’ll let you know what that looks like.

But they were looking for us to pitch and flirt with them, right? And then I got the numbers, which didn’t match the story. The story’s scale, the position they felt like they were in. And our take is that the situation matters more than anything, but the numbers do matter, especially when you’re talking about investing millions of dollars.

So they have to be in balance with each other to ensure that we’re talking about the same set of facts, like shared reality is a massive component of what we’re trying to get to. So when people talk about momentum or projections, we’re more than happy to talk through all of that stuff, but we want to get to a point where we understand what you’re assuming about the future to achieve that. 

How does that differ from how operations currently act? Who makes decisions? Where does the money come from? How much are you reinvesting? All of that, and then it’s more of, what has to shift for these things to come true? And is that something that you’re willing to participate in the risk on or not?

And that’s just shared reality, right? So we talk to people constantly; there are 20 different ways to make an offer. And a lot of it is. Do we understand a shared reality? And what are we willing to share regarding risk allocation within that?

Chris Powers: We’ve sequenced, we’re sequencing. So we’ve talked about seller mentality, diligence, and why we like businesses. I’m going to skip over. We’ve made a D, or we’ve come to terms. And then, I will go to some words about transaction tensions. So just because we’ve agreed on a price, in a business that I’m selling to you, just because we’ve agreed on a price in terms, the deal still needs to be done.

Can you speak to what you said? Transaction tensions. What do you mean by that? What are things? What other things happen irrespective of the industry, irrespective of the financials, just like human behavior? They can make these things more complicated as they move forward. 

Emily Holdman: So the easiest way to answer this is that you’re trying to build a business deal from the beginning.

So there’s a legal and financial deal, but those are the underpinnings of a business deal. And to sell something that will continue, it all has to be based on the business deal, right? So a wide variety of tension arises when you think you’re doing something for the business, but it’s really for your benefit, and that leads to a lot of friction, right?

So you say that the entire operation is transferable and that you need to stay for two years, maybe in an advisory capacity, but looking at operations that is very far from reality as it exists right now, but for your purposes, that’s what you need to do, right? So that changes the risk profile of the business deal if that’s what you need to do.

And you can have excellent reasons why you need to do that. And so the tension between those two things is something we like to be transparent about and talk through, and some people have different levels of comfort. And obviously, there’s a trust factor and whether you’re willing to reveal to somebody like, look, I made a promise to my wife, and I have to sell, period.

And I respect that. But you keep saying the business will be fine if we don’t know that. You don’t need me. No, that’s not true. But let’s work off the same set of facts, and then we can figure it out. So there’s that element of it that creates tension. I also think that people.

Get excited about the financial elements of it and don’t realize that sounds flippant in an abstract, but you get millions of dollars. Then you wake up the next day, and that was your identity, and now you have millions of dollars to offset your identity. But if you’re not continuing with the business, or if you materially feel not great about the decision, that will negatively affect you in ways that don’t have anything to do with money and in significant ways, right?

And we’ve seen this mostly in deals we haven’t done but sellers we’ve kept in contact with long term. And seller’s remorse is genuine, and it affects people differently. On a broad level, we all know the person who retired and started aging rapidly post-retirement. And that type of circumstance is still applicable when you’re an owner, and you are passionate about your business.

And so those sorts of things, as you’re like getting closer to doing a deal, that type of tension can come out. And then another example is, so you’ve got the business deal and the personal deal. If you’ve done, other deals can also get messy, right? So if you’ve done a sale-leaseback on your building, that can be complicated.

A long-term lease is not negotiable if that liability involves a personal guarantee. And you don’t want to have any liability in the future because that is a long-term liability on the business that you have obligated it for, in ways that a buyer will have to adapt to.

So all different types of tension come in. But really, what we try to always anchor from is we’re trying to understand what the business deal needs to be and what you’re trying to solve for. And then we can figure out, based on that, how to solve all these other things, but you’re going to win on some issues.

And if you want to win on every issue, you will only select a specific type of buyer set. And you’ll probably not be happy with what that buyer set does. It’s if you have no options, then you attract sharks. If you demand things, you attract people willing to accept your demands, and sometimes you won’t like what they do either.

So it’s a selection bias and trying to determine your willingness to compromise to get the best overall plan for the company and you. And then, from a general attention standpoint, people build it up in their heads as this significant event, and then a lot of it is lawyers talking to each other.

You’ve signed some documents, and then there is our hope that there is no meaningful change, at least not initially, and everything that has changed over time is better for the business anyway. And sometimes, people are looking for the event, which can be off-putting as you’re getting closer to it if you are waiting for that and it doesn’t happen materially.

Chris Powers: What comes to mind is like college graduation. You think it’s this long, drawn-out process, and it’s like college ends, and the next day, you’re like, go to work. Or it is not this process. I know you aren’t psychologists by any means, but is there anything, even with the most, what we would call a seller that checks all the boxes before closing? Is there something that’s outdone they take a week-long vacation after close, or do you say show up the following day like it never happened?

Emily Holdman: We are very much of the mindset that we’re trying to make it a nonevent, but we’ll participate in things they think should be an event. So sometimes they want to announce to the whole team and have a party, and we’re happy to participate in that, but we are not going to say we’re going to throw a party or we’re going to show up at the office and we want to meet everybody.

It doesn’t need to be that, but I would say, on average, the cool part is most of the transactions that we do are partnerships where people are rolling forward and staying actively involved in the business and believing in the future of the business when those things are the case.

Typically they’re hungry to start doing stuff and to start getting to work on those activities. So often, they’re like, okay, can we get on a call? Can we start talking about this? They’re ready to get the ball rolling faster, which is an excellent sign.

Chris Powers: That’s great. All right, we’ll finish on just two topics. It has been incredible. You said long-term employees and why the Twitter hype around independence and self-reliance annoys you. 

Emily Holdman: This is the list I delivered to you when I said, okay, I will go back to not doing a podcast interview because I initially said no.

And part of it is that Brent’s good at it, Mark’s good at it. That seems like enough, but to the extent that one of the things that I was thinking about is I am an employee. I’m a part of the GP commitment now, but for a very long time, I was an employee of a company and a lot of the S and B investing real estate Twitter, like all of that stuff, which I follow and enjoy and respect everyone that takes part in.

There is a very heavy vein of You shouldn’t work for anybody ever. And that has a lot of negative consequences, both in terms of the people that work for those people. And the perception of their value resulted from saying that publicly and just understanding what my aspiration should be.

Because if you’re saying that publicly, I should jump ship as soon as possible. So Brent and I have worked together now for 15 years. I’ve never heard Brent say something close to that publicly. And I’ve heard him say he doesn’t think he would be a good employee. He’s also said I could be a better employee.

The characteristics of what makes a good employee and why you ultimately end up working together can be inclusive. But there’s an appreciation for working together and having people you can maintain loyalty with, and a long-term partnership is meaningful.

And that shared experience, the institutional knowledge, and the trust you built over that time. Compared to constantly having people roll through your organization, it is invaluable that you’re just delegating work. So people need to include that in that narrative.

It focuses on what they think their personality traits are best oriented for. And it’s on optimizing for financial and prestige outcomes, which I can appreciate, but it’s just, it depends on what you want to do, right? I do not have the risk tolerance to start a firm independently.

Nor would I want to because I enjoy being part of the team. And if you’re going to build a great team, you have to value the team. And if I would give Brent credit, Brent gets credit for many things. Still, his undervalued for that specifically, like he is invested heavily in valuing the rest of the team and trying to make sure that he gives people room to do what they do with excellence and not get in their way.

And at the same time respect them for being part of the team that he ultimately owns the majority of, but that is a place they want to stay. So it’s a topic that, as people think about building their firms, Because many of the people I think are on these platforms are, in earlier stages, right?

And you can run through a lot of people. But if you’re the organization’s single source of institutional knowledge, that is problematic in many ways that you should appreciate at that point in the journey. 

Chris Powers: And everything we just talked about, every great business is a consortium of employees, a founder, a team.

None of these things get built without the team. And it’s lost on people.

Emily Holdman: Absolutely, and that gets othered in a way that, like, isn’t healthy; it isn’t helpful. And to the extent that there are many reasons that people can get a W 2, as people put it, and still be meaningful contributors to a business and still have an ownership mentality.

And I would put the onus on individual owners to ensure the incentives are aligned for them to do that. 

Chris Powers: I’m going on the record saying I agree with you 1000%. None of these companies exist without quote-unquote W2 or employees. And just like you said, thinking like an owner and acting like an owner is a culture.

It’s a set of incentives. It’s not some made-believe thing. And so many folks say this, or it’s more indicative of how many bad companies are out there. 

Emily Holdman: Yeah, I don’t want to pass judgment.

Chris Powers: Maybe it’s not bad, but just People that are fed up with where they’re at.

Emily Holdman: Many people who ultimately go independent probably did have a culturally negative work experience.

In some way, and didn’t allow them to feel like they were capable of their full potential within that environment. That can be the case, especially inside more prominent organizations. So there can be reasons why you would want to be entrepreneurial and do your own thing. It doesn’t mean you should discount the vast majority of the workforce that helps you do that.

Chris Powers: Have you ever watched that TED talk on super chickens? You have to watch it. It’s fascinating. They did a study, and they, it was like a group of chickens, and there was like one leader. They liked a specific type of chicken that was the leader, and everybody else was this team of chickens, just regular chickens.

And they work together, and they provide, they may they birthed the most healthy new chickens. They laid more eggs, and everybody, yeah. It was just this beautiful thing. And then they took what the leader, that type of chicken was, and they built a family of just what they called super chickens.

And three years later, it was like, where had they progressed? And virtually, like all the super chickens, were dead. They like needed to produce young. Their eggs sucked. And it was just this reminder of. It’s easy to go on in reference back to content or what might generate some likes, it sounds perfect in theory, or it might generate a lot of interest or controversy. Still, in practicality, you are doomed to create a self-destructive culture.

Emily Holdman: It feels contrarian in a popular contrarian way, which is paradoxical. But that reminds me of a book; I will forget the name now. However, I read last year that it is very much focused on what is sustainable; what has been sustainable over time is far more oriented toward cooperation, not competitiveness, right?

Because it is ultimately, and they take a lot of animal examples and explain that we focus on the ferocity that exists within the circle of life and in the natural world, but, often, the ultimate winners are the ones that were somehow cooperative and contributing to the broader environment in a way that benefited more, more nutrition, better habitats, and strength in numbers within their community. So not killing each other as being like the central component of that. And it was a fascinating read in that same vein: you want to avoid bothering or turning the enemy into someone you are supposed to be working closely with, and your words matter as an owner. 

Chris Powers: Yeah, if you tie it back to the household in which many people, my listeners, might be married, like you, you can’t imagine how well a marriage could go with a husband and a wife that are competing against each other every day. 

Emily Holdman: Oh my gosh. 

Chris Powers: The game’s name is Cooperation at some level.

Emily Holdman: Correct. 

It’s like you’re in the game of life together. 

Chris Powers: For sure. And that extends out. Yes. All right. We’ll bring it home on this has been such a great conversation. Something we had talked about is just women and investing in general. It’s a male-dominated industry to some extent, but maybe my first question is, do you think there’s a perspective that you bring to it just as a woman that maybe men don’t have because of how we’re built and raised and think about the world?

Emily Holdman: I focus less on what men do because I am a woman. Contribute to the situation and more what I know to be accurate as a woman in my own experience. So it is not helpful to focus on any mentality that says the system is against you. No matter who you are.

 Some education points could be helpful. There’s been a massive improvement in people’s awareness, generally, and willingness to help support people exploring alternative career opportunities. Men and women, people of color, and anyone contributing to rights like that are not the cornerstones of why I stay focused on the issue.

I see. Generally, the biggest there are the people around women, and then women, from what I’ve seen, choose predictable paths. And this is something that is contributed to by the people around them. As we discussed earlier, I got a lot of advice from very well-intentioned, brilliant people early in my career who said, Hey, you seem ambitious.

You seem capable. You must return to B school because you need that in your portfolio to continue building your career. And so I explored why. There’s the network benefit of who you get to know as part of going to school. There are some credentials associated with your institution, and then you have different opportunity prospects in terms of scale in the industry once you leave.

So that’s the general idea. But all that is centered around a more predictable path and career. And if I look at the career advice for women and women’s natural inclination as we see it when we talk to undergrad classes like seniors and people in the school.

The natural tendency is that most women go for the more predictable path, and I think there are many reasons why that may be the right decision, but it shouldn’t be based on gender. It should be based on your personality and how you’re optimizing your life, with your career being a component of life.

So there’s no right or wrong answer to it. If you want the predictable path, that’s fine. But it shouldn’t be the default. And most career advice specifically for women should be the default because people are trying to protect them from having a bad outcome is what it means.

But again, you can’t have an outsized outcome if you go for the predictable path on average. So with that, it starts early. The other thing is that trust, in my experience, is built over a very long period, and it’s harder to build trust as you grow older in ways that would allow you to enter an organization at a senior-level capacity if you are of another gender.

What I’ve seen be most successful is when women get to know someone early in their career, where people can be helpful in ways that don’t necessarily translate into them getting into judgment-oriented roles. Down the line, They may end up in judgment-oriented roles with those people. If you don’t know someone, and I don’t know why this is, the pattern I have noticed over the years is that it is harder to build that trust when you’re both now in a senior capacity and deciding for judgment.

And you’re of different genders. So I see this often with women who follow the predictable career path in banking and want to transfer into the buy side. And they get frustrated because they don’t have the relationships. They didn’t build them when they were young. So they are cold in terms of getting to know people.

And they may be interviewed. They may be considered. It sounds terrible, but for the token hire, it won’t be the judgment decision they will be looking at that person for because, honestly, people form relationships in many ways, right? And when you’re forming relationships between guys, you can do that in various capacities that as you get older and people have families, it’s weirder to do right on average.

So to me, It’s What I see women often doing too early in their careers is staying focused on the next job and relationships for the next opportunity and not thinking about what their network could look like 10 to 15 years down the road. And that translates into limiting how you can build trust when trying to do so in a judgment-oriented capacity.

So this is why if you look at it statistically, cause you said Investing women makeup roughly half of the entry-level employees. Hence, it’s okay now like it’s, and if you look at most teams, you’ll see some women who will usually be at the bottom in more entry-level or administrative roles, right?

As you go up in judgment value on average, if you get to investment committee level right in, in all sizes of private equity, going up to significant private equity, only 9% are women. So that’s the trust like falling out in the career path. And if you look at who does make it in a C-suite capacity, often it’s a chief risk officer, chief compliance officer, or chief financial officer.

It’s a predictable path that you can build on record as being objectively trustworthy, right? So if you’re going to be subjectively trustworthy, like taste in deals, ability to negotiate, like all those things, those are things that establish are only established through a very long track record of trust.

And that starts by forming relationships early. For men in hiring and judgment level capacity, it’s an acknowledgment that you should get to know women with the idea that it may be years before you have an appropriate opportunity for them. But if you find somebody who’s sharp, invest in getting to know them, right?

Because it may be with you, or it may be that you can transfer trust on their behalf. But the biggest issue is that if they establish that network earlier, it will get better as they get more senior in their career. 

Chris Powers: I saved the most profound question for the end.

I have a daughter who is six, and I have a daughter that will be four this weekend. You have a beautiful daughter. You’ve thought a lot about this. We’ve talked about things we’re starting to tell women later in their careers. Is there a particular set of principles or things that are important to you that you are starting to teach your daughter now so that she is less risk-averse down the road?

Emily Holdman: Yeah, I imagine you deal with this too, but for me, part of it is she doesn’t naturally have a lot of adversity in her life. I was so trying to figure out how to present adversity in a way that builds character without doing so in a false way. Later this week, I’m picking her up from camp.

She’s been at camp for two weeks; she’s seven. That’s a fair amount of independence for a seven-year-old. And she’s had to manage her trunk, hygiene, and a bunch of stuff to establish relationships and get to know people. That’s the type of thing that is age appropriate right now.

Reading for us has been a consistent component of what we’ve done since she was a baby, but now there are many more reflections on reading. So what did you take away from that? What characters were you drawn to? What are the underlying themes that you’re paying attention to? It’s interesting to see their personalities develop, and I’m sure you’re also seeing this. Still, she’s attracted to certain characters, ideas, and genres, and you’re like, Okay, so why is that?

What is it? And you start to appreciate what are the trend lines. And then, we optimize for an extensive range of experiences instead of specialization, so she’s traveled. We take her places worldwide with the intent that it’s not supposed to be that she has her favorite foods but that she will experience other cultures and appreciate them, which also extends to her activity set.

So we are not a traveling soccer family or family at this stage of her life. Instead, it’s try this, try that. She has it in her head that she will be a three-letter agency agent. Her view is that all those skills will be helpful to her.

She becomes a spy, which I consider a very appropriate seven-year-old answer. It has been her answer for about two years. So maybe it happens, but to the extent that, like, those are the types of things that I think matter at this stage is like just giving her the confidence that she’s capable of doing things, having adversity that teaches her skill sets that we think can benefit her over time and giving her a broad range of experiences off of which develop a preference. 

Chris Powers: Emily, this was better than I could have expected. I have so much respect for you.

Emily Holdman: It was like dinner. I can’t figure out when I’m supposed to stop talking.

Chris Powers: I could keep this going for two more hours if it was up to me. 

Emily Holdman: It’s good to cut us off.

Chris Powers: Thank you so much. 

Emily Holdman: Thank you.