CHAPTERS Group - Building Europe's Next Software Champion

Alright friends, today's episode is brought to you by Portrait, the AI research platform built by fundamental investors, four fundamental investors. Now we've become huge fans of both the people and the product behind this exciting company, and so we are fired up to be collaborating with them in season 3 of the Joc. For founding Portrait, David Plahn spent a decade as a Bicide analyst at some of the world's leading investment firms, including our friends at SlatePath Capital and the BALPOST Group. Now even as some of the best resource firms in the world, David kept bumping into a reality that may resonate with many of you, never having enough time to research all the compelling ideas across his desk. This tension inspired him to build Portrait. The research platform that delivers the equivalent of an army of capable analysts, ready to help you focus on the most actionable ideas with unprecedented speed and depth. 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And finally, Portrait offers intelligent thesis monitoring, tracking thousands of data points across entire value chains daily, extracting the key insights that actually drive the business you follow. The result? You will become much more prolific in your sourcing, analysis, and monitoring capabilities taking steps toward experiencing the joys of compounding even more abundantly. So visit PortraitResearch.com to start your free trial and see how David and his team can help add productivity and creativity into your team's process. Hello and welcome to the joys of compounding. We're still on the same mission. To study greatness in order to help you find and compound your life's work as fast as possible for as long as possible. I'm Paul Buzer and I'm Rick Burman. We're your hosts. In each session, our teachers will be some of the world's most compelling people from across the vast range of human achievement. This show is brought to you by Pine Grove Studios in collaboration with Colossus. The hosts of the show, Rick Burman and Paul Buzer are the co-founders and co-CEOs of SATA Grove Holdings and co-CEOs of SATA Grove Management Company. All opinions expressed by any of Rick, Paul, or their podcast guests are solely their own and do not reflect the opinion of either SATA Grove Holdings or SATA Grove Management Company. Our podcast is intended for informational purposes only and should not be relied upon as the basis for investment decisions. SATA Grove Holdings are clients of SATA Grove Management Company may maintain positions and securities discussed in this podcast. Take your seats. Classes in session. Our teacher today is Jan Moore, CEO of Chapters Group, a publicly traded serial acquisition holding company with ambitions of becoming one of Europe's technology champions. Chapters origins date back to a small software startup founded near Frankfurt in 1998. Twenty years later the core business was sold to a strategic buyer consolidating that market. With the proceeds of that sale in 2018 and with Jan's influence, the company embarked on a new chapter, pun intended, pivoting to build the preferred home for mission-critical businesses across the old continent. Over the last five years they have been on an absolute tear, having founded four distinct acquisition platforms that collectively have acquired around 60 operating companies. Having demonstrated the ability to build a prolific M&A machine while also improving the operations of the companies they acquire, the market has taken notice and during that relatively short period, Chapters stock has appreciated by nearly ten times. Now at the centerpiece of this conversation is the rise of artificial intelligence, which in both its pace and amplitude is a force like nothing we've ever seen in our careers. In just a span of a few years virtually every company in the world today is on some level thinking about AI and the range of threats, opportunities and implications for their business. Most know where is that discourse more animated right now than in the software industry. And as you'll hear from Jan, AI's potential to be a transformative force driving not only efficiencies but also tam expansion and most importantly tangible customer value is already evident throughout their business. Other topics we explore include how to lead in times of accelerated change, in this case helping every person in an organization to become teachers, preachers and implementers of AI and an otherwise fairly decentralized system. Also, unlike most public companies, Chapters is supported by a concentrated group of long term strategic investors who themselves are extraordinary compounders. This includes Mitch Rails, Daniel Eck and Will Thornneik, who not only provide the critical permanent capital base but also contribute ongoing strategic value. We discuss with Jan how his team, board and these strategic shareholders have helped him to develop a winning culture that celebrates a central operating system in ethos, what they refer to as manuscript method while still embracing a decentralized entrepreneurial spirit. Now let's address the elephant in the room, how I missed what may be our only ever recording from beautiful myorca literally just miles from the Raphael Nadal tennis academy. Now this is a great tragedy in the story for another time, although I will say my absence seems to have led to a conversation that is particularly rich with coherent insights and light on silly digressions. Anyway, I can only hope that Rapha invites us back someday for a court side conversation on the joys of compounding and by the way, if that ever happens, Paul has very clear instructions to just go ahead and bury me right there in the beautiful red dirt at the feet of the undisputed king of clay. Now with that, we hope you enjoy class today with our good friend and chapter CEO, Jan Moore. Come on, woo! Come on! Come on! Jan, good to be with you. This time I think we were in Annamaria Island and it's appropriate that we keep our island streak alive. This time it's in myorca. You've come to us so many times, it's about time we come to you, but not to cold Germany right now. It's a good halfway meeting point. We're sad not to have Rick today, but he sends his regards to everybody and he's very excited about this recording location. We're only a few miles from Rafael Nadal's hometown of Manacor, Spain. There will be no tennis banter beyond this, but I did that for Rick. He's with us in spirit. I was actually thinking about where we should start the conversation today and I thought it might be appropriate to begin with the end in nine. We had a long walk before hitting the record button and you said something that took me back a little bit. It's quite bold. You said you want to build one of the leading tech companies in Europe. Now you started as an equity fund manager years ago and then you took on the CEO role of a M&A, roll up, holding company. It's evolving a lot. We're going to get into a ton of this, but what did you mean by that? Going back when I was 11 years old, I heard about Warren Buffett and I studied Warren Buffett for as long as I can remember. There are two ways to think about Buffett. The first one is to think about Buffett as an investor and the other one is to think about Buffett as a business builder. I've been to their meetings more than I can remember and more than I can count. I think the longer I follow this, the clearer it becomes that what Berkshire was is really a business that creates goodwill. When we got the opportunity to build what is chapters today in 2018, I think the natural inclination was very much with an investor mind. Back then with my equity fund were shareholders and the publicly traded company that had sold operating assets and we had a bit of capital to deploy. We started with an investing and holding company mindset and that worked out fine. There was nothing wrong with that. We grew and we scaled and I ended up joining the business for a part time capacity later than full time. You go from thinking about investing to building an organization because you wake up one day and you have, let's say, a dozen companies and you got processes in place and you want to manage and align these businesses. I'm so lucky that at that time I ran into Mitch Rails. We came a shareholder of this business who built Dana here obviously into one of the most successful businesses in the world and he sparked a thought of my mind which is to think about chapters as a business that we are building and not an investment holding company. What's the difference? Difference is real goodwill and is real. The soft things that make businesses better. We really doubled down. I remember it was the 2023, 2024 timeframe. How can we actually make better use of this beautiful collection of businesses that we had? We thought about building our own system and building our own methodology and building our own way of running these businesses and thinking about these businesses combining all the different strengths that we have. What got me really excited over the last two years is to observe the momentum that that has brought. When you think about a business as a collection of independent assets, as some of the parts type of situation, momentum is really, really hard to build. But what I see right now is just this beautiful reflexivity of you say one thing, you deliver on it, people start to believe you, talent comes in, you get significantly better talent, which allows you to tackle bigger business problems. One thing leads to another and I just see the current scope of the group today and I see the opportunity in front of us, which makes me really excited about our ability to tackle that opportunity here in Europe. There's this thing in Europe right now. I know it's hard to believe with a son out there and everything beautiful, but the mood right now is not great. A lot of people talk about the tech and AI race. Europe loses out to the Americans in China and this is wrong. I think there's great potential here. We can actually show that there are a number of companies that can become incredibly successful and can make the weird and special place that Europe is really make that work. We can show that we can build a business as well adapted to the circumstances here, build that into a great company. I just get really excited by the idea of one day leading a business that I don't know, it's nest egg listed and huge and has created a ton of value on the way. We build that with our own hands as we went along. I get really excited by that. It's hard to overstate how much has changed the last few years. We've known you for a decade, but it's been really fun seeing how quickly you've been involved with that means at scale for an organization. As you're describing this vision to become one of the leading tech companies in Europe, you use the word "we" a lot. You mentioned talent. When we had some of those conversations early on with Mitch starting three years ago, he said they're the greatest of Angiadana, but always his biggest concern was that he was behind the curve on hiring looking five years out. What have you done to cultivate talent internally and what was an extremely small company just a few years ago? The Chapters brand is getting out there. What does Chapters stand for and why are these people coming to Chapters? At the very beginning, we just were really lucky. Some of the teams that joined us at the very beginning and then worked out really, really well and created a lot of value for Chapters themselves, some of that can't be planned. And sometimes you just got to be at the right place at the right time and throughout Chapters past, there are a bunch of these cases where people made us really, really proud and in their own way helped grow. Some of them still today, some of them for part of the journey helped grow who we are today and scaled this. So part of that, I think, is being at the right place at the right time. The key differentiator here, very few of the things we do are really special. A lot of it is common sense. A lot of it is some of the learnings from business system building and organizational building that a lot of other companies do as well. There are other vertical market software aggregators. A lot of people have understood the lure of software. A lot of people have understood how fragmentation in Europe is a huge advantage when it comes to M&A. None of these are secrets. What is different with us is the ethos that we just scale quickly. And that means that at each stage of the development, you almost have to look what's the next chapter of this development. We're called chapters for a reason. What's the next chapter of the development and what's essentially the co-founding team that is building that next chapter. So you look at chapters ground zero at the very beginning and then where everything came into place, there was a team of essentially co-founders that built that chapter. That chapter came to an end and the new chapter open, which was a little bit more orderly and more focus on software and more focus on systems and a little bit more clarity and how this looks like when it's done. You look at the key players of that development. That's a team of co-founders with people who could really put their mark and their print on this organization and not be a higher hand in somebody else's stream, but we can build something together. One day chapter one will close and chapter two will open and that means that there's a new or additional co-founding team of people who can build that next chapter. The energy of being able to offer that both from a visionary perspective, but also from an actual what can you do on a day-to-day basis and also from an economic participation perspective is super unique. I personally get so much happiness to be able to recruit people into the chapter's journey who might at that given time be maybe punching one or two grades above our weight, but we get them excited and we transparently show what our challenges are and where we want to grow into. These people make a decision and say, "No, no, I'm leaving my current role, which usually is pretty good and pretty prestigious existing job and I'm going to embark on this adventure with you and I'm going to build the next chapter of this development." That energy that ethos and being credible about it, having now a track record on that, that's what makes chapters special and that's what people find attractive in joining us. When you have these new chapters, this new set of co-founders, how do you manage the tension of a centralized vision, brand ethos with Europe session with decentralized operations? The best strategies are the ones you know you can win. The great strategy and a great vision is one where there's very little debate about it being right. There are obviously controversial strategies or visions that founders have that nobody saw at the time and I highly respect that, but that hasn't been chapters. The insights that we've used to build what we build today have been pretty bread and butter type of insights and also the constraints we set and the rules we internally set in the system are very much based on common sense and very data-driven opportunity. When you refer to it as centralized vision, well that's true on one hand and I think every organization sometimes needs a leader or a leadership team that defines the path and that trailblazes and says, "Listen, this is what we will do." But if it's a sound strategy, it's one where the organization understands the cause intuitively because it's so simple and it's so clean and in our particular case, it's a very simple but very good narrative that makes it work. And there is very little ambiguity about what good means and what great means here. That's the beauty of software in many cases. That's also the beauty of fragmentation in Europe that you can just find like little market leaders in different niches, mission critical and run them better. Make sure we share great resources around cyber risk, AI, some of the things that you should actually centralize, make these businesses better and that's an easy story to tell and I think it can also be told in a decentralized way. Let's connect a couple of topics here. You just threw out the word that's probably the biggest in the world right now in the Zeitgeist AI. AI meets decentralized company. How does this work? We had planned this conversation for a while but we were fortunate recently, Mark Leonard, founder of Constellation did a call on AI. I think he was getting a lot of questions from shareholders on what the approach was at Constellation. They are a very decentralized company. There are some learnings from that call and then just more generally around chapters, we were together in June and Mitch came over for manuscript days which is your version of Danaher business systems and the top executives across chapters. Hey, men and the big topics were AI and cybersecurity. You mentioned coming out of there, Mitch, he implored the group, you're bigger than you were three years ago but there's big goals here in the next five, ten years that you're still a small enough boat that you can turn and AI is this important that I think he said every chapter's team member needs to become an AI preacher, teacher and implementer. I know he's thinking about this with Danaher and the other things he's involved with. Ties these things together because how do you become the preacher and the teacher when you're in a decentralized organization when this new wave of technology comes and it seems very diffused to try to get this to all the ends of the organization. AI is the biggest commercial opportunity we have. Let's also be real. We get this investor question a lot when investors ask me in the last three minutes of an investor call, what's the impact of AI on your business? It's just such a broad and questions that need so much nuance. It's ridiculous how much nuance it needs. But let's focus on the very big buckets here. I think most importantly, if you believe AI has the power to unlock efficiencies like we do, that needs cultural change in an organization. It needs to change in how you think and it needs to change in how you work. That's not easy to pull off. We mentioned that other serial acquireer from Toronto who we respect, but it's just a huge task across what is it, a thousand businesses to try to make changes in a system where you've never centralized anything really and you want to now get the best out of a technology trend. That's just hard. We have two approaches to how we prioritize AI called shotgun and rifle. So shotgun means everybody in the organization, 100% of the companies, 100% of the leaders need to embrace AI in the day-to-day work. That's the way of working, it's the way about thinking about building and something that needs to find its way into all of the processes that we have. Now it is really hard to measure the specific timestamp and impact that all of these small measures have, but needs to become kind of a cultural way of living. And we have a bunch of different initiatives, so just share these learnings and create excitement for what AI can do. That's something that every organization can do. One is the real aspect. A lot of people are looking for is what we would call the rifle part of it, where you can actually have the super clear, simple business case that has a quick ROI and potentially way expands your market. That needs a little bit more thought. Now I give you three examples of how this could look like. And the most obvious thing that will happen and that's happening everywhere in the world are some of the AI technologies that have already been tried and tested, for example, voice bots for helpdesk. A lot of software companies have a help desk and usually between 50 to 70% of the calls on those help days have just general computer support. Clients call in and they don't have a specific software question, but the internet is off or some version of that. You can today buy or even open source voice bots and train them on a rule set and then calibrate that in a learning fashion, depending on the questions that actually come in through real life customer support, either with a chatbot or with a voice takes off a big part of the incoming calls. That's something that you can implement tomorrow which has an efficiency gain. Sometimes larger, sometimes smaller, but that's something that you can do today. And there are dozens of tools that you can use, transcript of podcasts, transcripts of webcasts, something that you can do off the shelf today. Usually these are fairly auxiliary services and the benefit is nice to have and it's great to have efficiencies but is definitely a lot of game changer. And you get a second bucket which I want to talk about. I always refer to the example of crocs shoes. You can put little, they call it jibbit, little gadgets on top of these shoes and that's how I think about the software in the age of AI. So what we offer is a core system of record. Usually most of the software across chapters group are core work, horse, enterprise, databases that run the core workflow of a business. What AI gives you as an opportunity is to put a layer on top of that. You can use the existing processes and you can use the data together with your client to build functionality on top of the core systems that you have. And that's probably the biggest commercial opportunity and something where legislation for example right now in Europe is much in favor of some of the opportunities you can actually harness there. That's a clear sales opportunity. But then there's a third bucket. I think that's something that is not talked about enough and that's just the efficiency in maintaining software code and building new software code in particular and legacy environment. So when people talk about software, I think they usually have a little bit of a true romantic view of what software is. People talk about software and they think cool apps and nice functionality on your iPad and on your phone and it's very sleek and very tech enabled. And that view of software is very unrealistic. When you look at the global software stack and you look at where software spend is going, a huge part of the global software spend is core workhors databases that run our economy. There's no glory in a lot of these systems. A lot of these systems have been built over a long time. They're mission critical businesses or government entities rely on them. They might be dramatically more important than individual efficiency. Of course there's innovation happening and some of these things get disrupted. But usually it's a way to describe a workflow of an organization and it becomes manifested. There are businesses who talk about fitting their business processes according to what SAP looks like and not the other way around. There's a lot of insight in that. A lot of these code bases have been built over a long time and then have been innovated on top on. A big part of the world we are in, which is super mission critical software in Europe, oftentimes with some version of a government client, there's this layer of customization and professional services that happens around the software. The way this usually works is that a client calls in and says, hey, I'm using your software. I've been using your software for 20 years. But we're needing change XYZ. Please build that change in your software so that we can get added functionality or some interface to work or new process to be mapped. Usually these requests are put in a queue and our professional services teams work through those requests over time. We did a survey where the key source of unhappiness of customers is the speed at which some of these deployments actually get delivered. We have some businesses where there's months long customer backlog. There's waiting for professional services to be delivered, their software to be customized. That's quite amazing to think about because what AI will help us do is to debodel next some of these constraints. It gets very technical about what's a fair expectation about efficiency and investors always love to have one number of the efficiency and it's definitely more nuanced than that. But I think there is a fair expectation to assume and we see this today, some efficiency in how these professional services are deployed. With the end result, clients will get their add-ons and their changes quicker, which means we can bug revenue quicker, which means the customer is happier and we can probably do that with the same teams over time. That's a super clear revenue opportunity. This is very real and it doesn't need any magic to AI but it's something that is happening. What about for margins? You can grow top line. What does it do to margins? In that last case, but more broadly, AI. Some of the very high level numbers that you see in efficiency gains that will probably happen all next 24 months or something like between 10 to 20% increase in velocity and that's middle of the road. There will be cases in some software stacks but this will be much cheaper and there will cases where this will be none because of idiosyncratic reasons. Let's assume some version of that. That's probably a pretty good proxy on the current profit margin we do on professional services. We talk about some saving effect in the amount of our current profit on these services. Will that flow through over what time frame? We don't know. This may take longer. This may take quicker but it's great from a first principle basis to look at this and look at the base rate and see the potential that is there and just needs to be reaped through organizational design and management and enabling the right people and tooling up. This whole discussion around testing which is always slower than building, this doesn't fall from the sky. You have to actually walk through it but I'm really excited about it and I'm also excited from a customer perspective because it means that some of these in particular government clients will get better outcomes quicker than they can't really get. Let's think about this dichotomy. After hearing about these particular use cases and impacts that AI is having already all throughout the chapters organization and then over the next couple years what might be possible. This is a very different dialogue than most people think about when they talk AI or at least when they're on X or they're reading the press and the excitement and the funding rounds with AI native companies that could be the core AI players or it could be the DeNovo startups and vertical SaaS that have AI native tech stacks. What is the case for those companies not just creating a whole new business model that has better margins can get distribution right away and can offer better products to all the customers that you have. There's a show Silicon Valley and picture the Jack Barker episodes where instead of Pied Piper this new flashy software which at the end actually had an AI angle he sells the box which is this extremely boring product but that is vital for so many companies and that ends up for a while it drives the whole company using that is the lens old school the core needs versus the new technology that could disrupt everything. It's very simple clients one solutions they want software. Most clients don't care about the mode of deployment or what it is they want a solution. When you look at the general economy and you look at the proliferation of software we are arguably still in the fairly early days of digitization. There are some countries in the world that are far ahead and there are some countries that are far behind but we talk about that when we did a large transaction in May but we spend 24 hours at a notary office in Germany somebody reading out from a printed out paper making hand notes that's the current process of how deals are done in Germany. I worry about new software disrupting old software at the point where these things are actually processed on any software. When we were in the restaurant earlier the lady who took our order took a bound on a pen and a piece of paper. The really exciting part about AI is that it's probably an unlock for society to use even more software than we use today. We think we use a lot of software for a lot of processes but we really don't. In particular I would say in Europe in particular in government processes things are still done in an incredibly analog manner. That's the elephant in the room. The elephant in the room is not. Will a software company displace an existing system which by the way completely misses the point of how enterprises buy software. For example we supply the software for a lot of Swiss police departments and it's a core system for that. We run the gun license administration software in Germany. We do fire alarm, dispatchment software. It's almost a funny thought that the Hamburg police department will implement a software that somebody just viap coded two days ago and because it's cheaper. It's just not the way how software is bought because you got to build around the workflows. There's a huge layer of cybersecurity. There's a huge layer of data protection. There's a huge layer of does this actually work and if it doesn't work usually the cost to the enterprises dramatically higher than the cost of software. I want to give you one example that we are really excited about at the moment where we made some important hires over the recent weeks is a change in legislation in the EU because the EU Data Act. What is the EU Data Act? It's legislation over here that essentially says if you're an enterprise you have full access for free to the data that you generate in your operation. Let's say you are the bus operator of Hamburg. You're running on a bus by somebody who built that bus and that bus is generating sensor data. Starting literally last week you have access to that data and you can work with it because you generated that data. The caveat is how do you want to make sense of it because it might not be structured. It might be hard to contextualize. It might be hard to kind of reconcile with the other data of your operation. You have a hard time making use of that. A startup could come in and say listen we got an AI tool and we can just make fantastic use of that data and give you actual business insights. The problem is what's the feedback loop into actual business decisions because data is one thing and insights from data are another thing but actually having a feedback loop that impacts a P&L is a whole different question. We run those systems and we run those feedback mechanisms and we run those systems that are feeding into actual business decisions. For example, the scheduling software for the Hamburg bus system. I think it's our responsibility and also our commercial opportunity to use that position of being the current steward of that data to help our clients actually make sense of that. In the last 20 years, everybody has always talked about using data for business decisions. Apart from a few very specific close loop high value applications like jet engines or others, the feedback loop between ongoing data generation in a business and feedback loop into actual business operation is ridiculously low. Very little of that is actually happening. Very few staffing decisions at any service business have a really good feedback loop. Very few pricing decisions and any enterprise have a real good feedback loop into past data on pricing. A lot of this is still very crude and not based on data. The beauty about AI is that that could get actually unlocked. The thesis we have here is that AI might mean it can get unlocked much cheaper than it did before because you could do that before but it would take you a huge amount of manual programming, labor and massive system design to actually pull it off. There is a real thesis that AI can help you derive business insights out of that data much, much, much, much more easy. My base rate understanding is AI is great but it's wrong to think about it as a displacement of the all. What we need to have in mind is that it probably means a whole lot more software for the world which I think is great. We have a mutual friend Justin Yoshimura who founded CSE Generation. He's rolling up across the United States, North America, a number of retailers in particular, very low margin or they've been overbuilt. He buys them in distress and he's been able to layer in his own AI built system to speed up the decision making. Exactly. We were talking about. I've thought about it from that perspective. There's other private equity rollups where they're trying to go to non software companies so they can own those boring old school businesses and then apply AI. This is super interesting. Think about this EU Data Act which us, the folks in America, haven't heard about at all but this idea that you don't have to own the Hamburg bus depot or the company that runs it. You can just be that core system of record, the helper alongside and using AI now in particular with this EU Data Act. You can play this role that a lot of other folks are trying to do by buying up companies and implementing AI. I think the interesting angle here is the enterprise versus public sector. Part clearly this is happening in the enterprise space and the example you gave is spot on. I think there's always the question around when do these efficiencies get competed away and do they get competed away and when does it become a commodity. Look at a lot of businesses today, the fact that you have access to the internet doesn't give you a competitive advantage. It's the ultimate commodity and there is a discussion to be had around some of these things in AI and also how much of the current cost to deploy is actually subsidized by the super scalars and how much of that is subsidized by the people who own the models and a lot of that can't be said at this point realistically. But the low hanging fruits in public sector is just so much more obvious. Because when you talk to public sector clients in particular in Europe, you have both a civil duty and a great commercial opportunity to just helping them use it. Always when I say that, people have me telling my parents how to use an iPhone. They shouldn't come across patronizing but helping use means, for example, deploying it in a data secure way. You just don't do data analysis on the data stack of the Hamburg police authority. That's not how the world works. These are sometimes incredibly sensitive sets of data. We had to go through security clearance for a couple of the acquisitions that we did because we own actual critical infrastructure software here where you have movement data in public transport or clear name of gun owners. This is data where you should actually be careful what you do with it. So when I say our job is to make a eye accessible to public sector clients, it means creating an environment where it becomes effective. And that's not a tech question. That's an effectiveness question. That's a deployment question. You won't win because you get the shiniest tack or the best model necessarily. But finding an effective way from like an 80/20 perspective, if you will, to make use of what can be used, but in a way that it's actually put into day-to-day processes. I think that's the price at the end of the rainbow. It's interesting thinking about the opportunity you have with 60+ operating companies now within chapters to take these rifle shots, test out the use cases you think are most impactful, and then bring those learnings internally and share them across not only all those companies, but all the customers of those companies, which is pretty unique versus if you were on a line, you had one product or maybe it's one operating company. And in this world where we're all still learning about AI, you don't get that chance to experiment and learn in that way. Correct. And the origins of software is almost like development of a new medicine. You put R&D in and then you copy it infinitely and the variable cost is low. While AI lowers the cost to build, it's still illusionary to think that everybody can and should build everything on their own. I don't think that's the way it works. I would look at the very big challenges and I would look at the big juicy data problems that you can solve. I think that opens up the opportunity to build a software company that actually builds a model once and then rolls it out across a lot of clients. So I want to give you one example from public transport. As we talked about it, Hamburg Public Transport Authority, public transport authority, there's hundreds of millions a year in our pack spending. And a lot of that is just the technical machinery, fuel and people. A big part of the people question is scheduling and efficiencies and scheduling. The big opportunity that these businesses have is to have happier, better engaged team members that stick around, have fun on their jobs, scheduling at their convenience and take inefficiencies out of the scheduling. It's actually not a trivial problem to optimize because there are so many different influences that go into it, both technical, both demand side, supply side, nobody wants to work on Christmas, but everybody wants to take public transport on Christmas. All these things, a lot of data feeds into it. With the example we had around the professional services deployment, I can tell you exactly when it will happen and with what magnitude. But being able to shave just a couple of percentage points of efficiency and helping clients deploy that gets you into really large numbers from a savings perspective. These P&Ls or cost bases really are huge and arguably managed probably at the best state of the art way to manage in a pre-AI world because there's a lot of like rule base and a lot of experience going into it. What you touch upon with Justin and pricing and retailing is probably going to create some version of a step function change. But again, the magic is not in that insight and the magic is not in the storytelling. The magic is in having the different databases and the different sets of data talk to each other in the right format, in a data protected and secure way, in one data lake with the right model, run on top of that data with the right pipes in place so that there is an actual feedback loop feeding back into the decision making. That's where the magic is. The magic is not in the insight. The magic is in the piping and making sure that the process is actually makes sense and can be deployed and get the stakeholders on board, which is oftentimes forgotten. Not everyone enjoys this and you'd like want to create a world where this becomes positive sum and actually benefits people. It reminds me of the conversation Patrick O'Shaunse just had with Jeff Horring of VinSite, Rick and I are simple tins. And as we've invested across vertical market software in Europe alongside you and then many others in North America, grocery tension always just comes to mind as our favorite metric, which really means all else being equal if you don't really do anything. How many of your customers stick around the next year? The beauty of vertical market software tends to be amongst the highest of any industry in the world, which chapters is done. I think it's something like an average of 97% plus when you buy these companies. So it's a beautiful metric Jeff mentioned that that was his favorite metric. He went on to say that it's really the output of a few different inputs and they can be different in each company or industry. But I hadn't thought about it in this way as you described adding in the ability to look at this data from the EU data act or improving professional services a little bit or it could be as simple as just interacting with the customers. It's an excuse to interact with them. What's coming in my for me is that you're locking in that gross retention even more the way that you interact with them. That's the key. All else being equal. Of course, there's always pricing. There's other ways to add products and you can increase and you can get much higher net retention. But with these customers want, I think I'm hearing from you is that that interaction and that trust and that's why they stick around. And if it can improve margins, amazing, that's going to be great for the business. If it just maintains or improves their gross retention, this is a home run. For everything we've talked about with everyone saying vertical market software is under threat, if that metric continues to stay where it is, that's something that we will be monitoring across all these companies may just be a surprising outgrowth of AI, more a helper instead of a threat. That's super accurate. And chapters we are building the home for mission critical businesses. Mission criticality means something. There's a lot of software in the world that is a layer that is not mission critical. It still has a place in the world. There's nothing wrong with it. But we just love the mission criticality aspect of it. It's just usually not something that you want to change as a business or as a government entity. There are other versions of that in other ways how mission criticality plays out in our group that is as important when you look at some of our finished technology businesses, also highly mission critical, but not without clear lock in. But when you look at the core of software, I think you're right around that being the most important metric. This idea of mission criticality, you talked about public sector. We've known the chapter story along the way. You didn't always talk about mission criticality in this way. And it didn't always lead you to this conclusion of spending a lot more time in public sector. We've long admired a company called Tyler Technologies in North America and they're focused on public sector software businesses. What have you learned from them? And maybe just describe more about what this means, this impulse to focus more on public sector. It's a journey. I think one of the beauties of who we are at chapters is that we don't have to jump to conclusions from zero to one immediately, but things evolve over time. But some of the best success cases we've had are in that ecosystem where you offer a service either directly to a municipality or a state or where, for example, our fresh technology segment, a lot of the offers we have are indirectly something that helps the government for visa processes. And that ecosystem is just something we feel really, really comfortable in. That insight led us to the idea of clustering and segmentation, something that much definitely influenced us a lot on is the idea of sometimes it's more important what you don't do than what you do. Right now at chapters, we at the point where we tell our platforms to actively look for clusters. So we don't tell anyone say like, you gotta be only public sector to us. That's a process over time. But what we do tell people is to think about the value chains that we are in and don't look at businesses as standalone entities that do a standalone product, but consider the value chain and the ecosystem around those businesses. Because from a customer perspective, in particular, I would say in the age of AI, you want to look at the value chain and you actually want to help the client make all parts of the value chain more efficient and save customers cost that way. That leads you to think about clusters. There are a few other aspects that come along with it, which is for example, the general size of the clusters is one thing to recruit a talent to run a company with 30 employees, doing a million knee-bid. It's a whole different story to recruit talent for a cluster of businesses five times the size and it's a whole different story to recruit someone for a cluster 10 or 20 times the size. Devoting AI resources into improving these businesses, it just gets easier when you have a certain criticality. Let's say you have a standalone software company doing 500K and ebit, of course, you need to use AI tools. No question about it and we push that. But making an investment and rethinking how, for example, data is used in that industry, it might not be of critical enough size. Now, that's very different when you look at our clusters in, for example, fire departments of police or you look at our cluster in public transport just for instance, where we actually have pretty large clusters of businesses where we are essentially world market leader in some of these businesses. It gets a lot easier. That led us to the idea of clusters. When you then look at the clusters we are currently in, we've got three different segments now which are all about equal in size and you just look at what our ways to grow the existing clusters and that leads you to a blueprint of how you will look like in a couple of years. And by adding to the classes that we currently have and looking at the M&A fund where we think we can grow, it's fair to assume that for example, public sector is something that we will continue to build. If you look at it from the other direction, how does it look like when it's done and you look at Tyler and how does it look like at scale? I think one of the really interesting things about Tyler is how they've used, for example, payment technologies across the different software companies to actually help clients but also upsell quite significantly. That's something that doesn't translate so well into the European market. The payments angle is just the US works differently here but they've actually been able to create this layer on top of a bunch of the different software companies that they own which all have applicability to each of the different businesses and actually warrants like a central offering of services that can be rolled out and make all of these businesses better. That's something that only scale in a certain vertical that has a certain logic to it brings you. Now in our case, apart from AI which we talked about which is probably obvious, we think in our world that is cybersecurity. In particular, appreciating the nature of some of the software companies we have and the nature of some of the clients, I always intuitively understood this was a thing and a threat and something that needs to be done from like a risk perspective and being actually involved in the middle of some of these companies. I think we all significantly underestimate the threat that we are facing in particular from state sponsor actors when it comes to cyber risk on our infrastructure. I think this is structurally not understood at the level that it needs to be understood at and we own cybersecurity businesses in that space but we believe that when you run a mission critical software company, for example, you need a intrusion detection system. You need to be able to tell if somebody has hacked your system and is actively working in your system. That can be bought off the shelf and can tell you whether you've been hacked and it's not expensive, by the way. You need to buy that software and it's not expensive to deploy. There is no case not to have such a system. Probably the percentage of large enterprises that have proper detection protection is lower than would make you comfortable. I think both our civic duty but also commercial opportunity is to sit down with our clients and say, "Lock, you're using the software to run a bus system. You're using the software to run a police system. We're all vulnerable. You can only do so much but please do what you can do. A couple of things you can do. That's something you should invest in. What payments is to Tyler, I think, is cyber risk to us and it's been a fantastic upselling opportunity for us. I think it's something that just adds probably 10 or 100 times the value to our clients that it does to us because the risk of getting this wrong I just huge. Same word about Europe. It's pretty beautiful here. There's a lot of software companies. Why is this a successful strategy if you think five, ten years from now? This idea of being the home for mission critical businesses while Europe. What you got to appreciate is Europe is a well unified place. When we flew here to Mallorca with my family, there is no version of customs or border control. It just doesn't exist anymore. You just drive across the border and you can pay with the same currency and you can even move here. It's like freedom of movement and all these beautiful things that we've achieved after a horrible war in the middle of last century has been this model democracy experiment. What gets lost in a lot of cases is that these countries are still incredibly specific. There are a lot of processes that work very differently in France than they work in Germany, than they work in Spain, than they work even within Spain or within Germany or within France or within Italy. You have very different worlds. I think that just creates a world that is very heterogeneous. We know a lot of instances where there's a software company, part of Chapters Group and there's an identical version of that business in Poland, Romania, Italy, Portugal, Spain and France and the UK and Sweden. Why is that? Well, because the underlying processes are different, tax laws are completely different in all the different countries. When you do an enterprise billing system for a service, you just genuinely meet a different system in each country. Well, there are exceptions and there are things that can be standardized and there are cases around some of these processes certainly can be standardized and rolled out across different countries, but that's our job. From an aggregation perspective, we've been massively surprised by the number and quality and availability of companies that want to join Chapters Group. It feels like we've only scratched the surface. Europe is a very, very big economy with quirks. We need to locally adapt and you need to have local sourcing and local management and you need to create an operating model that makes Europe effective, meaning standardized what can and should be standardized, but decentralizing what should be decentralized. Our documentation and contracts and day-to-day management and policy deployment, which is our internal goal setting methodology in France is in French and it would be silly to not have it in French because the moment you have it in English or God forbid in German, you lose effectiveness. Still, that shouldn't cause you inefficiencies, but you need to create a nimble and scrappy culture so that these things work out decentralizing what should be centralized. I think that fits really well to our culture and who we are, as Europeans and to make a mouse trap work in this beautiful market here. Given your thoughts on Europe, everything we talked about with AI, a bunch of specific industries and other parts of your strategy, who's the competition? When we think about Europe, the pools of capital here, the types of investors or other strategics who could compete with you, whether it's for talent, for the M&A pipeline or beyond, and maybe who else around the world in North America? How do you think about competition? We just focus on the opportunity we have in front of us at a given moment and I look at our current deal funnel and I look at the LLIs that we've signed and I look at what we think we can acquire and I look at the business quality and the prices of the next, say, half a year, I'm really happy. When I joined chapters in 2020, that year we deployed 6 million into M&A. That number grew to 24 million in 2022. And I remember in 2022, we raised equity and it was all very exciting and it felt like substantial growth and what's the end of it? And I remember I had a discussion with Malay and our CFO, we would never use that amount of capital and we just cash lying around, we'll be able to deploy it. And two years later in 2024, we deployed 144 million. So in two years, we run from 24 to 144. In the first six months of 25, we deployed exactly twice that amount. So we deployed 288 million in the first six months of 25. Now that was a special first half of the year and that's not something you annualize but it shows the depth of deployment. It also shows how small we are still. There's always one way to look at relative growth and then you look at absolute growth. But that deployment of let's say almost 300 million just in private equity terms, that's tiny. That's just an absolute drop in the water. And I think that tells you a lot. We just don't have to form a view about the overall state of the M&A software market in Europe. Jeff might have to, but we don't because we're small and we can cherry pick and we can pick the pace that we grow. We don't have to grow at all costs. We can grow slower if we want to. Well, we don't want to because we think the opportunity is large, but that's a choice. When you look at the competition that we have, you got to define competition. Do other people buy businesses that we would also buy? Yes, of course, every day. Do we find ourselves in highly contested competitive situations for businesses that we acquire all the time? Actually rarely. I think there's a lot to unpack there. We're almost never in any auctions for a business. It almost doesn't make sense when you think about the quality of the businesses you're buying with such high gross retention and generally buying between six and seven times EBITDA. Why is there not more of a brokerage auction for these businesses? I was talking about deal making versus deal doing and a lot of private equity is deal doing. A lot of the private equity processes, there is an investment bank and there is a process and you differentiated that process by how efficiently you're able to work through that process. Do you get the best law firms? Do you get the most efficient consultants to you work through the data room most quickly? Do you get the right pricing in your model? That's deal doing. How efficiently am I able to work through a deal? That's the world of private equity. Then there is deal making, which is to create deals that previously didn't exist, where you make the cake larger for the parties involved because you introduced that deal. Chapters is in the business of deal making. We look for situations where the fact that we are sitting down at the table actually creates a solution that is both attractive for us and to the person selling. Historically, we acquired a lot of businesses that were just too small for a professional broker process or not organized enough for that. In particular, some of the early platforms that brought the group to the end of Chapters Ground Zero professionalize the process of figuring out a scrappy way to onboard these businesses, diligence them, and then run them. The market for eight people, two million revenue, a million profit, SaaS businesses in ridiculous niches. We talked about the orchestra and symphony ERP system a lot. Takes a lot of attention in our startle communication. This is an extremely good example. The market of potential buyers for such a business and all the managerial things you have to go through to actually run this business in a proper way, in a sustainable way, and manage successoring is a pretty finite number of people who are willing to do that. So, for the first years, we really specialized on these type of deals. We still do them. We love them. That's something we do. One additional variation of deal making that we've added recently is where we look at corporate carve outs of software companies. So, you look at really entrenched, beautiful, built over many years, software businesses that are part of a large conglomerate. Therefore, whatever reason wants to dispose of that software company because not strategic anymore because they need the cash or whatever the reason is, and they're looking for a transaction partner who can deliver a solution in a way that doesn't have any negative ramifications afterwards. And we love dealing with other publicly traded companies because we know the rules of the game. We know the confidentiality. We know that when you say you're going to pay X, you better pay X. And some of these people are not that well versed in that world, but we are. So we evolved our model to look at these deals. We are really without any process, but there are sometimes a pragmatic solution is needed. And we can offer pragmatic solutions. So that's something that is new. I guess when we talk again in five years, we will found another angle where the deal making differentiates us. The one thing I don't worry about is competition for deals. And that's really mainly driven by looking at my deal funnel today of my platforms. Number of high quality deals is not the constraint I have. When you think about push versus pull, just taking with this deal funnel point, I can't help, but think back to some of the early comments you made in the conversation about you were a fund manager, then you were running this holding company roll up. And now it's evolved into a business. And that's where you're aiming. It still is permanent capital and a holding company of sorts. Whatever you want to call it, our conviction is that that tends to be a huge advantage. Or at least it can pervade a culture to think a bit longer term. And as I'm thinking about you going after this opportunity in Europe in particular, and some of the mentality of these founder entrepreneurs who might have found these companies is the talent you're bringing in as well. And those people that want to join for decades, what does that look like on the ground? That permanency, the storytelling around the fact that you're not private equity, you're not going to flip these companies or build a platform to then sell to somebody else. And you've cultivated the shareholder base around you. We mentioned Mitch, but Daniel, like if Spotify will Thorndyke, there's a lot of other people almost feels like it operates with a private company mentality with an unlimited time horizon, even though it's a public company. How do all those things affect the deal funnel? Do they not at all? People can tell what your real motivation is. I think we're the wrong partner if you just want to maximize exit proceeds and then leave behind what you build. They're dramatically better people to sell your business to than chapters. If you actually care what happens to your business, if you actually care what happens to your team, I think we are really differentiated. And usually people can tell our story around building something permanent, using AI and cybersecurity make these businesses actually better. This is very genuine and is very transparent. And in fact, that we are public, there's a lot of publicly available information about this business. People can just figure it out and see if we kept the promises that we made. That doesn't mean that it's a touchy, feeling place that creates wholesome experience for everyone involved. And we were utterly tough in running these businesses. And it's a pretty German performance oriented data driven culture here. But we don't tell anyone otherwise. Doing that with a 10, 20, 30 year perspective, it's just a whole different game. You can make investments that are paying off over these timeframes that other people cannot make. Takes a lot of friction out of the investing game because it's just mind boggling to consider the amount of brain damage that goes into the exit process of private equity after three to five years, selling to another private equity who went to the buying. It's just so much information asymmetry and so much transaction costs happening along the way with no benefit. In particular, if your own quality businesses like we do, what's the case to selling? We've done that in the past. In one instance, where objectively a better owner for a business. I mean, that will happen again. And there's nothing wrong with that. It's just super different from at the get go to acquire a company with the idea of selling it. It's just a whole different game. When you look at investing success, in the very end, everything is driven by power law outcomes. And it's all about getting the winners right. If you appreciate that, the fact that you have a predetermined technical exit horizon is a structural consideration that puts a constraint on the system that is absolutely unnecessary. In one story, I get so much inspiration out of partly because they run one of my favorite places on earth. But the pro's family and aspers family from South Africa who had this successful publishing house, but then obviously in the 90s had to go through the digital transformation. They made all sorts of investments into digital assets. And they also made an investment at that time, very unknown Chinese company called Tencent, which now when you look at the group, it's just so incredibly overwhelmingly large for the entire outcome that every other decision that this organization made besides that becomes completely irrelevant. Obviously, that's a very extreme example. But even if you boil that down into less extreme examples, in the end, letting your winners run and giving your winners more air and more capacity to grow and taking constraints of your winners, that's the key to success. And exits along the way is probably not what you want to do. From my work, I'm heading to California to the Singleton Prize Foundation event that happens every year. And we've been lucky to be a part of it because of our interactions with Will Thorndyke over time and his book The Outsiders and the Singleton Family in Will built this beautiful kind of off the record event that all goes to a foundation around financial literacy. Whatever year there's a luminary and then a younger luminary winner of this prize and somehow Rick and I always are shepherd into the back table. We got to witness this. There's been folks like Mark Leonard and Nick Howley and we even had John Malone. This year it's Ken Langeon and Tony Shoe of DoorDash. Ken comes to mind, I'm thinking about this with the concentration point. There's a point here around Will Thorndyke and the ethos of The Outsiders' capital allocation. And going famously as hell just a couple of stocks for 40 years, never sold home depot. The most famous one of those. That's how he's built his wealth. He talks about non-making extra decisions when you don't have to. It's his balance sheet and so he can have that emotional temperament and design and hold it. It's very unique that an entity of fund definitely can't do this. A permanent capital public company like you're running can if the culture is right and you set up the systems, the brand, the talent, the mentality to hold the winners and double down on them. Over time, the one meta inside that everybody gets from outsiders is that times are changing and different times and different circumstances need a specific response and there's no one size fits at all solution. There's a lot to criticize, I think, about the Teladine singleton story but I think what Henry Singleton got really right is to have the right opportunity mindset for the given circumstances, increasing your share code by 10 times over 10 years and then doing M&A for 10 years and then buying back 90% years stock for 10 years. There's something to learn from that. Every tool has the right time for application. There's a lot to take away from that and that's where we're called chapters group. We're not called the European VMS aggregator with cybersecurity AI group. That's just what is the massive opportunity at this point in time and then even there, I mean, there is a bit of idiosyncratic with our financial technologies investment that worked out best couple of locations that we did over the years, which is slightly nuance but also very similar to what we do and a lot of nuance is important and having a mindset and a strategy that makes sense and can be tracked and is right on the first principled spaces but still leaves you with the ability to be opportunistic around the edges. It's just so incredibly powerful because a lot of these organizations, a lot of public companies in particular just have a hard time changing course that just puts restrictions on you. It makes you reinvest a lot into what is there today as opposed to what should be there tomorrow. I don't think we have that and we can continue to see be able to reinvent ourselves and this is interesting notion of a couple publicly traded companies being understood as serial acquirers and everybody knows them like the Trans-Time Constellations of the world and data here. But there are a few businesses that have also been serial acquirers with very similar economics that nobody talks about as that but they are exactly that. Broadcom for example or Oracle, Oracle is so fascinating by the way, a fantastic example for what software really is in the world when you like really unpack Oracle, you understand how software gets deployed in your life and what this actually means and what software means which in many cases means core database workhorse mainframe operations of businesses. There's very little glory in Oracle software stack but it's also a lot of inefficiencies for client. And I remember running my fund and took a close look at Oracle at a time and must have been the 2015, 2016, 2017 timeframe where Oracle was spinning out a lot of cash. It was seen as legacy probably for the right reasons at the time and Oracle was buying back a lot of shares. So Oracle was one of these big, surely monger would refer to them as cannibals and kept on using the cash flow and lever it up, bought back so many shares. Now fast forward 10 years, Oracle is probably the truth where somebody in the middle probably wasn't as legacy as people thought because it's now emerging as one of the core AI leaders of the world. It looks like the foundations that they've gold all last 40, 50 years are incredibly powerful for what you can do in AI. The stock is at all time highs and Larry Ellison is one of the richest person in the world right now and they bought back shares 10 years ago at 10% of the price that it trades at today. If you just have time and you kind of have a organizational and sometimes like a technology vision and you're willing to be opportunistic around capital allocation along the way, time is in your favor. But if you give me a look, this needs to work on, you can pick whether it's four years or five years, but it needs to work in either four years or five years because that's the end of the fun life. Good luck. If that's your world, it can work. But I think you're using half of the tool because that you could use. Will has often said the total addressable market for smaller companies is way bigger than trying to build one company and just try to have organic growth be extremely high. I think about it more as a tool, chapters has been an organic growth engine alongside organic growth. You've issued debt in really creative ways. You're using a lot of these tools that are out there and going after this opportunity that Will has talked about. Instead of saying we're going to build one of the leading tech companies in Europe, doesn't mean your venture bat trying to grow 100% a year organically. It's using all these different tools that you actually have from running a fund for 10 years to and studying Buffett and others for 10 years prior to that when you're 12 years old and beyond. How do you think about the mentality around these various tools of understanding, investing, understanding capital allocation? You really are CEO. I know you stepped into various business units over time deep into operations. How do you maintain the knowledge of the use of all these tools we've been talking about, but then really get into these businesses? A lot of conversations as a CEO actually benefit from you adding a strategic and why are we actually doing this angle to a conversation? A lot of discussions and a lot of stock meetings. Just need perspective. That's all they need. As a public market investor, you are so trained in abstraction. That's what a lot of public market investors just get really, really right. Is abstracting first principle holds? What are the real driving forces here? Is the underlying growth 5% or 3% type of discussions? This world could not be further away from the day-to-day management of an operating company. It's one of these moments that is fantastic. I want to tell one story of I was late to a meeting because two of my salespeople of one business, they called for an emergency. They and we need to talk to you. It's like across several lines of hierarchy and I was like, "Okay, boy, this could be a tough conversation." I was on the meeting. I was five minute late and I was on the phone with a shareholder who talked to me and said, "Well, they didn't allow us this and it would be so beneficial if you listed on different exchange." There's a big multiple arbitrage to be had and just look at all the different metrics and I had this conversation about what's the right framing of our equity story. I said, "Look, I need to hang up in this meeting now." I hang up the phone. I sit down at the table in this restaurant. I see these two guys in front of me and they have really sad faces. I'm like, "Boy, what do you want to talk about?" They are like, "Our best sales guy. His wife ran away with all the money and we need to give him a salary advance and they can hour and turtle compliance processes that needs my approval." If somebody wants to do that, that's the right thing to do. It needs CEO or CEO of our approval. I'll give a salary advance and say, "The aunt don't worry." They pulled out the papers and they said, "We got the title on his car. There's security. Don't worry about it." I said, "Okay." I just love this anecdote because it just gives you the amplitude of the topics you have as a CEO of a public company. You go from, "What's the right listing menu to? We got the papers on the car. Don't worry about it." Corporate life happens somewhere in between. I think a lot of meetings just need that perspective and sometimes why are we actually here? What's the journey? What's the strategy? Usually, if you repeat that and you make it clear and you answer questions, a lot of the problems around what should be done and what should not be done usually get resolved. There's this Amazon paradigm about the empty sharing, the conference room. That's the customer and every meeting you need to envision what does the customer think about this. If that's the decision-making culture in a business, that's one of the only impacts you can have as a CEO. Very few things you can actually impact in a large business, but you can impact the strategy. You can impact the key people in the organization. You can impact stakeholder communication and just give clarity to all and you can be the authority on what's right and what's wrong. Coming from that public equity mindset, you start with the first principles and you start with a capital allocation mindset. I think that's usually where most eos end their career. That's a flaw because in many cases, that should be a first principle making its way through all of the decisions in a business. What have you taken from what you learned looking at public companies from the outside? Do abstract what the incentive systems look like and you try to guess what people are going to do based on how much equity they own or what they're going to do based on certain metrics or whatever the company is willing to share with you. What have you done to build an incentive system in this decentralized organization? How is it evolved and why do you think it tracks the right people and is actually making them want to implement all the things we've been talking about? It's another aspect where I think we got quite lucky at the very beginning and big credits go to Matias Zaga who was driving that at the time. When we allocated the first capital in the business that was then called medical Columbus, so the predecessor to chapters, the idea was to set up platforms with teams. The business, we would own 80% and the team would own 20%. Sometimes split between different members, sometimes one person, but 80/20. All of the capital that is ever needed at that platform gets called in by way of a shareholder loan. Let's say the platform wants to acquire a company and they need capital from top co. They would call a shareholder loan with a 10% interest on that loan. They can pay back that loan if they don't need the capital anymore because they've found a better debt-refinancing partner or they generated cash flows and they can pay back. That's the core incentive operating system that you're working on under today. In hindsight, it has worked phenomenally well. Because due to two reasons, A, I think it creates a true sense of ownership because people actual co-owners in the business and that does something to you. You can build your own thing and it caters really well to the centralized structure. But it also created a language of capital has a price. So 10% per year is not our desired hurdle rate but it's our cost of capital and that's pretty well understood across the entire organization. When you're using capital from chapters group that has a cost and that cost is 10% per year. That model has carried us a long way. Now you made some important tweaks to the model. Probably the most profound was that we introduced a put call structure on the minority stakes. We did that to align the platforms more with where we're going as chapters. Because one of the things we felt with the early platforms that we started that there was a lot of focus on the platform but very little collaboration between the platforms and very little understanding for example, the valuation of chapters in the market and that actually matters to how much capital is available and not available. So we created this put call mechanism where we can call in and the platform has can put to us the ownership of the platform that is according to the formula based on the trading multiple that chapters is trading at. It has created a culture of dramatically higher alignment. So when I look at the benchmarking and cross collaboration of the group now under what we call Manuscript method which is our management philosophy that we started to implement in 2023 and I look at the world before that it's a whole different world and I think part of that is in the incentive part of things. So when you fast forward the expectation would be right that over time probably this minority positions reduce and it becomes more integrated and people become owners of chapters shares as opposed to platform ownership. I think that's just the trend that happens over time but I think it's optimal for the current chapter we are in. The current chapter we are in is a lot about aggregation. It's a lot about decentralized aggregation. It's still quite a bit about regional aggregation where the M&A funnels today tend to have a relatively regional bias that's changing a little bit but it's generally still pretty regional and I think for that phase of the development it's the perfect incentive model but I think it's gravitating quite a bit towards the actual equity in chapters and you see that with some of the senior leadership within chapters now with the more standard option plan. You also have a 10% hurdle in there that's our internal language so nobody gets strike price at issuance options but they all have a 10% hurdle because first of all shareholders need to make money before everyone else makes money but that's the ethos of what we're doing here and it also allows us to very credibly make a pitch to talent that when things go so so or medium positive the financial reward you will get out of joining chapters is not high or even non-existent apart from like your base compensation we usually base comp people on market level there's not much difference but when things go well the payoffs can be outrageously positive and we have a few examples where we've crystallized some of these payouts which are significantly larger than what you can make in any comparable role and that's something I want to maintain because that attracts the right type of talent people who are not entitled but it tracks people who have a long time perspective but are also ambitious and greedy to get there and to make something really big work but who have the time and the patience and bring the commitment to actually make it work and that's exactly the team I want to build. Where's the talent generally coming from? This is pretty unique what you're building the brand that you're putting out there your focus on a particular set of sectors where other people are playing I'm just curious where you're finding this talent to bring on board. What you got to appreciate is that the reach and the brand that we've built relative to our actual size allows us to currently be in the position that we can actually pick the talent that we want to partner with that engine obviously needs to scale as we scale but right now I'm in the fortunate position that both in terms of deal flow and in terms of people joining the organization to run it's a very enjoyable circumstance that we have fantastic talent available to us. I mean we do use recruiters that's something that does happen but one of the most established channels we have is that somebody in our organization gets a referral on someone that like a common acquaintance talks super highly off that could be someone that works really well in chapters and then I get involved with the top talents and then you figure out is that really true or not we get a lot of these references or you should talk to the chapters guys type of narrative and some of the big recruiting successes of recent years were that bringing this back to the beginning as we wrap up here looking out five plus years what's most important to get right and thinking about that big vision that we talked about earlier on a walk and then we talked about the beginning of this conversation what gets in the way that what are the biggest challenges and what are the biggest opportunities if you think five plus years out we talk so much about talent but I think the mentality of having co-founders for each part or each chapter is important and we should unpack what it means to have a co-founder that usually means people who are probably a little less able from like a technical perspective relative to the opportunity in five years so you want to optimize for talent and not for credentials and you want to optimize for ability to grow and not credentials and most organizations have a hard time doing that because you get into these almost like military like box ticking does that person have the right skill set for a given role type of hiring dynamic whereas in a growth organization all you want to recruit for does the person have the ability to grow into the blueprint of what we think the business looks like in five years there will always be administrative roles are very specific discrete roles that need a solution today there's nothing wrong with hiring people for that but there is a beauty in finding people who can solve a problem today but where you see the growth potential that they can actually run the businesses that are ten times the size for example Malay and our CFO who joined and did a fantastic job doing controlling of our business units in 2020 and did a great job at it but she's now the CFO of a billion euro company and does that great as well having people who can kind of go that journey and we have a bunch of examples of that in our organization this huge human tendency to just at some point hire super senior people who can solve a problem who then stall and probably create this big overhead that doesn't scale anymore and I think creating a risk culture that we are willing to give a lot of latitude to less experience but higher potential people and AI is a great question around that how much risk taking should we do in AI right now it's a balance I lean towards a lot but striking that balance right in particular of recruiting is delicate that's one number two we've built a business system that was super necessary at the time when we made the decision and now shows us ability to scale the best businesses in the world have made that system a flywheel that got better over time that requires constant attention and constant focusing on it like our manuscript method making it work making sure that is coherent making sure that is followed makes sure it's actually useful to people inertia creeps in and it needs constant continuous improvement continuous attention on it continues consistency by leadership to actually make it work this is incredibly important to get right so I think if we get those two aspects right I think we have a good chance that continuing to scale and if we don't get these aspects right I think we will not scale this has been a ton of fun we've covered a lot I always marvel at this ability for you to tell stories to teach and yet be super humble and open to learning and we covered investing operating companies talent AI cyber security capitol allocation in organic growth business systems so many other examples from competitors or from history that you're implementing into your business and what I take away is you're having a ton of fun doing this it always seems like you're very relaxed about what's going on and we know that you have this half German half American mentality and you have an incredible team around you that is running at full speed to say the least just take this time and share these stories the inspiration I take is it's the storytelling and learning and then applying it and then iterating and doing it again and being really open-minded I've heard Mitch say the same thing about you that it's one of the admirable qualities that you have that you take feedback extremely well and then you go quickly and implement it and then learn and take things to new heights and it's exciting we got to do this in a few years again and see where the chapters story is in the next chapter thanks for spending the time thank you was great buffet has this thing about painting his own painting for us it means I usually don't talk about chapters as something I created because it's super wrong both it has a long legacy that was long before me and then a big part of the success and big part of the value drivers are not in my hands I've been kind of the spokesperson but definitely not the driving force and a lot of these value creation aspects sometimes not even involved our version of painting our own painting is offering an atelier where people can do their own paintings and that's what chapters is and it's just incredibly rewarding to watch and facilitate and it gives you endurance and seeing this unfold and hopefully many many iterations for many years to come beautiful thanks y'all