Ep. 139: Chris Sznewajs, Managing Partner & Founder at Pacific Avenue Capital Partners

I think one thing that gets lost, you can be a really good investor that doesn't make you a good leader of a private effort. (upbeat music) - In this episode of investors and operators, I am chatting again with Chris Nevis, the founder of Pacific Avenue Capital Partners. We spoke five years ago, pre-fun, but just after launching in 2018. - Feels like a lifetime, yeah. - It got a couple of things that happened. Since 2019. And I didn't think is this gonna be such a cool episode because you just closed fun to at 1.6 billion. And that was on after fund one at 300 million in 2023. - 500 million. - 500 million, sorry. - No worries, no problem. (laughing) - And that was after starting in 2018, we're gonna talk about fundraising. The lessons learned from fund one, what you've done different in fund one, having known what you do now about fund two. Talk about the overall path that you've been on as a leader, what's the difference between you as an investor and a leader now at fund two versus 2018? Talk about the next chapter of Pacific Avenue. And then we'll kind of round out, let's just dive into the operating playbook. So, let's start off, like what is the difference between you at fund two versus fund one and pre fund? - Yeah, maybe I'll start with what's the same. We had a belief when we started and we still to our core have a belief that there are unnatural owners and businesses that are motivated to transact. And if we can set up our entire business to serve those sellers, we call them our customers because we really view them as the lightblood of our business, then we can win. And so, the only thing that's changed, well, a lot of things have changed. The strategy has been refined, but that concept has crystallized and become more clear. And what we've been able to do is just evolve. The way we source deals has changed quite a bit. We historically relied on our investment banking partners. We still do, but we've built a massive database now that's critical to our direct corporate calling effort and those relationships with corporates. And so, the way we source is focused around that. The way we execute transactions and the deal teams that we have and the sector depth that we're building. And then ultimately, the way that we are able to support carve outs to provide ultimate comfort to our sellers that we're going to get the carve out done, it's going to be as minimal friction and pain as possible. We're going to be able to take care of their employees soon to be our future employees, ensure that the connectivity with the customers that we're collectively serving is met. And so, everything that we've done and continue to do is just focused around that, which is serving our customers, which is these sellers. And we feel like we have a lot, long way to go, but we've learned a lot along that journey as well. - Yeah, well, you've done what over 120 transactions, including something like 50 plus carve outs. What do you think is different and improved about your team's skill set at doing that now? - Yep. - You start in 2018, now of course, you get a lot of experience with the Gora's group and learning how to do it a lot of stuff there, but what's the difference between you guys now versus 2018 in terms of your team's skills at doing carve outs and complex situations? - Yeah, those numbers you reference are really what our senior team has done over time. And I think what's changed is, we always had the belief we could do it, and we had done it a couple of times when we started. And where we've gotten to is, we've been able to systematize process and build the process around it. So I think a good example as it relates to carve outs, when we started, I had a long list of everything that I had thought I knew tied to carve outs, so every potential item that could come up in a carve out. And the list was probably 250 items. And as we gained more experience and as we grew, that grew to 400, 600, I think it's up over 800, 900 items. That was tracked at one point in emails and Excel, now it's in a pretty cool software program. And what it allows us to do, and what I think is one of the bigger parts of the way Pacific Avenue's transition is, it's scalable now. So when we bring in a new operating partner or a mid-level operating professional, we can walk them through this software. And they can jump in on a carve out now, go through and say, okay, there's 800 or 850 items. Of course, we learn new things in every carve out. We're gonna take a box, 'cause these 150 of the ones that are actually relevant in this carve out, and then they have a module that helps them learn what to do, also make sure we're not missing anything by sector. And it gives us the ability to train folks, teach folks, but also it's a dashboard for me. I can check at any given time across all the different transactions, carve outs, where we're at, what are the open items, whose resource behind it, how are we tracking relative to time and our stated objectives? So just our capabilities are much more cemented, obviously our experience is greater. And to me, the biggest kind of enjoyment of what we've had is we have the ability now to train people in a way that's different. And on board people differently. We're an organization, I think we're either at 40, or a little north of 40 people now. And that's just a lot of new folks that are being trained and brought in at all times. And so having some of that stuff processed and put into institutional analogies critical. - What's your message to the corporate sellers out there on what's different for you? Because a lot of firms do very similar types of deals. So like what's the key message to them? What are the biggest concerns that you help alleviate? - Yeah, I think the key message that we want to get across is we are here to take on and solve your problems. In a carve out and a divestiture, the seller has made a decision that this is something that is not core to them in almost all cases. Occasionally they're trying to raise capital to pay off debt or do other things, but they view the asset that they're divesting as non-core, non-strategic. And therefore it's not a priority. And so what we want to communicate is is we are a solutions provider. We're going to solve your problems. We've bought businesses where we've had to hire over 50 people to stand it up. We've bought businesses that don't come with management teams. We've bought businesses where there's a huge interconnectivity between the sales force. Maybe there's an interconnectivity between the production facilities. We're going to solve that problem for you with the least amount of friction possible. And we're going to do it in a way that, again, takes care of the employees and the team members and it takes care of the customers. And if you can do those things, the frictions reduced, you can ultimately get separated and we can get on our journey to creating real value. - What do, what do, maybe it's just an inverse of what you just said, but what does a Carvald gone wrong look like? - Well look, in every situation there's things that we don't go exactly to plan. But what goes wrong is you find yourself in a situation where you're not able to, like, look, we're moving payroll over in every situation. We are onboarding all of these employees which benefits plans ultimately have to be shifted. Of course, our objective and I think we've been near perfect like this is they're keeping at least the same benefits are getting better, but there's a lot of disruption for team members of those businesses that we're buying. And so what can go wrong is the communication and the discomfort. I mean, we've been as, it's been a while since we've been to this point, but there's been spots where we're not sure when it switched over that payroll is fully gonna work that week. What's a problem if you can't get people paid? And so I don't, we've never been in that situation but we've had some pretty high levels of stress. So there's some real tactical things that can happen. The second thing is you're fiddling with the inner workings of some pretty complex systems. And so you may be taking orders in through an ERP system that's no longer yours. You may be shipping orders out through an ERP system that's no longer yours. You're collecting receivables, you're paying payables. All of those inner connectivities can get broken. And they ultimately have to be broken 'cause that's how you separate. And so we always say keep your customers happy, continue to ship product. Make obviously you have to make the product so whatever you need to do to continue that and you need to keep your employees. It's the tactical things, at least in the near term of a carve out that are the issue for us. What we pride ourselves on what we love and I'll take it, I'll pull up to 10,000 feet or 20,000 feet is when we come into a business it's been deemed non-core or non less strategic where we think we will fail as if we can't convince the team that we believe in them. We're passionate about what they're doing. We're here to invest in them. We're here to spend the capital. We're here to drive at M&A. We're here to change the culture. into a place where you want to win, where you do matter, and it is a chance to make a difference and create value. And they've been in a spot in the organization where it's like, well, you're not important. You're not getting the capital. We're not going to spend time on you. And our whole goal is, no, it's actually the opposite. You're critically important to us. And we need you to succeed. And we're going to give you all the resources necessary to allow that to happen. They're in a particular example of things that you're just really proud of operationally that you did with throughout that carve out. And then the opposite, it's maybe a painful memory, not spissing, maybe omitting the name of the company, but the situation of like, OK, that was just painful. You guys have clearly done a lot of things right if you raised the second fund three times larger than the first one. Sure. There's probably been some bumps along the way. So what's a great example of something operation you guys just crushed it on? And then maybe some that was painful that you learned from? Yeah. We have been fortunate in what we've bought. And it's a direct result of when you focus on something, you get your results out of it, right? And the businesses we've been. The amazing thing that we found is the businesses that we buy have a ton of wonderful talented people. But either at times, if not, have the right leadership or they have not had the right focus. I can think of a specific example. We own a business called Reson Solutions. We bought it from Total Energy. They have a product that is frozen to solid state rocket fuel. It's called polybutadiene. It's a true specialty chemical. When we came into it, and the market structure is highly favorable to how we compete. But when we came into it, we were not serving our customers well. The product quality was in spec, of course, meeting the requirements. But we had not-- we didn't really have a-- we didn't have a sales force. And we had never-- and the previous owners had worked hard to do everything they could to reduce the cost of the production. But at the negative effect of not actually meeting all the customers needs, even though we were in spec. And we spent the better part of the first six months just really understanding why we were like, guys, we're in spec. What's the problem? And what we came to realize is, is that there were other components that weren't measured, that weren't part of the qualification process that were impacting the effectiveness and the efficacy of the product. And so we spent several million dollars fine-tuning our plant, working and testing our product with our customers so that they were happy. And it's allowed our end markets to grow. It's allowed our customers to be more effective. And it's allowed us to have a stickier, stronger relationship with our customers. And a lot of times, when you're carve out focus, you're considered driven around value. What we pride ourselves on is we grow our businesses. And we partner with our customers to do that. And I think when we look at our track record, we have a simple saying, because they haven't grown businesses sell for more than non-growing businesses. And so everything we buy, we're trying to get into a high growth mode. We want that 10, 12, 15, 20% kegars. And we're able to do it because we buy in attractive industries. But their businesses that have just been unloved. And so they haven't had to or been pushed into achieving that growth. What's an example of something that was maybe more difficult and challenging and the whole team learned from it, maybe not specific to the company and anonymizing it. But-- Yeah. It was key learning. Look, I think one of the hard parts, if you step back, at least from where I sit, when I think of what has become traditional private equity, folks want to buy strong performing businesses with great management teams, clear strategies, and very good historical track records. And what you hear is people say, well, pay anything for great businesses. And you see that, even in markets where volume is down, good companies are still trading at very nice premiums. What we are asked to do in a lot of situations is buy businesses that may not have management teams. The historical track record is not great. That's why the parent company is selling it. And if they don't have a leader, they may not have a clear strategy. And so the risk that we're taking on or the complexity that we're taking on is waiting through that. And where I think we've been wrong is as we've underestimated the lack of investment, the lack of strategic direction in some of the businesses that we've bought. And so we've worked really hard. Of course, step one, we call 1A, is carve out, complete-- complete the carve out, separate the business. But alongside of that, we have to have a real strategic plan. This isn't come in and let's take out costs. Corporates are great at taking out costs. What corporates are not great at is growing businesses they don't care about. And so you have to have a strategy to do that. We've gotten out of the gate slower on a couple of businesses because we thought it was self-evident what the strategy was and we didn't resource it correctly. And I think that's probably where we face the biggest challenges. We haven't been aggressive enough around aligning the team with the strategy. How is your philosophy around strategy evolved since being a main management consultant? Aside from just like-- now I feel what it's like when the strategy is actually implemented. How is your perspective and philosophy of strategy and how to prioritize evolved? Yeah. It's probably gotten even more rudimentary and more simple. It is-- we now have-- we're down to-- I call it a strategy on a page. Our team called it something different. But we're down to putting something on one page that we're all lined around. And what are the key initiatives? There's a bunch of work that goes into that and then how you resource it and one of the capabilities that go with it. But it's oftentimes we want-- and we're in the process of starting to train our teams and move to some quarterly business reviews. We want every single person inside of Pacific Avenue, from our first year associates to our senior partners to be able to say, at that portfolio company, here are the three things we're trying to do. Here's what we're focused on. We're trying to add volume. It's underutilized. We're trying to-- and so we can do that either organically. And we can do that through M&A. Our customer experience isn't right. And we're adjusting that. And by the way, we need to add these different products sets to grow. And we want every single person to have a very clear understanding of what are the two, three, four things at our businesses that we need to do. And so I would tell you what's evolved is we've simplified it. This is not complicated. We're not putting men on the moon typically. We're not buying oftentimes very high-tech businesses. And so there's certain complexity to them. They're technical. But we're buying industrial and business services, the health care services. And we need a clear, simple strategy that folks can execute around. I love it. I think it's fascinating that the more experience you have as an investor, the more businesses you've been exposed to, the more you are simplifying things, to the critical few things that are going to make the biggest difference. Yep. Yeah, that's right. How do you think about hiring executives? And I know that you have an operating team, and they do a lot of that leadership and hiring. But maybe institutionally, how do you guys approach hiring? And how is it evolved from-- when you used to-- in 2018? Yeah. Yeah. I think leaders. So I'm going to go down to pass here. And it's a-- right, we talk about-- there's a couple other things that matter that we do Pacific Avenue. One, we got to buy the business right. We dramatically overpay. It's very hard to make money on it. And then two, we've got to partner with the right teams. Oftentimes, it comes with great team members. Sometimes, it doesn't come with a team, or it's not necessarily the long-term team. So we do a couple of things. One, we accept that we're not going to get every hiring decision right. I used to tell our team, and this was a bit of an exaggeration, but I would say I were right 50% of the time. And I did that not because I think we're better than that. But I think we're probably closer to 75 or 80%. But because I wanted people to know it was OK to get it wrong. And the reason why is is we say it's OK to be wrong. It's not OK to stay wrong. And so when you get it wrong, you don't have the right team in place. You have to make a decision quickly. And there is a tendency, I think, human nature is I want to cover my mistakes, and I want to try and fix it. And we want a culture where-- and I see it, our senior leaders. It's so neat to see in our weekly meetings. People stand up more often and talk about what they got wrong, so that we want everyone to know it's OK. It's OK to be wrong. Just don't stay wrong. And that's what I talk about in my annual meeting with our investors. We talk about our internal of your own meetings and mid-year meetings, just admit you're wrong and make the next decision. And so, first part is, except that you're not going to get it right all the time. We've got some pretty cool software that we use. We use some third parties that help us evaluate our executives. That's been very insightful. Some of our operating partners have brought that to bear and I think it's improved our quality. But I've narrowed particular personality assessments or tools that you guys particularly like to, that you put executives through. There are, I would argue and we'll probably, I won't list names because we think it's that big of a competitive advantage. And so, we're excited about it. I, to me, probably not far after our last conversation in 2019, boiled it down to three things that I care about. And this is true for our executives, this is true for who we hire at Pacific Avenue. Are you intelligent? Are you smart? The stuff that we're dealing with is complex. I need you to be smart. I need you to have good horsepower and with that, I'm more or less equate that with logic. Are you logical? Are you following continual thoughtful streams down the logic change? So that, down the logic change. So that's one. Two, do you have hustle in you? We are buying businesses. They are varying sizes, but these are not, you know, multi-billion dollar companies. These are 300 million, 500 million, 750 million dollar businesses. If you are willing to work harder than everybody else and you are smarter, over time, you will get better results. And so, we want folks that have a motor. It doesn't mean you have to work 80 hours a week, but it does mean that when you're working you are super efficient and you are getting results because what you're able to do is keep a lot of plate spinning. You're able to have all of your director ports and your team members working on items. You're able to help push the forward thinking because they're thinking forward because you're applying your logic and your thoughtfulness and your intelligence. And then you're circling back and you're doing that with 8, 10, 12 different director ports to move. And then the third piece is, do you have an ability to lead? To me, it's communication style. And I've found there are quiet leaders, there are data driven leaders, there are charismatic leaders, there are all different types. But can you get people when you run up the hill to follow you? And there's a lot of different ways to do it. But are you smart? Are you willing to work hard? And can you get people to follow you? And if those three things meet, then I, you know, you don't have to be perfect fit for the industry by any stretch of imagination. But if you have those three characteristics, we have found those are the attributes. I have found a narrow down to that then we're going to win. How do you think about the key dimensions around personality? So you talk about hustle, which is just an ambitious personality. The ability to lead might be charismatic or whatever. But how do you measure humility? Because if you're talking about like, you know, it's okay to be wrong, it's okay not to stay wrong. Like, how much does what are the key personality dimensions that you're like, right, this is the AB 20? Yeah, you see it. I mean, I'll give an example. We take anybody at a mid to senior level position out to a meal. You just see how they treat people. Whether it's the waitress, whether it's the hostess, whether it's other folks you're interacting with. And there's pretty good talents. You see people get frustrated for things, people treat people the wrong way. You see how they interact. And those are the the talents where you're like, this person's not going to be a leader. This person is going to get exposed. You know, you were in the military. I always give this example. I wasn't obviously, but you can. I wasn't here. Oh, sorry, you that's where you go. You want to invest. You interact. Right. I went to business school with a bunch of folks. They tell me consistently, it's right, there's officers and there's there enlisted folks. And as an officer, you can tell people what to do and they kind of have to listen to you. But if you tell them to move this pile, they'll move that pile. But if you lead them and you give examples and you do it with them, you will get a way better result. And I think that's that's what we're looking for. You're the boss, right? You have the CEO title, you have the president title. Of course, people have to listen to you. We don't want. We want people to listen to you. We want people to generate ideas alongside of you, push it forward and obviously follow you as you lead. And I think that's the that's the soft skill side that we're looking for. And there's lots of different ways I gave one example, but we have a bunch of other things that we're doing when we are interviewing people that would probably come across as subtle, but that's what helps us understand, hey, do you do you get it? And our people really going to run, run up that hill with you. It's interesting that reminds me about this quote. If you want to build a ship, don't drum up the men to gather the wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea. Yeah, exactly. And it's it's taken more than five years to learn that. And it's cool when it starts to actually work. And one of our colleagues texted me about their version of new mission vision and values. And it was like 10 a.m. on a Sunday when I was at Costco with the family. It was like, this is awesome. That means they are also getting enjoyment out of it and going. It's not like, hey, Monday, 9 a.m. Send the new mission vision values. Yeah, exactly. Yeah. Yeah, no, you have to be passionate about it. And it has to, you got to live and breathe it. And that I think is what that's what motivates people. They're excited because they know that you're excited about it. So let's go back to let's write out this idea about the difference between like fund one and fund two version of you. Like how are you different as an investor? And it might be just better systems, better processes. But yeah, you know, what are some of the ways that you think you're different? Well, as it relates to me specifically, pre-fund, I was paramount in so many things that we did. And in fund one, obviously still important in fund two, it is such a path to what can we accomplish as a team? Where, you know, I think one thing that gets lost, you can be a really good investor that doesn't make you a good leader of a private account firm. I don't, I'm an investor of course, and I hope and I, my commitment to our investors and my objective is, is to spend at least 50% of my time doing that. But I run a business now. We've got a location. We have a 40-year-old office. We have 40 plus people. We've got all the things that come along with running a company that is very different than investing. I feel confident now in my ability to invest. If I'm the only one investing, we would make more good deals and bad deals. We would drive great returns for our investing partners, but we would not scale. And that's not what we want to do. We want to scale. We want to create opportunities for the rest of our team. And so I really have had to shift and put the hat on that I'm an investor is half by time. But running a business and building a private equity firm, a company is something completely different. Of course, there are some overlaps in skill set, but it's not the same skill set. And I think that's why you see a lot of private equity firms stay at a small size. They have good investors, but they're not building a company. And so, or you see something that have really good returns, and they're able to raise and they scale, but ultimately it fizzles because they're not running a company. And they get distracted and do other things. And as a result, it's not sustainable. >> Yeah. What advice do you have for independent sponsors who are on the fence about should they stay in independent sponsors at worth it to try to go down the fund rate? >> Sure. >> Fund one throughout. What advice do you have for people who are raising fund one? Yeah, curious to hear. >> So look, I think raising a fund versus independent sponsors, there's a lot of different factors at play. What I can tell you from a, someone said this to me very early on, there's a set of steps you have to go through to be ready to raise a fund. You have to prove that you have deal flow. You have to prove that you have a strategy. You have to have a attributable track record, whether it's your previous firm or what you're building actively as an independent sponsor. You have to have a team that is sellable and backable. And you can start the fundraising process and have a couple of those things done and achieve those things through the fundraising process. Or you can have all those things done and then go fund raise. And we made the decision that we wanted to be ready. I had a belief that we had a clear strategy. We could articulate it. I wanted to get a team in place. I wanted to make sure folks were comfortable with our track record. I knew that we could get the deal flow and we had the deal flow. And the last component was the capital. And the capital, it turns out, is actually not that hard when you have all those other things in place. And investors and your limited partners are, they're smart. They're sophisticated. This is what they do. They see hundreds of private equity firms every single year. Their experience is vast at this. And they can tell when you've completed all the things that they can do. all the different steps that are required to make them comfortable to invest in you. So my belief was, frankly, it's how we raised fun too. And what we think was near-record time was we were ready for fun too. We started thinking about fun too, frankly, before we even finished closing fun one. And what's exciting now is even halfway through fun too, it was always my goal. Okay, we want to raise a certain amount and we want to get there. I woke up one day and I'm like, I'm kind of, I'm not sure where we're going to go. And so I had our team, our ops team and I talked to some of the big consulting firm and said, walk me through where other private equity firms go, walk me through what it looks like and case studies of groups and that helped inform where we're going to go. And we started that process, frankly, while we're in the midst of our fundraising in fun too, because you got to have a vision, you got to lay it out and then you got to go execute on it. Of course things are going to change. So I think for me, look, no of the steps you have to have, talk to, there's not a game. Your limited partners are actually your partners. They're not, there's no gotcha. There's no tricks. We're on the same side of the table. We win if they win, they win if I win. And so you stem as your partners and find folks that will give you real honest feedback. And then take that feedback to heart and then know that you got to run your business. How long did it take you to raise to when you guys really want to market? It was probably, it was about three and a half months. The reality is we have a varied. And you are. I mean, for comfortable sharing what percentage do you think was outside New Capital? Yeah. That might have been watching you a fun one. Yeah. So what I will say is is we had, it's over a 90% re-up rate in the one or two circumstances where they didn't the previous or fund one investor, their CIO left, and they weren't making any new active commitments. In another case, we just couldn't commit to, they scaled up. We couldn't commit to giving them a larger amount. They had actually sent in docs were interested, but we ultimately couldn't agree on how much capital we could give them. And so they bought out. So beyond that, we had a near perfect track record with our existing because I think we treated them well and obviously at the end of the day returns matter. What do you think you did well during the fundraise process? I mean, and Lazard, you know, guide you through the process. Like, why do you think that it was such an effective and smooth fundraising process? Yeah. So I mean, I keep saying we have, maybe we have about 10 things we say every single day specific, but one is I never want to meet someone asking for money the first time. And so we, with the help of Lazard team who I think were fantastic, we started frankly, probably within a month after fund one saying, please help us introduce us to the next set of investing partners. And I made a commitment. We hired an investor relations professional and she did an outstanding job in preparation and ultimately through the fundraise, but I would do meetings throughout. And so we, in some weeks it was more, but anywhere from three to 10 meetings every week with investing partners. And that was after the fundraise. And look. What level did you hire for the IR person and what would you suggest for other fund ones who maybe have just closed thinking about two? Yeah. Well, maybe I'll step back and answer it slightly differently. I have a belief that I'm spending any more than 10% of my time on something other than investing, we should hire someone to do it because they're going to be better at it. They're going to be 100% dedicated to it. And of course, hopefully I'm going to direct them. I'm going to work with them. And so IR became that. I was spending more than 10% of my time doing, there's investor relations. There's the fund park talking to your investors. The kind of the hard part, which is having materials and following up. And then there's kind of just the really kind of grunt work of, there's just a lot of requests and data and other things. And so we made a decision. We hired an individual at the vice president level, thoughtful, strategic, but willing to be a player and a coach and and and slotted right into organization. We were able to use some of our junior resources to support this individual. And obviously, I like to think I provided some of the higher level, thoughtful, strategic advice alongside of her. What are some of the other kind of key functions that you hired for right after a fund? Yeah. So it sounds simple. We call it the support team, but most people first is the back office. It's critical because our belief is and continues to be every touch point with your investors and your business matters. And so we want to be best in class in compliance. We want to be best in class in our treasury management. We want to be best in class in every touch point in the way we are fund reporting. And so we've got to work there. We're still aggressively trying to build and and and get ready for our next phase of growth with that team. I was fortunate. We made a bunch of money pre fund. And so we never I never had to run Pacific Avenue. I used to joke it was the only business that lost money that I owned because we we were investing in building equity in Pacific Avenue. And you're right, you say, okay, you're a $500 million fund. Everyone can do the math. What your fee structure is. We far outstrip that because it didn't matter to me if I made money in fund one. What mattered to me was as I was building enterprise value so that we could continue to scale create opportunities for our team members. And so we don't of course we have a budget. Unfortunately, it's it's it has historically been we were in the red, but that's okay because we had the resources to make those investments so that we could scale. And look, every function business development we talked about, we started with investment banks. We put a lot of energy effort resources into what we call business development 2.0 on the direct sourcing side. Our operations team has gone through multiple iterations as we've scaled the capabilities that we've added, the investments that we've made, the investing team similarly in some of the software we're starting to use there. So we're always and we'll do it in fun too. We're fortunate, obviously, on a bigger fund that will have more resources. Hopefully we won't right want run quite into the red at this point, but we're not trying to make money on the management fees. What we're trying to do is create a repeatable investing machine that that scales. And that involves people and resources. Say, look, sometimes we take chances on people, we get it wrong on roles, we've gotten wrong, we've had to redefine and rewrite every job description we're in the middle of redoing that right now and how long different programs, how long our vice president program lasts or our associate program lasts. We're changing that all the time, but we're looking at it every two to three years, what fits the needs of our business. Like I said, we've gotten some roles wrong. We've unfortunately had to reposition people and we've gotten some right and we've scaled those. I love that. And it just kind of reminds us about our business about having more definition as opposed to just lick in your finger and put it up with the wind to see, oh, now you're VP and not your senior associate account executive, great job in that project. But like in one, it's important for the team to see that clarity on role going, but also just the prerequisites. Like it's, it's, if you can get to the certain skill set, a year faster, fantastic, but here is the skill set. Yeah. It's so, I mean, that's so spot on and we, we're, we're just wrapping that exercise and we did it for ops, we did it for our support function. We've done it for M and A and we got to the spot and you get to principle here and we said that we've made it very clear at the top of the page is, you know, estimated timelines, principle, there's stuff timeline. You can stay at principle forever here. You have to be able to do what we expect to make it to managing director here. You have to, you have to be able to lead and execute deals without significant support and create value for the firm and folks say, well, how's that fair? How does that make sense? And, you know, without being too crass, what we said was is look to let you into the club, you have to add value to the club. And so we're not going to let people into the club unless they are creating, making the pie bigger. And so if you are making the pie bigger, it's really easy and the way you make the pie bigger is you create value through, through investing. And that's the, the one role where we just, we really settled around and said, we're not going to put a timeline around this. If that folks do it in a year, what folks, you know, are one, two years in, our expectation is within two to three years you're going to get there. But if this isn't, hey, just wait your time and you move through the process here. You've got a really prove that you're creating value for the overall pie. During fundraising, maybe if, what advice would fund two version of you give to fund one version of you? Like, I should have done this differently. Yeah. Um, I think, uh, I think you have to look at it as their, their, their your partners. I think that was the mentality shift. We do. We fundamentally believe our investing partners they're on our team. We really have tried to build meaningful relationships with our investing partners. And some are newer and that's gonna take time. But listen to 'em, get your feedback. Get to know them. They're not scary people. They're actually just looking for a great place to put their partners or their capital to work. And find out what they care about. Now I think it's hard. That's one of the things I think the Lazard team did really well. We were fortunate. We didn't have too many people turn us down. But when we did, we actually got what I think was real feedback. And it's easy for folks to say, ah, we're not doing anything this year or it doesn't really align with your strategy. That's great, but dig a layer deeper and say, not to tell me what turned you off. Tell me what didn't work. Tell me, you know, it's too much the Chris Neva show or it's your strategy's too specific and we're not sure it scales or whatever. Okay, good. Let us take that feedback and look as the leader. Some of it we may disagree with. And that's our job. And as the boss, we can say that. And some of them it's like, we have to hear it enough times or a couple of times. You say, I need to look into this and figure out how do I address this concern within the strategy that I'm comfortable with. What does the next chapter look like for you guys? Is it just bigger deals? More people? - No, I think we, so we believe in our strategy, which is, as we mentioned, buying from our natural owners. So what is, so how do you grow from there? Of course, there's obviously scale, right? You can do bigger deals. And our expectation is is that we'll get bigger for fun three than we are in fun two. Does that allow you to circle back and do a smaller fun again? We've proven we can make a lot of money at the smaller fun size. So you've got scale, which is one. You have geography. We started this initiative two and a half plus years ago. We really launched it about a full year ago. We're in Europe. We believe there's real opportunity to do the exact same thing we're doing in Europe. We built a team of seven plus folks over there. We'll continue to scale. So there's geographic expansion. I don't think there's any, we're not having anything contemplated beyond Europe at this point, but you can see 10 years down the road is there something in Asia or somewhere else? There's carbots all over the globe. We want to be prepared to do that and our desires to serve our customers everywhere. And then last is sector. We have historically been focused around, as I mentioned, industrials, business services, healthcare services to a modest extent consumer. We can build sector depth. And there are other sectors where there's a lot of carbots. And beauty is, is there's really good data on carbots if you can dig and find in the right place. And then you look over a fun vintage of three or four years cycling. You say, okay, this sector has 30 carbots. This sector has 70 carbots. All right, well, we should have some depth in those sectors. And if we can do that, then we can grow there as well. So our view is we like our strategy. We think it's a winning strategy. Now let's figure out they're not tangents. They're just other markets where we can play to execute the exact same strategy. - Let's talk about your operating playbook. You know, within the, how do you run a strategy workstream, for example, in the first 100 days or whatever you do? Like what is the operating playbook in phase one? - Yeah. Yeah. There's probably, I'll start with the, how we build our data set. First and foremost, we are trying to buy companies in attractive industries. We own businesses in fire suppression. We own businesses in elevator maintenance and building products and specialty chemical auto aftermarket. So start buying attractive spaces. Obviously our businesses have some story to them, but in attractive spaces. We look at what did the business and what has it done historically? There are many, I don't know, I'll say it's 50%. It could be 40, it could be 60% of the businesses. We buy at one point, we're standalone. They were operating really well and a strategic paid a bunch of money for it. So we look at and say, what did they used to do? And what changed when they were brought into the corporate umbrella? What caused it to not function as well as it used to? Okay, so we have that as a benchmark. Two, we look at what other folks in the industry are doing. A lot of times these organizations, they know what they're, obviously they know what their peer group is doing and they're either held back because of other corporate strategic initiatives or lack of resources. And so we're gonna, frankly, we're just gonna look and see what the experts in the industry that are winning are doing. And then third, we go on a massive listening tour with the team of the business we just bought. A lot of folks, we have a lot of success in driving massive EBITDA improvement across our portfolio. A lot of folks say, what's your secrets us? We just stop and ask the people who work there. They know it turns out, they've just been held back. And so we go out of our way to make sure that we wanna hear all of your ideas now, is it a cohesive strategy? Not always, right? Because you're getting different parts from folks that don't necessarily have the full purview of the company. But when you put it all together and that's our job, you get a strategy of several different ideas that need to come together. And so between what they used to do, which obviously if they used to do it, they can probably do it again. Between what the peer group that's winning is doing, and between what the people who have worked in this industry for 15, 20, and 30 years, I think we should do. That's the basis of the plan. And then it's all about ruthless execution. Narrow it down to what we said, two, three, four things, resource it and hold people accountable. - What makes this whole journey worth it for you? - All right. - Besides just being good at what you do. And you know, you know, posh might follow competence and experience. You know, what is it? Competence plus times experience equals passion. I don't know, make yourself up. Like what makes this worthwhile for you? - Yeah, we love to win. We love to win. And this is a bit of a aggressive statement, but we view ourselves as liberators when we come into these companies. We're liberating them from the apathy of who was responsible for them before. And so that is fun. It is really fun to go into a business and have folks that say, we can't do that, we've never been allowed to do that and empower them to go do it. And it is that flywheel that was, adversely creating negative energy, gets a force of motion and positive energy and you can flip it and it's hard. And when you flip it though, it's fun. People start calling you say, what about this idea? And how have we done this? We should have done this when we used to do this. And all of those things make it worthwhile. So I think for me, that's fun. As we've talked about in the past, I have four kids. I still have four kids. I want them to see what it's like to go to work and work hard every day. And they, and be able to sit down and dinner with them and talk about the different challenges we're facing. People challenges, strategic challenges, customer challenges. And obviously it varies. We have kids in their teenagers now that understand a lot more. We have some that are younger. But they have, I think, a good understanding. And that's what's fun. Winning is fun. Winning is really fun. It turns out losing is not as much fun. But the best part about losing is it reminds you that you want to win. And so we get a lot of like-minded people who like to compete and win and do it in a way that we enjoy it for each other. It's fun. - Asking for a friend here, a small businesses. What advice do you have for either small or larger businesses that just feel stuck? - Sure. - You don't know where to go. Not that you don't know where to go, but you're not growing as fast as you want. - Yeah. - And, you know, 'cause I'll just, you know, go into our example, like we're doing really well. We have about 15 people. But I'm like, - Yeah, it's awesome. - Growing so much faster. Like when we met, it was me plus our chief of staff. It was a former 51, that's my word. And we were recording the car. - Yeah, exactly. - And honestly, when we came out there to see you, we slept at a Motel 6 split beds. And I took a picture of that because that was the first time I had a company expense on a credit card. (laughing) I'm like, I paid for this Motel 6. - Yeah, the pride in that. Trust me, we had, when we closed our fund, a couple of us got together the original folks. And we were telling just some crazy stories. I can't believe we put ourselves in that position. I can't, you know, we stayed in a hotel and outside of Seattle where it was the dirtiest, most uncomfortable place I've ever been. And I'm not a hotel snob. And I remember like, I just, I got up at like three in the morning and went for a walk. I was like, I can't stay in this hotel room anymore. (laughing) That's how you build a culture, right? And that's all we get afford, right? That's what, that's what I was paying for. And it was, it was not nice, but that was it. So, to answer your question. - Let's talk about this organic, like one of the questions we're looking through is organic growth versus, you know, the restarted fire. And, but I guess just more broadly speaking, you've probably seen it with all these companies that you're carving out. how, where they've been stuck, but how do we get faster growth? I don't know if you've seen common themes. The one, I certainly don't know that I have all the answers. The one thing that I think has allowed us to be successful in, I actually equated, I know you have four children now and you have young children and it's a zoo is you just have to be comfortable being in a storm, a hurricane and a tornado. It's very, I think it's easy and human nature to say, "Okay, I'm going to pause because I have so many different things going on." I mean, we're getting, you know, fun one, we're trying to invest it, we're adding, I don't know, 10, 12 people a year, we're moving offices, which just seems simple, but it's actually more complicated than it is. I've got four kids and their school and sports and everything and it's like you're in the eye of the storm and your instinct is to say, "I've got to just take less off my plate." What I found is the people that grow, they just keep saying, "This will pass, these items will pass and I just have to keep every day knocking them down and you can't stop adding new things." Because that's what inhibits growth is, you know, when we first started and we lived it, there was one or two of us on the team, we could do one deal or maybe two deals and we were out, we were doing the carve out, we were running the business, we were driving the operation from a foreign supermarket, we weren't sourcing deals, we weren't doing anything, and so we got to a spot where every, we never wanted to be stopped, stopped the craziness. And so we just added as many resources as we kept the things that we couldn't do when we couldn't source because we were working on a live deal. Well, that's a sourcing function. That's that. And you just have to be really uncomfortable being uncomfortable and that to me is how folks grow. You just keep pushing yourself and I confess saying it's okay to be comfortable with that. You know, with my story, like, you know, 17 marathon, seven-hour man is like, I love that discomfort. I almost like the chaos of that. But it's also just how it goes back to your earlier point about one page should reflect strategy. We have all these different things and it's like, when do you make that trade off of I'm not going to pursue these other things? Yeah. Well, that, look, you have to have a true north, we know, and it evolves, but we know exactly that types of deals you want to do and what we want to do. And then it's everything we can to get those things and that's the eye of the storm is where we're, we're, we're, we're, we're, we're when I'm build every cape of bill and again, we get it wrong, we get wrong. We hire the wrong person. We hire for the wrong role. And we had a role where it's kind of joking. I was talking to the individual and I was like, you're not that happy. This isn't going great. We never really did a job description. And, and so we kind of sat down and those are those are just the mistakes you make. But it turns out actually as we did that and we refined the role, the individual's been a massive contributor. And so it that discomfort is, it's good. You're comfortable with it. But it does, it does, it does rest with that true north. We know, we know where we're going. We had a very clear goal. What we wanted to accomplish in fun too. I think we have a very clear goal of what's next for us over the next three years. I hope to do this again in three years. And, and when we're unveiling most things, so yeah, we did it. But you got to be, you have to have specific goals. And then you just can't let up a good or smart enough or you're working hard enough and you can be people to follow you. And, and if you do those three things, it's going to work. I'm confident of it. I've just seen it too many traits in people. So you got to do the right things. You got to get people to follow you. So you get scale. And you got to be, you got to work hard enough so that you're working harder than everybody else. Probably the last question on parenting. As a fellow father of four, what are the things that y'all did right that you would advise me with now four, including two infant twins? Yeah. Well, that is my wife is the certainly the expert. You know, you sweat everything. And our guys aren't done through the journey. But as they get into high school, you start to see they're going to be okay. They're, they're, they're going to be better than okay. But you sweat everything. And which is a good thing because if you didn't, you probably wouldn't get the same outcome. But I, I don't, I mean, we want to raise good young men who are motivated by doing the right thing who are want to work hard. I have a belief that you, you add, you, you have self worth by doing things. And so that doesn't matter what it is. So if you, therefore, you need to work hard to have more self worth and that's what we care about in our house. It's, it's not, you know, there are kids on the play sports, some don't. We have, you know, varying degrees of quality of students. They're all probably on the relative scale. Good. But are you willing to grind it out work hard? Because that's how you create self confidence, which creates self worth. And that's our focus. And, but look, I think you got to let, we were talking about the other day. And we've learned more from some of our kids than we ever thought. And they're different. They're totally different. And at one point, I was pretty frustrated. And my wife is like, you know, they're not the one that needs to change. You're the, the one that needs to change. Like you have to read their cues. They are who they are. You don't get to decide who they are. And that's a pretty powerful thing when it's like, yeah, that's, that's not your job isn't to, to your job is to empower them for who they are, give them the guardrails. And that's why I think we talk about just general guardrails. And then let them be who they are. They don't want to be the same. Because they're going to be different. Thank God. Because it would be boring if they were all the same. One more chaos, but overall worth it in the end. Oh, yeah, I'm a huge boy. What else hell are you going to do? I mean, I don't watch TV. I don't, who cares? I'd rather do that. And I hope that we get to spend as they get older and have kids. That's what we spend our time on. What, what else would I want to do? That, that, that, that, that, to me, to do when you're, you say you don't watch TV. Like what other, do you read a lot or what other kind of things? I have, I read a lot of news, probably too much. I have some topics. I, I, monetary policy. I love reading academic research reports on, on those things that I've gone probably for multiple years, very, very deep on, on China and their economic structure and, and, and concepts around that. I love looking at our peer group and what they're doing and we pull a lot look. We don't, we don't, very few ideas are original. We're, we're just copying and refining what other folks are doing. And then, yeah, four kids, as you know, there's, there's, there's no, we don't get, I don't get home from work and sit down and watch TV. That's not a, that's not a, it's not even contemplated. And so, you, you're, you're just busy, but you accept it and you love it. My weekends, I mean, it slowed a little bit, but I would say we used to have between 10 and 20 sports games every weekend with four boys. And that's mellowed a little bit, but I wouldn't trade it. In fact, I'd go back to it. It was the best. I don't need to watch another college football game. I don't care. It doesn't matter. So this weekend, my eight year old and I have our third sprint triathlon of the summer together. Oh, awesome. And it's so much fun to do that together. Our last one was three hours and 38 minutes last month. And just, it was so cool just to be next to her the whole time. And, and I was looking at her swimming or biking and then to the run. I'm like, you know what? I do not care if she ever does anything with this. Yeah, she just, and if she knows what it's like to do something hard to not give up, if she knows what it's like to just to like grow up around a family that cared about fitness and whatever way, if she grew up to do hard things and knows what it that's like. Yeah, I think that's a win. Yeah. Oh, for sure. And spend time with you. That's all they care about. Well, I wake up like this Saturday. We have, we have two triathlons this weekend. One, a sprint triathlon on Saturday and then a kids triathlon on Sunday. And then we'll wake up like 3am and she's why? She woke me up. She came into my room at like 3am. I was like, Dad, let's go. It's ready. That's, that's fun when they get that passion too. And it's, and you know, I know that there's me a day when she's in me like, I don't want to do this for, and that may have been, you know, freshman year of high school and she want to do whatever. Something different. Yeah, but they'll always come back. They'll always come back. As long as they like to stay active, like that's hopefully what matters. Yeah, well, that's cool. No, that's the fun side of it. And honestly, there's parts you miss when they're younger, but it gets more fun as they get older. There we go. This is awesome. Anything that we felt like we haven't covered, either on the pre-finished story, on 1, 2, or even on the show. It's funny. I periodically, someone says to me, you know, I watched your podcast with Jordan 51 Vets and I'm like, I'm sorry, you had to sit through that the early days, but it's actually, it's cool. I've watched it, subscribe, And, you know, there's some really, it reminds me of, it's hard. This job is hard, building a firm is hard, starting. So for the folks out, you just gotta keep grinding. You just put your head down and keep grinding. And if you do the right thing over time for a long enough time, it will work out. And that's, I remember sitting and watching a video like, "Cool, this is where I was at." (indistinct) - You know what it was at that moment when he felt it. - Exactly. (laughing) - I, you're spot on that, like you just have to keep grinding. Like I often look back at my journal from 2016 until now. And I'm like, I had no clue what the heck we were gonna do and how to get out of it, but we just didn't give up. - Okay. - The other business failed, but it led to this business that's worked out. But this journey of entrepreneur, it fails when you stop trying. - Yes, that's right. - Well, and that's the thing, these great entrepreneurs, the original idea is just the starting point. And it's not, that's not what ultimately is the great idea. It's what you learn from it. It's why capitalism is so great. It's not one idea. It's a compounding of every single person and the best idea ultimately wins because it's the best idea. And that's what an entrepreneur has to do. They just have to keep trying different things until they get it right. - I love it. All right, episode two. - Yeah, that's awesome. - Thank you. Good to get at TalksInjured.