You Just Bought A Company. Now What?

It's the Dolly Parton quote we talk about all the time. It's like figure out who you are and then do it on purpose. That's the best version of value creation early in a. I don't know. You've ever heard me say any Dolly Parton in my entire life. Not. She's an American hero. I'm describing it to us, but it's more of my favorite. So I bring it up whenever I can. I like her. I'm covering the best of AC/DC. That was my favorite. That's a clock. Welcome, Paul Stansick, partner and crime here at Parker Goethe Capital. Hopefully our listening audience are viewing audience. So the episode on Buying a Company. And now we're here to talk about What Ball. I think it's what happens after you buy a company. The money's been wired. The papers have been signed. You know, at this point, hopefully as an operating partner, they're not dropping something on your desk and saying, "Hey, welcome to Initokahoma this weekend, Paul, buying you a ticket." By the way, there you go. That's hopefully you've been involved in the process as an operating partner. So you knew it was coming down. But at this point, where do we stand? So we wired the money. We signed the papers. In some cases, they tried to chop the partners head off accidentally opening a bottle of champagne. Hopefully not. We'll cover that in another episode. So where are. What's happened at this point? Yeah, so now you own it. And this is. You own it. Now you own it. And this is where the fun begins because you move from evaluating this company and trying to catch up with, in some cases, decades of history of how it works and how it makes money and the people who are involved in all that. And now you get to write the next chapter of the story. But there's not a lot talked about what happens in the first couple of weeks or months right after you close the deal. But before you really get into the hold. And I think that's what we're going to cover on today's episode. At this point, it's sort of like the big party's done. Everybody's sort of cleaning up, you know, after the big party, closing dinner, whatever, not that there's always a big. But that's the kind of feel that you get, right? And you've driven the car off the lot, so now you own it. So at this point, from the company standpoint, they maybe they met the operating partners. Maybe they're the rest of the team, potentially, they may have presented to the whole operating partnership at some point. But as far as the company is concerned, they know the deal partner. They probably get the board mostly set up. Maybe not outside board members at this point. But certainly somebody from the management team, somebody from our side, those co-investors, maybe co-investors. They've certainly met the associates who have been heavily involved in the diligence process. Who are sending out calendar invites as they lay out the board meetings and the meeting cadence. They met most of the C-suite. But that's it, typically. There's a little bit of a calm before the storm. Like, so we're getting into the rhythm of what I would call getting governance set up right off the bat. But it's not a rhythm. Initially, it's pretty bumpy. In our size companies, where there's no institutional investors before us, they may not have had board meetings. They may not have had formal processes for anything. This is maybe the first time we're kind of laying the stuff on them. And we've seen that in space, right? Yeah, and you kind of have to respect that with what you do. So we'll get into what the deal team does, and then what we do is operating partners. We're also going to hit what the heck an operating partner is, and how that fits into the first year of an investment. But those first couple of weeks are standing up the basic start of a private equity governance structure. So you mentioned one part of that. It's the board. So you're appointing the people who sit on the board. We'll talk about who that involves in a few minutes. It's getting basic financial reporting stood up. And then it's getting meetings on the calendar for board meetings or reviews. But let's talk about the board thing for a second. Who sits on the board? Or what does that mean? Well, it's going to depend, right? I mean, initially, I think that you'll find in most cases that the board evolves in the first year, because you're not going to necessarily have outside board members right away. Unless you've had somebody sitting beside you on the deal. You may have had somebody who's an expert from that industry on the deal with you and as part of the process, you're kind of sticking them on the board. Yeah. Because they'd be useful. They'd be a good addition. But in a minimum, you've likely got the CEO. I hopefully have the CEO. If you haven't got the CEO, you probably got a challenge. You may still have the founder in our case. You certainly have a deal partner or two, literally partner level. And then you'll have some associates who are probably not in the board, but are observers. That's kind of what you got at this point, right? Correct. You probably know the CEO and the CFO reasonably well. I would say the deal partner certainly knows the CEO pretty well. And I would say the associates know the head of finance really well at this point. But other than that, you may have had some exposure to if it's a software company, head of engineering, that's a sales, if it's a manufacturing company, maybe the warehouse manager, the plant manager. But you haven't really met too many people outside of that. So hopefully the first thing you're doing is setting up a basic cadence, but reading the diligence out to at least the CEO, if not the C suite. And that was going to bring that up is like, the onboarding thing is one of the first things we start to think about once you own the company. And I think there's a couple levels to onboarding. One is like, yeah, we celebrate with the CEO with our team, because closing a deal is hard. Of course, yeah. We're celebrating. But one of the first things we start to think about is like, how do we bring a little bit of that celebration to the team beyond just the CEO? And so we can talk about what that looks like. We're often joining a kickoff call. Sure, yep. Often getting on planes to go stand in front of the company, because when they hear that they've been acquired by a private equity fund, there are certain assumptions or certain stigmas or so feelings that might come with that. Right? Do you mean joyful feelings and excitement to be working for? Occasionally, but occasionally there's other feelings too. And we want to be able to not only show them that like, hey, we're here. We're going to be a part of this chapter. We want to get to know you as part of that. But we want to start doing what you talked about, which is sharing out not only what we learned in diligence, but where we think the challenges and the opportunities are. Because all we know is that our take on those challenges and opportunities is a little bit wrong. And the more relationships that we can build with people inside the company, the better calibrated we're going to be in terms of where the opportunities are and what we do in the first year, which is what this episode is all about. Yeah, I think the one thing to keep in mind, certainly in our segment of the market. But I think this is universally true. Ignoring if you're being acquired indirectly by PE. So some other strategic that is backed by PE to do the deals is going to be a little bit different. In our case, that's not what we're doing with the Acquira. If you're bringing in the new CEO, that's a little bit more challenge than first kickoff. Because the team doesn't probably know that CEO either, unless there's been a long diligence process that they've been involved in. Yeah. If the CEO in our case has been promoted from within. So the founder maybe was the CEO, maybe he or she retired. Or as part of the process, maybe they already had step back and we're back in the number two. In that case, the company already knows the number two. It's a little bit smoother transition, but you're right. There's been some sort of big kickoff, zoom meeting, town hall. Everybody knows now that the company's been sold. Wink wink. They all knew before this, folks. Every time a founder tells us nobody in the company knows they all know. It's a badly kept secret. Yes, a badly kept secret. Because anytime you see from months in advance, guys coming in with briefcases and suits and, you know, something's going on. Right. So at this point, if they already, the CEO came from within, they already knew them, a little bit easier. Otherwise, they're meeting the CEO too. Odds are pretty good. There's going to be some holes in the C suite. Depending on the kind of business you're buying. So like in a software company like us, oftentimes there might be a director of finance. There won't be a CFO, for example, or control or potentially. Now, if you had bought a big manufacturing company with lots of raw materials, you likely have invested in that spot. But at our size, you got to definitely see you. You've got somebody heading up finance that may not be the permanent person. And then you've got other people in the seats that may not be the right fit at that point or. Or you just may not have somebody. May not have somebody. It's not the truth. The thing that we're doing, people talk a lot about organizational diligence and intelligence. I think in our world, the most important question we're trying to answer as part of that organizational diligence or talent diligence is where are the gaps either in terms of people that may not be the right fit or don't even want to be part of this next chapter. Or someone may not exist. And I mean, check me on this. But I think we're mostly talking about revenue leadership. So that's, do you have a sales leader, a marketing leader, is that person the same person, different people? What does that look like? In your world, it's product and engineering leadership. And again, that may be the same person or a different person depending on size scale product type. And then it's financial leadership, which is often one of the first things that the deal team is working on aside from the reporting package is, do we need a CFO in here right away? Do we need more of a head of finance? Do we just need a controller to help make some of the internal processes and reporting run more smoothly? But when you talk about the things that we do everywhere, every time we buy a company, and every time we get into this first couple of weeks or a couple of months, that is one of the questions that we're answering every single time is, who are we hiring? Yep. And which of those three buckets, where's the gap, basically? So if you look at what's happened at this point, the cast on our side of the table is working closely with the associates on standing up the finance function, particularly if there's debt being added as part of the deal. You've already got to worry about bank communication. So that's rolling on its own path. Right. So now to your last point of talent, this is sort of the operative question, what now? Right? Yep. So at this point, hopefully we are not getting the tickets to Inidog, LaHoma, dump in our desk and welcome to this deal. Ideally, your operating resources have been part of the deal process. So they've been in the deal meetings. They know why. You're interested in the deal. They've been part of diligence. Maybe you and I have led different pieces of diligence. You may have certainly done a marketing study. Yep. We may have talked to sales. We've certainly done a pretty detailed review. A hundred calls and all that. A hundred percent. Yep. So we have that, right? So we have a likely idea where there may be some gaps given the size of company, you know, talent, product, whatever, right? And we have some idea the direction we're going. Yep. So I would say our first real what now is we got to meet the people we haven't met. Yes. Hopefully that's not a lot of management. Hopefully they're not meeting us for the first time. Yep. And that would be a mistake. And if you've got operating partners in your fund, it's a real mistake to just, you know, introduce them to the deal at the very end. If you want to part of the process, it's good to have them in the diligence. So at this point, our first thing is really hypocritical. Do no harm. So don't come in there guns blazing. Yep. The people in the company know that the business much better than we do. You know, the thing we know is a broadest look at the market because that's what we do for a living. So that's the first thing is do no harm. I think the second thing is we are going to have to bridge the staffing gaps until we fear what the price. That's probably the first thing that we're really doing. Yeah. You and I. It highlights an important distinction, which is meeting the management team is not the same thing as building a relationship with the company. 100 percent team. Yes. And so if all you've done is an onboarding session where you copy and paste the diligence deck and say, here it is guys, good luck. Yeah, you've shaken people's hands and probably gone to a nice dinner together, but like you don't have a relationship yet. And I think that starts with what you're talking about. Like it's feeling gaps on the team, but the way that I think we feel gaps is like we ask a question, which is what do you need help with? Yeah. And most of the early opportunities that we see, especially in my world of sales and marketing, is they're not surprises. They're not like strategic epiphanies that emerge from the diligence deck. It shouldn't be. It's more like, hey, this is either something that's already working inside the company and we just need to do it more or better or it's something that's inconsistently distributed across the company. So a classic example that is sales training. Like everybody has one salesperson who's a bit of a hero who does things better than everybody else and nobody's ever documented what that person does. And oftentimes one of the biggest things that help that we can do is documenting the things that are already working and making sure those things are shared and accessible for the rest of the team. And so you can't figure out what those things are unless yeah, you meet the person first and you share what you know, which is an important value of ours, but you have multiple conversations with that person and you kind of agree on, forget what would be smart, what would be helpful and useful to you. What is some work that I can do hands-on keyboard to help you get that done. And as we do that work, what are the things that would make a difference that we're excited to go tackle and that we can commit to together to go get done. Because I we talk about this in our getting real about value creation workshop also on YouTube. You learn a lot more and you diagnose a lot more by doing that work. Yes. And you ever can from doing an arms length diligent on the company. So the way I think about it is answer to what now is like let's find the first thing that we can work on. So we can learn even more about how the business actually works and where the real challenges and opportunities are while we build a trusting relationship together. If we do that in the first three months with each of our counterparts, a commercial leader for me, product engineering for you, finance for cash and the rest of the deal team, we're in a pretty good spot usually after the first quarter of ownership. Yeah. So I think the important thing is we found, right? So rather than going in, we're private equity, we're here to help. You know, echoing off the old Ronald Reagan. Oftentimes the next level down teams at these companies know exactly what they want to do next. They often couldn't convince the CEO of the founder. Not because it was a bad idea. They just didn't know how to communicate. We see a lot in engineering. They can't articulate to the business why we need to do this and why it's important. So they get a no on it because they can't explain why it's financially viable or reduces risk. So a lot of times the couple of things we're doing is really quickly translating to the board and our partners like, yeah, it's a couple of things that they said they probably should do. We think they should probably do it. 100%. And that's like it's the underappreciated diplomatic function of the operator partner, which is I think a very important part of our job that not a lot of other investors talk about is we are there to help create agreements that improve the business. And agreements, definitely are between multiple parties and require the kind of framing and like connectivity and just micro convincing of people that, hey, we've been talking about this, but here's an actual proposal that we can all have an honest conversation about usually a company with data. What do we actually think instead of making that proposal a passing conversation that never gets where meant to. So for me, like if we are trying to invent value creation initiatives and we'll talk about that word in a little bit, like we're kind of screwing up because the first thing that we should be looking for is where is the goodness that we can just amplify inside the business? Yes, let me break this so I can fix it 100%. Yeah, and it's like it's the dolly part and quote we talk about all the time. That's the best version of value creation early. I don't know. You've ever heard me say any dolly part in my entire life. I like to, I'm covering the best of ACDC. So we've talked about operating part, but we're here with him and just, you know, like what is it? And in reality, it's going to vary by the kind of fund that you have. And we're going to talk about this in some upcoming episodes, particularly value creation. But if you're a small focus fund like Parker Gale, right? We buy software companies from founders, then we know the things we have trouble with are basic sales marketing and product and engineering. And the finance function is always gets more complicated because you now have a new owner. So that's all kind of new stuff. But if you're, let's say, a, not a sector focus fund, you do all sorts of things. Health can't manufacturing, consumer. Yep. You have very different problems and very different things at each of those companies. If you're buying much, much bigger companies, you're going to have a very different conversation. And so if you're buying a $500 million business, it's got a C suite already that you may not have much interaction with. In our case, you know, we're, we're pretty much hands on keyboards. So we're going to be close to it, right? So the large of fund you are doing lots of sectors, I mean, to cover everything, you may need lots of different kinds of operating partners. So I did software development product management. So by you understand those functions, you did sales and marketing, you understand those functions. If I was buying manufacturing companies, I might want a materials person or a OSHA expert or a supply chain person that only does zero base budgeting. And that's all they do across the portfolio, which is a very thin slice of very thin slice. Yes. But we're, I think we've made the intentional decision to do a lot each of us. I mean, yes, you look at my calendar for the next week and on any given day, I'm a, I'm a revops person. I'm a marketing person. I'm a salesperson. I'm an insides person. I'm sorry, but I look off there. But each of us have a fastball, right? But we're, I wouldn't call it generalist, but we are deep in each of our functions. And I think we're forced to and we pride ourselves on being able to do stuff that is helpful, not just direct stuff that would improve the business. Yes. And I would say that's either the bottom I so you know, we're not doing complete resumes here, but I spent a bunch of years doing development. I work for big venture-cacked businesses. I work for large companies like even the Dark Lord himself, Larry Ellison for a bunch of years. You carried a bag. Correct. Yeah, I mean, I was the first BDR at a data company way back in the day building an insides sales team, business development representative, cold collar, you know, cold collar master, jujitsu or of objections over the phone. Yeah, and I think we've made a decision to build out an operating team of people who've done the work before because if you haven't done the work, you're going to struggle to fill those gaps that we talked about in the company that are really important to fill in the first six months. You have to wait to hire someone to do the work. That's three six months that you've lost in terms of making progress. And I think it's an amazing relationship builder because the companies want the help in scenarios. And if we can provide it, the closer we are to what's going on, the stronger the bond is and the easier it is to talk about what's really going on and where the problems are, which is how you find the opportunity. So, it's a, woo, woo, but I think it's true. But I think the other thing that's key there in the early days is we are almost always filling gaps in the management team. Yeah. And the closer we are to at the beginning, the odds of hiring somebody that's right for that role are much better because we are now getting, I mean, we hire people all the time. Lots of times our companies aren't doing a lot of hiring before we come in. We're used to doing it. If we know what the job really is, we do better hiring that person rather than just, I want a demand rev-ops person doing what? Yeah. I mean, one of our newer portfolio companies to tell a bit of a story without giving the company away is we think there's a much bigger opportunity to talk to our market. We've identify what our ICP is. We pull the list of those people and exist in our CRM. ICP. Good for us, ideal customer profile. So the customers you'd love to clone and replicate again and again and again, where you have the biggest chance to win and bring people in happily and lucratively and fast, we don't have a dedicated marketing person there right now. We have some agency help, but we identified an opportunity where we thought if we did something as simple as email campaigns every week with really high quality content built from customer problems that we know are true from our diligence, that would be a needle mover for us in terms of creating pipeline and getting deals in while we figure out the rest of the go-to-market organization. We also knew we don't have the funds to hire that person right away. Yeah, who's filling that gap? I'm filling that gap. I'm making sure that we vacuum out the brains of our executives who know those problems really well and use that to build content. And now we're in a rhythm where we're talking to the market once a week instead of once a month or once every two months. Yeah, now to be fair, because, oh, we're geniuses. No, the reality here is mostly small companies have good ideas that just don't have the time to execute on it. So it just falls off the list. Part of it is just focused, right? No. Which brings us to the key one, typically more you than me, is you got to understand the CEO's situation that you're walking into as an operating partner. Very important on multiple levels. Especially so easier if we're bringing in the CEO as part of this process because then that CEO, he or she feels more affinity with us than the company, at least initially in the first quarter, right? If the CEO's already been there inside the business, we may get the old, you know, a little bit of the soft stiff arm at this point. And you hit that more often than I do with the kind of companies that we buy because, you know, I've never been in a situation where the company's entirely thrilled with the pace of product coming out or engineering. It's not because the thing's wrong. It's just because they always want more faster, better. And it's more technical and like on the margin, probably more difficult for the average CEO. You can just show him, you can just vibe code it now. You can just vibe code the whole thing. So, so let's talk about, talk, give me the two examples. You walk in with the CEO who's like, we brought into the deal. Yeah. And I'm thinking of our, you know, Chelmsford friends, right? Yeah. It's a great situation. And then there's the opposite of, it's a CEO that we was already in the business, maybe not thrilled that there's, you know, PE involved in this business. Yeah. So I think if we've done our job with a CEO who's helping us look at a deal, which I won't say that we prefer that, but we prefer that on a lot of levels. Like having somebody in, I would say we do prefer it. Yeah. Because then that could, they're beside us on the diligence, right? So the lot, I mean, I don't want to get the deal done and have to hire CEO in parallel. No. And then hand this diligence. That's where I'm kind of, we've done that. But it's, it's more anxiety producing in a lot of ways because every day you don't have that CEO, you're kind of in a holding period because there's only so much we can do. We cannot, as operating partners, we do not operate the business. Yes. We assist and support and advise on what the operation should look like and we fill gaps where needed. But like if we're thinking of ourselves as synthetic leadership replacements, like we're not, we're not, we're not and we can't do that job appropriately. So if we're doing our job with a CEO who's looking at the company with us in diligence, as we are doing the checklist of does this company fit the profile that we like, is it sufficient quality that we can underwrite to it? Do we have confidence in what it is today and what it can become? All of that's part of diligence. But as we're doing that, we're also letting that CEO know what is on the menu and what we're working on elsewhere in the portfolio that they can tap into when the time is right. But the focus there in that case, right? Is they know us better than they know the company at this point? Correct. Right. Now they probably, if they're really good, they've gone through the diligence even at a deeper level than us because all they're focused on while we're going to be focused on several things, several deals, several companies at the same time. So they really know it cold. In those cases, there's two challenges. The one is, user the CEO is rare and ago the day we close. 100%. Because they built a plan in their head and they want to help right away. The challenge is they don't know the people at the company much better than we do. So you're really in heavy relationship building mode in those things. At anything we do, our advice the CEO is always, let's pick something easy that will be successful, that will generally, all the employees are going to feel good about rather than try something risky right out of the gate. Right? Yeah. On the other hand, if the CEO is from the business, they know the company and their team don't know us very well. So you and I are spending more time initially getting on the same page with the CEO. Which may mean you work on something that is less of a needle mover but more helpful to that person personally. Give me an example on your side. I mean, I feel a lot better when I have a weekly metrics report that shows me pipeline with clear definitions, what the key deals are, how much pipe we're creating each week, what the top of the funnel looks like and all that good stuff. It's not the sexiest thing, it's not the most exciting thing. It's one of the first things that I want to do. If it's a situation where we're walking into a company and we haven't brought our own CEO, I might need to tamp down my instincts to have a reporting the first thing that we do. Shock ball. I'm just shocked. And we'll get to it in the first couple of months, but typically there's something that CEO wants that they don't have today that they know they need to your point, but they just haven't had the time or don't have the person to get to it. Sometimes that's, hey, our pitch deck is eight years old and it looks like it rolled off the assembly line from a different age. I can build it. Website looks like ALL. Website is totally antiquated and doesn't have the right lead routing. They want their sales team to get some training because they haven't gotten training in a long time. So all of that stuff is important. It makes a difference. It doesn't satiate me as much as having really clean data as the operating partner. But the sequencing of that is going to change if that's somebody that I have to front load trust building work with. And I'm okay to do that because we're not going to be able to talk about much less identify what the real challenges and problems are if I don't have a trusting relationship with that person. So I want to over index on being helpful to them. Yep. Even if it isn't the thing that's going to move the needle in terms of value creation, the most for the company because I'm building the foundation that we can go attack the real stuff later on. So I think the benefit of having a CEO who's there with us looking at the company is going to take over as the leader. You can get to that quicker and that trust building starts during diligence instead of afterwards. But to your point, you have to know which situation that you're in. And you have to be a little bit patient because if we don't have trusting relationships with these people, like we're never going to get to the real stuff that actually moves the needle. Yeah, I think so that's the challenge for you going in, right? But very few CEOs when they see hey, small things that can improve pipeline, not quite droop low overnight, but slow building they get in right away. On my side, the fence, it's very different when you have an outside versus an inside CEO. Inside CEO is not going to want any changes to the engineering organization because they're just afraid of the risk of we can't lose Sue or we can't lose Fred because they know how everything works. It's not usually that dramatic, but just often single points of failure, right? The outside CEO typically has the opposite issue is like, yeah, we got to get rid of Fred. Yeah. Fred is just slowing this thing down. How do we build around them? So the pace often varies. Like on my side, if it's an outside CEO, they're probably hitting us hard and hitting you hard. If it's inside CEO, it's more relationship building with that, right? 100%. And it gets back to like, what is actually going to make a difference and how do people perceive where the opportunities are? Because this gets back to value creation, which is one of the most overused words we're going to talk about. We're going to talk about that. But what is value creation? It's like there's basically three forms of it. It's more revenue less cost or less risk. And especially in your world. Yeah, risk. But it's not paid for. You're not paid for that. I mean, that's one of the biggest challenges, right? Yeah. Any project does come down to those three things. Am I doing it? Does it increase revenue? Does it lower my costs in some way? Yeah. Cost a good sold or overall cost of the business or does it reduce risk? And risk is the hardest thing. What my standard joke is, you know, that you'll have a founder who trades in their Mercedes every year. But one is why a 10-year-old Dell server should be replaced, right? Really do I have to explain that to you? But that's, you know, that's some of the issue. And the problem with risk is you don't get a lot of credit from our side. Yeah. Like my partner's not super. Yeah, they want risk reduced, but they'd rather see brand new going on. Cost going down. Yeah. Because yeah, that moves the EBITDA needle. Like it's a financial metric. It says, Hey, this business is successful. But we got to do it sometimes, right? Those those that's where you start to get into this little bit of the grind. If you know, we're identifying risk that we think is, you know, more serious or post diligence, we just find out it might be slightly worse than we thought it was. Yeah. And that gets back to the creating agreements thing is like, yeah, if we don't agree on what the risk is or how we should sequinsit or what we should do about it, then it's got a it's kind of our job to recognize when you do and don't have an opening, whether it's with the CEO or somebody else. And if you don't have an opening, one, no, you don't have an opening. Yes. And know that you'll find out quick enough. You'll find it quick. But there's kind of an art to keeping that thing on the backlog. Dude Fred H. You know, yeah. But like, I don't know. It's an interesting part of the job to know that there's something you eventually have to get to and keep it just alive enough that you're talking about it every once in a while, but it's not. You're not forcing it up the priority list in a way that erodes the trust that you're so desperately trying to build. We could do a whole episode on that, but. Yeah, and I think that's where you know, so this two sort of pieces this we often see one of the things that we can jump into right away is hiring if there are gaps in the Yes, and again with the CEO that's backed by us or the new CEO that's again often easier, but especially with the existing CEO from inside the company if we're green lighting some hires they already wanted to make but the founder was like reluctant to spend those that's a great way to collaborate and if we can get in that hiring process I mean certainly to see sweet you and I is operating partners. I mean they're not higher in a head of engineering or had a product without in view with us correct your site marketing and sales right below that we're probably not getting involved unless they need us to help close something but it is one of those opportunities where I think the help is helpful and it's in the mind of the recipient it's not helpful if it's not helpful to the person who's receiving the help to create a very circular sentence. And it's one of the easiest areas to collaborate on early because you always do it you're always hiring somebody yes it's one of the most annoying time intensive things to do to run a good hiring process and we both done it hundreds of times so we have performance profiles that we can steal and rewrite yep. To fit the requirements for the job we have interview guides that we can repurpose we're very experienced being the quarterback of panel interviews yes, homework assignments and case studies. And if you're a CEO the almost universal reaction I get when we bring up hey this is something that we can just do 80% of it for you we definitely want your input so this fits your eye in terms of what we're testing for. But I can't think of a CEO that hasn't accepted that help and hasn't been excited about it so there's if there's people listening who are wondering you know where is an easy win with a new portfolio company. Or if there's people who think they might want to get in this gig later on life like hiring is a very powerful lever stop but it's also a great way to build a trusting relationship because. You're going to learn about what this person values in terms of their team makeup yep you're going to learn what you want this person they're hiring to do in their first six months which are all opportunities for you to help as an operations person. And you work on something hard together that satisfying to finish like there's not a better recipe to build trust in that in my opinion yeah now if you coming into the operating role. Without a background hiring you're going to have a tough sledding correct that's really when you think about it our size companies now if you're buying a billion dollar company more than likely they got they got their own process cranking there you're not operating at this level yep you know our company's not hiring typically on hiring binge. Certainly at the C suite so we've done far more in these is like the classic you're not going to negotiate a car dealer or a car because they do it every day right you do it once every few years. My wife more often than that but we're interviewing people we don't interview people once a week it's kind of a slow week it's kind of slow yeah totally great right and you get into cadence to get good at so that's one of the things you can you can really collaborate on which brings us to the. What do you know if we had one line what do you do well it depends because I think we've talked about all of the various scenarios so what would you say in order stack rank these what's you know what drives what we do first is it the inside CEO outside CEO is it how well you know the business is the gaps in the C suite like. Yeah because I often times it feels like we hit the magic eight ball you know murky try again I guess I think about it differently like I'm going to I'm going to dodge the stack rain question and you can. I'm going to throw it right back bring me back to it I will back to him but I kind of think about it like the sequencing is very different but if you roll the tape forward on most of the businesses that we bought across all the different Niche verticals and they they span a lot of them when you get to the sixth month mark in the hold in almost every situation what have we done we've gotten ourselves. figuring out who our CEO is we are the broader own yep or we back somebody or we launched the first hiring process to go find that yeah. We've shorted up one of those three functions in many cases two of the three of commercial financial product and engineering yeah and we've either or at least know with the real problem correct have a plan for an idea of a plan yeah we've gotten some basic reporting stood up so we can have. At least a somewhat data driven conversation about what's actually going on and how that's tracking versus what we under wrote to and. I think ideally like I should look on my United account and I should have three four or five trips to go spend time in person with those people because if you think you're building trust through a zoom you're not like you're not and every time you get on a plane even if there's no agenda sometimes preferably with no agenda and you spend time in the office. Talking to people working on stuff together. You see things that inform your view of what would make a big positive difference right but at that stage is Devon off likes to say it's the conversation so you can have the conversation right right it's not it's not a powerpoint presentation it's not sitting in a conference room it's hanging around the cubes getting lunch like getting to know the team totally but that gives you the it depends I mean sometimes it's really clear yeah we had a you know we had to deal with the server room was in the closet so we knew. Hey the very first thing we're all going to do is move it out of that closet into a day to say some things are are pretty straightforward yeah but I would say it's mostly murky which is why it depends yeah and it's often important in these situations to stack rank those things so I would say the inside outside CEO to me is the it's going to determine how you sing most right because if you if you have a CEO indiligence. you know, I think if you're creating a value creation plan that's 24 months long, you're kidding yourself. You don't know. This is so emergent and so dynamic. And if you don't change your mind on the most important thing in the first six months, that to me as a signal you haven't gotten deep enough and you haven't gotten trusting enough with the team to figure out what's actually going on. Right. And they have to learn to trust you through one of those problems like, yes, we're going to do something. It's not really going to work that well. We're going to have to power our way through it. I often call that the value of anguish, right? It seems like a good idea, but then we're in it. Just like your email, wow, it seems like a great idea to have a weekly email. Yeah. And you're like, this is a grind like getting this out. Yeah, but we're doing that. We're learning other stuff that works. We're learning that we actually have some demoable features that customers care about that we probably haven't talked about enough. We learned there's stuff that's ready on the product roadmap related to AI that we need to get louder about that. And I would have never appreciated those little wrinkles and those little nooks of like value waiting to be created. If I wasn't doing the boring work of helping them get in a weekly content case. So I think the other signal is, I agree with you. The inside outside CEO determines what the early days look like and what you do first, for sure. Whether it's an inside CEO or an outside CEO, if you get three to six months in, and that person hasn't given you a random phone call at like 8.45 pm at night, that sounds like, hey, I was just thinking about something and I want to run it by you. And I don't know what I don't know, but here it is. You haven't done your job as an operating partner because that off the cuff, informal communication that isn't fully formed, that to me is a signal that you've created a connection and you've created the psychological safety that that person can reach out. One views you as helpful, but two, can share the, this is what I think I think. That's what I want more than anything in the first six months of a hold. Is that conversation to happen organically? It's kind of like marketing, like, inbound just happens, but inbound is a result of a bunch of little touches and a bunch of little connections that you've made and all of a sudden the kernel and the popcorn machine pops and it feels good. But there's a bunch of little stuff that leads up to that. Except that 845. So you're stepping out of the restaurant, mouthing, I'm sorry, I just want to take this one call there at their children something games, stating how screaming that, but that's the funnest conversation. Hey, let's talk on Monday. Yeah, but that's the magic when they trust you enough. Yes, but and that is when the real value creating stuff emerges because what is it? It wouldn't call you if it wasn't a needle mover. Yep. They wouldn't call you if they weren't excited enough about it as an opportunity and they wouldn't call you if they weren't somewhere on the spectrum of getting ready to commit to it as a thing. And so there's like a strategic element to figuring out what those needle movers are, but there's also like an emotional human component to it. The CEO is not excited enough to step out of their kid's baseball game and call you about it. It's never going to be a thing. It's going to die halfway through. Sure. It's, it's, you know, a circuitous route as a project. But when I hear that, I feel good because I know I've done my job to build a relationship with that person, and I know we're like turning over a log where there's something to do and that gets me excited. Yeah, I think the important differentiator here, right? As we wrap into value creation, which will be another episode where it's like a detail about is the, I love it when they're calling you with, "Hey, I had this idea as opposed to I got a problem." Like we're all over. We're playing out. - Totally. - Total love it. Like you can call me with a problem. - Throw in the back. - You can't signal in the sky anytime you want. - But that's kind of the switch between, hey, we've sort of taken all this stuff, we knew it was risk-oriented off the table, and now we're like, hey, what's the opportunity? - Yes. - And that's when it gets really exciting. - Yes. - At least for us as operating people. But, you know, there's a lot of work to get to that point. - And a lot of it has nothing to do with how the business makes money. A lot of it's creating a connection with the person that you've chosen to be the leader of that company. And that call to me is evidence that you've created that connection. And that, even more so in some cases than financial performance, gets me excited about the investment 'cause it's like, we really got something here. Because we have a foundation that we can build on and we can attack the real stuff together. And that's what the job is about. - Yeah, and I would say that first six months, the reporting cadence, like it's formalized, it's also kind of weak, 'cause we just, oftentimes don't know yet. Like we sort of know what's important. We sort of know what the needle move is are, but it's not enough to have a dashboard to know, oh, things are not great, are things are wonderful. Like why? - And often-- - Here's a challenge in the first six months. - Yeah, and often we're working through this in a couple of places now. The first version of the dashboard only, it doesn't actually tell you the trend of performance. It tells you where the cracks in the process are. - Sure, yep. - So, you know, in my world of sales and marketing, the first time you build a pipeline creation dashboard, you're gonna see weird stuff. You're gonna see months where there's no pipeline created. You're gonna see giant spikes. You're gonna see bulk list uploads of trade show attendees that you get counted as the same thing as-- - Occasionally bluebird, yeah. - Occasionally bluebird, yeah. But like, there's a definitional tightening up that naturally happens when you start reporting on things, and that's half the value in reporting in the first six months of an investment is, once you start looking at the data and trending the data, you get to do the annoying, but extremely helpful exercise of what's that, what's that, what's that, tighten up the definitions and what I call like make the metrics meaningful. And that last mile work on reporting is amazingly helpful because it gets you into place where you don't have to talk about the definitions anymore. You just talk about the performance. - Right. - But there's a lot of stuff to iron out in the background, especially if you're talking about a CRM or marketing automation or whatever it is, and you don't see it until you actually start producing the report and staring at it with the management team. - Yeah, but if you get that part right, at least on that side, it's pretty straightforward because build pipe, once everybody gets a definition of what's at what stage, so you don't get those big spikes of uploaded activity whenever once you get that, it's pretty straightforward. On my side, it's more challenging, right? Product management for sure, because product management, it's a classic case of they can design everything, they can talk to customers, they can't get out of engineering, whose fault is it? - Right. - Well, on the engineering side, it's really tough to get metrics that work at our size companies that don't just turn into all the metrics are good, but there's no software. It's dev and awful likes to say, velocity's up, but we haven't released anything in two years. - Yeah, like you can, right? - You can buy a jellyfish subscription or whatever and see what your story points and all that are looking like. But like, so that's a good question. Like it's a little easier for me to see in my world if things are going up into the right. What's like an early measure of progress that you look for from a product or an engineering team, where you can say, oh, we're actually getting better, or like a milestone, you're shooting to go create in the first six to 12 months. - So that's a really good question. And I hate when people say that to a really good question because it's the stall time. So here's the tricky part, right? It's not super easy, but, and we're gonna talk about this because there are basic metrics around this that you can follow in our world. What I'm looking for in the first six months is, are there any bugs getting into the wild with customers that prevent them from using the product, right? That's what we're looking to reduce. So let's first of all, not release something that breaks every single customer. That's sort of number one. And two, has anybody with engineering gone through the support logs with customer support to see, hey, 90% of our calls are residing password. Maybe we should have a automatic reset password function, right? So this, it's really in the early days. It's like making sure that we've just been, the company's been acquired by PE and the first couple of release that come out the door of a bunch of extra bugs 'cause they're rushing, slow down the process. I'm sure nothing gets to the wild. That's really the first thing. And are there any really easy wins? And everybody always laughs, right? 'Cause it's easy to do in a high impact. Everybody laughs 'cause those projects don't exist for the most part. Sometimes they do in between customer support and engineering. Again, we're gonna talk about this in value creation, but those are the happy surprises. Yeah. That, you know, that I'm looking for in the first six months so people get some faith that like, all right, customer support feels a little happier 'cause we knocked down there, the thing that drives them crazy, engineering feels good 'cause they made product and support happy. And, you know, we haven't had angry customer calls. It's three o'clock in the morning 'cause we released something out the door. And the first six months, that's all I can hope for. And it's the perfect setup for us to help. 'Cause like, I don't know how many of our listeners have gone through support ticket data. It's not the most fun exercise in the world, but we've done it a ton. Yes. And we kinda like doing it 'cause we're weirdos. And AI's really good enough for us to do. And AI is really good at it. And it's one of those like, air-gapped connection points in the org chart that these people just don't talk to each other enough. Yeah. We can create that bridge and look at the data that everybody knows that they should look at, but they just don't have time to and say, here's the stacked bar of all the categories of your tickets. Here's what 40% of your tickets are talking about. And when the team sees that, it often creates a bunch of ideas around like, oh yeah, that would take a month to fix and that creates commitment. So it's another great example of when you look at the right data and you can provide the help to put the data in a place where people can look at it and internalize it, the things that need fixing, especially earlier are actually pretty obvious. Yeah. And so one of the most helpful things that we could do is put people in that position where they can notice, again, the challenge or the opportunity, and then we can move on to bigger things from there. But that feels good. It moves the needle. And we all trust each other a little more after we do that work together. So to wrapping up, the one thing I want to say about this are a couple of things. And the operating partner side, it really helps if you can put your fingers on the keyboard. Because-- 100%. What you don't want to do is say, hey, customer support that's already backlogged, can you produce all this reports for me to do analysis? No, no, we tell them, I don't care how ugly it is. Yeah. And then we'll go and paste the file. Give it to us. We'll deal with it, right? So I'm not trying to put more work on you, which brings us to the thing that really trips people up in the first six months. Any of us from associate, up to deal partner, operating partner, it often feels like a command when you ask something of a portfolio company. So you need to be real careful because they may feel a responsibility to do something for you that takes them away from their day job. The C-Squeep might not want. Or you didn't really intend for them to do that. You were just asking them a simple question. And if it was like, hey, you just go take work. I don't need you to do it, right? So particularly with the younger folks, the associates, that's always a challenge. Let's be careful about what we ask for because it can send the company into a tail space. So what's your quick coaching for other people in this job on how you be careful about that? What's your checklist for-- if you're going to ask for something, what do you got to make sure you do not to create too many waves? So the first is, is there a chat? Are you afraid that I'm going to get the data? I'm going to make sure I'm talking to the C-Squeep the C-Squeep in those days. We're on an email chain, so everybody knows that, hey, we all agree this is something to do. Two, it's a, I'm here to help you. If you tell me that this is going to be a bear of a thing to do, then we're not going to do it. Like, you be honest with me and I'll be-- and I'm willing to put my hands on it myself. Whether I need to get a resource from our side or whatever we do. It's always the guys, this is a conversation. It's not a command. That's our goal, right? But we just have to know that it gets interpreted sometimes. So overcommunicating that we're in this together. So if this is a big challenge, if it interferes with the priorities and you need somebody to clear it with the CEO, I'm happy to be that person. They shoot me down. That's fine. My job is to take those arrows. And it's something I try to do-- I know you do this too-- is ask the person who's helping you grab the data, what they're curious about, and answer at least one question that they want to-- Yes, that's a really good point. Because if this is all about the operating partner is going to drag the creative data back in some dark corner and do a bunch of manipulating to it-- Have you considered raising prices? That's it. And bring you back some dumb insight. As we would say, Boston, back, no do I. Yeah, it's like-- I want to take that person from feeling like a career to like a co-conspirator on what we're going to do with the information. It's like, I'm sure you're curious about this. What is one slide or one thing that you would like to see or just one thing that you're curious about, and give that to that person? Because one, it helps wake them up to the power and the data that they just don't have time to look at. And two, it's like, it's a signal of the relationship that I want to have with them. Like it's the reason people used to shake hands to show that there wasn't a weapon in their hand, right? Asking them a question that they want an answer to is kind of the same thing. Except Chuck Norris. Chris, his hands are a weapon. Thank you. I thought you were going to go there. But yeah, signaling the safety and information request is very important. And you do that by talking to C-suite, but you also do that by acknowledging this person plays a part in what produces that information. What do you want to know? I think that's a very undervalued trade secret. So we're going to talk about value creation in a couple of minutes. may have a so we have a lot of interest in that. But I would say one of my closing lines here is, do not, as an operating partner, draw a line in the sand with either the sea suite or your deal partner is, you really need to break glass in case of emergency. If you're gonna draw a line in the sand, you need to be really right. I would recommend not doing that in the first six months unless there's some risk thing that you know as a disaster. - No, I think it's, there's two words that you should think about in the first six months. You're gonna think this is cheesy, that I'm going for anyway. Like it's curiosity and connection. So if you are getting really curious about the business and asking a bunch of questions and just like enjoying the process of learning more about how this business makes money and where there are opportunities that the people who already work there are excited to go after you're doing good. And if you're creating human connections inside the business 'cause anything that's gonna move a needle in a private equity investment is too big of a job for you to do by yourself. - Of course. - As an operating partner. You're gonna need co-conspirators inside the company to help you shoulder the load, get the information, do the work. And if you're not spending the first six months creating those connections, you're gonna have to do it by yourself and you're gonna fail. So if you're only exercising those two muscles, curiosity and connection, like you're probably gonna naturally find some stuff and you're gonna wake up six months of the investment in a really good position to tackle the thing that's actually gonna make a difference. - That should be your game show. You could be the new Chuck Woolery. - Well, it took curiosity back to the connection. - Two and two of the curiosity connected. - 7 p.m. on Thursdays. - All right, so next up are favorite phrase. - Value. - We'll see you in the next episode with value creation. - The most overused phrase, underappreciated phrase misunderstood phrase. We're gonna fix that in the next episode. - We are gonna fix that. Ciao for now. - All right, thanks guys. ♪ From the heart of Chicago ♪ ♪ All over the globe ♪ ♪ Couple private equity geniuses ♪ ♪ They share what they know ♪ ♪ They love to mess with technology ♪ ♪ Where the future is single-swim ♪ ♪ It's a private equity fund cast ♪ ♪ Where Devon and Jim ♪ ♪ Technology issues ♪ ♪ A middle market PE back companies ♪ ♪ They pick up with each other ♪ ♪ And they don't take themselves too seriously ♪ ♪ It's not venture capital ♪ ♪ It's private equity ♪ ♪ It's the private equity fund cast ♪ ♪ For yourself a drink and have a seat ♪