Private Equity CEO: What They Don't Teach You About Building an Empire

All investing, at the end of the day, is the assumption of risk. The ideal investment scenario is that you are assuming a risk that is knowable, you are being paid more to assume that risk, and you have some ability to mitigate that risk. So, we all have three basic moves. In conflict, it's called "move against," which is like the second one; and then the third one is... And so, if you watch, all of your conflict will follow that pattern. Let's talk about incentives. How do you set incentives for this? I think the ideal system

is: What have you learned about hiring people that most people miss? I think that's probably been the biggest leap forward. What most people get wrong is that most people don't understand what the playbook is when you take over a company. So, we are... [Music] What's changed in your life in the past two years? I would say my marriage has changed a lot, my inner life has changed a lot, my physical outer life has changed a lot. Ironically, the business has not changed a lot. It's been interesting how the different seasons do and don't overlap, but

there's been a lot of changes about how I approach work that have changed. But the actual work itself has not changed. Let's dive into that. What's changed in your marriage? What's changed in your exercise? Let's tackle exercise first. Yeah, well, I think maybe all of it is connected to a walk I went on, gosh, I'm probably pushing now three years ago. There was a gentleman on this walk who was at a small gathering of people in Colorado. He kind of picked me out; it was, you know, like 40 or 50 people in the crowd. Afterwards,

he said, "Hey, can I walk with you?" I was like, "Sure." And he said, "Hey, can I speak truth into your life?" He said, "I see a lot of shame in you; I see a lot of fear in you, and I worry that that's dramatically negatively impacting a lot of your relationships." It was more in-depth than that; I mean, we talked for, you know, another probably 20 or 30 minutes about what he saw. I just tried to take a posture... I mean, initially, when somebody says something like that to you, it's like, "Cut you right!

How dare you? I have great relationships!" You know, you've known me for a long time now. We were talking about this at least 10 years, if not more. And you know, I wouldn't have said six or seven years ago that I had bad relationships. I would have said I had really good relationships. If you asked me how my marriage was five years ago, I would have said, "Oh, like a six or seven." You know, we have our challenges, but like, we get along. Compared to where it is today, I would say it was like a

two. I just didn't know. You know, I think about this idea of, you know, everything's relative. So, like, world-class is the best you've ever seen. You know, you ask somebody who's only eating at fast food what their favorite restaurant in the world is; they're going to tell you a fast food restaurant, right? So, you know, the question we have to ask ourselves is: What do we have to compare it to, and are we talking about relative or absolute terms? To be honest, I don't think I had been exposed three years ago to what was possible

in relationships or what was possible in marriages. I had not seen marriages up close where I was comparing my marriage to what I'd seen in other marriages, and I felt like we were doing fine. We were probably right in the middle of the ballpark. I think what this person did for me was open my eyes to, like, there was a lot more out there; there's a lot more possibilities that I didn't know. That was like a seminal moment—a warning shot across the bow of, "Oh my gosh, like, I need to probably go and look and

study: Who am I? What makes great friendships? What am I giving to my relationships? How do I think about my marriage? What am I doing in my marriage? How should it be? And am I willing to settle for an interior life filled with anxiety, shame, and fear? Am I willing to settle for a marriage where things are being hidden and there's disconnect and division? Am I willing to settle for friendships that maybe don't go that last 10% and create that really meaningful, deep connection? Am I willing to settle for a physical body that is overweight,

out of shape, and likely going to become diseased?" So, I think that was a major moment, and then that led into, you know, really finding these different people who have shaped and changed my life, including an incredible counselor who I started working with and bringing to the surface a lot of these issues that I didn't even know were there. Yeah, I mean, I look back on the person I was even three years ago, and I was certainly far better than I was 10 years prior, but compared to sort of where I am now, I felt

very shut down, frustrated, irritable, and competitive. I feel a lot of those things myself in terms of competitive, and, you know, maybe a bit more anxious than I should. Be, what was the next step that you took in this journey that sort of like, okay, well, I realize something. I feel now what? I don't want to sit here and pretend it's like self-reliance is the thing that got me through this period of my life because it felt like it happened to me and it happened for me. It didn't feel like I somehow figured out, like,

outsmarted the world, outsmarted my shame and fear. It felt like I had these sort of people put into my life and these revelations that started to occur that all of a sudden—I mean, think, there's an old adage that like when the student is ready, the teacher appears, right? And I think very much there's a choice I had to make three years ago. It was like, am I going to pretend like everything's fine? Because that's what everything in me—my false self—wanted to do. No, screw you! You're wrong! You don't know what you're talking about! Who are

you? You just met me! You can't— you don't know! You don't know me! You don't know anything about me! And it was like I remember having this very distinct choice to make. I remember being like if I continue on the path that I'm on, that would have denied, you know, sort of this idea of like self-promotion, self-protection, right? That's what our false self wants us to do—go around, self-promote, self-protect, because then we don't have to really be vulnerable. Now we also are shut down, and we can't have great relationships. We can't figure out the real

sort of us that comes through. But that was the choice, and I remember kind of it was an act of surrender, of being like I have to take the risk that I'm going to take a look at myself, and I'm not going to like myself very much. I'm going to admit things to myself that are ugly and that I've done more wrong maybe than I'm willing to admit, and that I've hurt people that I care about. That was the choice that I had to make, and I remember very clearly saying, "Okay, I, you know, I

surrender, and I want to know." And then things started to change ever so slowly. I mean, there's a weird dip that occurs, I feel like, when you, you know, when you go from denial to awareness. It's actually way worse, so like the awareness of your faults and awareness of your shortcomings without the healing of those actually puts you in a far worse position. And so I would say that, you know, the sort of the period of time from three years ago to two years ago was horrible. Like, it was not a year of joy. In

fact, if anything, it felt hard; my relationships felt more strained. And I think it was because I was becoming acutely aware of how broken they were, mostly as a result of me— I mean, yes, other people's brokenness too, but mostly as a result of me. But I didn't have any healing in it; I didn't know how to get healing. And, you know, that season was just an awareness-building season, looking back on that. But it's awful if you gain awareness without healing. It's way worse than not being aware. Give me an example of something that's changed

in your friendships. We're talking about one last night, actually. That's a perfect one, where you always want to pay the bill. Yeah, talk to me about that and the revelation behind it and how it came about. Let's see here. About two years ago, maybe a little less than two years ago, I had a friend who was going through some really tough times, personally and professionally, and a mentor of his said, “Hey, you’ve got to go to this intensive counseling retreat.” He kind of reluctantly agreed. He's not a touchy-feely; he's a finance guy. You know, this

is not his ball game. And I watched him go into that hard and hardened and just sort of like shut down, shut off—again, very protective, self-protective. And he came out of that week like changed—like distinctly different. And I remember thinking to myself, like, wow, I don't know what happened there. That's incredible! He'd worked with this woman the whole week, and he was like, "You changed my life! This is incredible! Thank you! I’ll never be able to repay you." You know, like I don’t know anything about you. Who are you? And she said, "I've got, you

know, I've got these kids and whatever. I live in Columbia, Missouri." He's like, "Columbia, Missouri? One of my best friends lives in Columbia, Missouri! I live in Columbia, Missouri!" And so he said, "Brent, I'm telling you, you have to go see this person." And it was right around this time that I felt like I hit rock bottom in my awareness of, like, my own brokenness and how I didn't really see a path forward. Like, I kept sitting in this dismal state, where you're aware of how messy everything is, but there's no way to clean it

up. And all the self-help stuff—like, none of it works; at least for me—I can only speak... One here, but like, you know, this self-reliant thing doesn't work. And so he said, "Hey, I think you should meet with her." And I'm like, "Man, this is a true godsend." Like, I had no idea that somebody of that caliber, national and international quality caliber, was in Columbia, Missouri. I started going to her and doing these three-hour sessions, dredging up things I didn't even know were there, that were all connected to the behaviors. If you think about it, the

way I think about it now is like we have these behaviors that other people can see and that we can kind of measure, right? Am I doing good or am I not doing good? The reality is there are so many layers underneath that, though, that are influencing that behavior. Right? Like, oh, something terrible happened and I really don't feel anything—that's weird, right? Or something very small happened and I'm triggered into this spiral—that's weird. What I would do in the past is I would just kind of like shove it down, right? Like, I don't know, I

don't get it, but life's weird and whatever; got to go on. Yeah, you got to go on. And so anyway, through this series of sessions—and I mean I've done a lot now, like probably 25 or 30 of these three-hour sessions, so a lot of time—we got down to one of the sessions. It was actually probably about four or five months ago. Out of the blue, kind of seemingly unconnected, we were talking about friendship and my counselor said, "Do you always pay?" And I said, "Yeah, of course I always pay." She was like, "Hmm, out of

the last hundred times that you shared a meal with somebody, how many times did you pay?" And I was like, "Like a hundred." She kind of sat back, and I was kind of proud of myself, right? Like, I'm a good person; I pay for the bill, I care about people, right? This is like the thing I told myself in my head. I do the exact same thing, yeah. And by the way, those motivations are, I think, real and true; they aren't bad. But she said, "Yeah, I wouldn't be your friend." And I remember just being

rocked by it: "You wouldn't be my friend?" She goes, "I was like, what? Why?" It totally broke my paradigms. And she said, "Because in a friendship, in a real relationship, you cede control to the other person; the other person concedes control to you. It's not that you're always controlling. The whole point of a friendship is that you can trust and you can be vulnerable, and you can cede control." And so paying the bill is merely just a form of control that you're exerting over your friends. And I remember being like, "Oh crap, absolutely right." And

she goes, "Yeah, and I suspect it's not just paying the bill. You like to have your environment; you like to have your way of doing things." I was like, "Yeah, I do." I force a lot of relationships—again, this is only like five months ago, right?—I force a lot of relationships into these boxes where it's like, "I want you to be in my box." I tell myself it's because I can provide great hospitality or because I can do these interesting things, right? And I'm caring for them, well, and genuinely sometimes. And I suspect the same for

you: like those are real motivations. But we are this mixed bag, and I think that's what I've realized: it's like we hook the good and the bad together, and then we do things that come off to other people very differently and confuse, frustrate, and constrain. It's really hard for somebody to be frustrated at a friend who's always buying them lunch or dinner or whatever it might be. So what it does is it builds up resentment and frustration in the other, and they don't even understand, right? Like, we're all confused. It's very hard to see ourselves

clearly. We can see others clearly, right? We can't see ourselves clearly. I think that we're designed like that because we're designed for relationships; like, we need one another. No one is an island; no one is self-reliant, right? We need one another. So how do you handle dinner now? So what I say, only if I mean it, by the way—um, and sometimes I don't say this—but if I don't mean it, I won't say it. Now I say, "It would give me great pleasure. I would enjoy being able to buy dinner tonight, but if you don't want

me to buy dinner, I will respect your choice." I give them the choice. And sometimes I buy dinner, and sometimes I don't. But if they say, "Nope, I want to buy dinner tonight," I say, "Okay, thank you." And the key there is they have agency. Now they have agency. And so the resentment doesn't build, even unconsciously. Correct? In kind of psychology circles, there's this idea of a triangle where you have a victim, a hero, and a judge or a prosecutor. And heroes are those who, without knowing, do good; like, they tell themselves that they want

to do good for other people. And what they're really doing—and by the way, I relate very strongly to this; this is a lot of action that I see myself having done and do—is to cover up my own shame and insecurities, and sort of to push down the pain that I feel. It's like, well, I'm... Going to go external and try to help somebody almost against their will, like they didn't ask me to help, or if they did ask me to help, my response to them is so outsized that it removes agency from them. Buying dinner

is like a very small example of this, and I've got, you know, unfortunately, a lot of bigger examples of this. You know, I probably have really engaged in, I would say, dramatic heroics five or six times in my life, where I perceived somebody was in grave danger, they needed my help, and I sprung into action and did this dramatic thing for this other person. In my head, the thing I'm going to get is, "Oh, thank you so much, Brent, you're amazing! I'm so grateful for you." Now, if you hear even the thoughts in my head,

it's all about me, so it's actually not about the other person. Yes, I can justify based on the other person, but really, it's about me. Yeah, five out of five—or, you know, six out of six—times it has been met with initial, "Oh man, thank you so much! This is incredible, wow, I'm blown away at your generosity!" And I'm like, "Oh, I got all the good feelings!" And then I end up not having a very good relationship with those people, and it shocks me. It almost feels like a slap in the face: How could they do

that? How could they not be better friends with me as a result of this? And then when I started doing these sessions and working with her, it became clear that, oh, heroes create victims because you're removing all agency from them, and you are telling them that they can’t help themselves—that they are helpless. When you do that, you are creating somebody who is diminished and insulted. Now, in the moment, that's not how it feels, but that's where we are constantly chewing on and assessing our environments. A great example of this—and this is not a close personal

relationship—I remember my wife and I, one Christmas, had a public school teacher who we knew and got to be friends with, and we were kind of sitting around the dinner table one night. She was sharing, "It's heartbreaking! You know, these kids around Christmas that I work with in this particularly poor school district, they don’t have any Christmas presents; they don’t have any Christmas joy." It really touched my wife and me; we were like, "Wow! What if we did this dramatic act?" And anonymously, of course, we bought like $30,000 worth of Christmas gifts for every kid

in that school. In our heads, we were like, "This is amazing! Wonderful! These kids, you can imagine them saying, 'Oh, we wouldn’t have had Christmas, but now we have Christmas!' and 'Wow, somebody cares for us and loves us!'" That's what we were hoping to accomplish. So we did it, and the response from the small group of people that knew about it was like, "This is incredible! You all are so generous!" You know, pats on the back, and we were feeling great, we were in the Christmas spirit, oh, what joy, you know, all this stuff. Then

it was about a month later, and I followed up with the teacher. I was just like, "Hey, how did that go?" She was like, "It was really good; you know, everyone was grateful, whatever. There were a few people who had some challenges." I was like, "Had challenges with us giving gifts?" She said, "Well, some of the parents of the kids felt really insulted by it." Then it hit me, and I even, like you, tried not to get emotional about it. It cut me so deeply because I realized what I had done—what we had done. My

wife and I had taken away the dignity of those families. Yeah, they couldn’t buy their kids Christmas gifts; they were going to do something for them, whatever they could do for them. And instead, like any kid, you give a kid a present—you know—it's amazing! But then it started asking all kinds of questions: "Well, why can’t you buy me that present? Do you not love me? Why do these other people care more for me than you do?" Kids don’t understand how money works; they don’t understand how some people have more and some people have less. They

don’t understand anything about that. So what I’d inadvertently done when I was trying to be kind and generous was that I didn’t put myself in the position to understand what the real consequences were going to be, the second and third order consequences. Yeah, a kid would have had, you know, less toys to play with at Christmas—that’s not the point of Christmas! I missed the plot. The point of Christmas is to show love and care, and in doing what I did, I short-circuited the ability for those families to experience love and care, and I hurt them.

There’s a great book out there called *When Helping Hurts*, and afterward, actually, somebody gave it to me, and I read it. I mean, you talk about being cut deeply—it’s a book about when you try to help and it hurts people. One of the best books I've ever read on philanthropy and how to think about caring for those with whom you don't have a relationship is, I think, a bottom line: we can't go wrong if we're in deep relationship with somebody and we respect what their needs are. If somebody asks me for help, you're not a

hero if you rise to meet the need; that's called being a good friend. Where you become a hero and create victims is when you don't know somebody, don't know their needs, and they never asked you to do something but you rise to meet a need they don't have. In turn, you take away agency and dignity from them. These are deep waters; these are challenging things that we don't talk about a lot. But this is the stuff that I’ve explored within myself, and to see how frequently I engage in this maladaptive behavior under the guise of

goodness and virtue—this story we tell ourselves to justify what we're doing because we want to be the hero, unconsciously in a lot of ways. We're not consciously trying to save somebody; we see a friend in need, and then we want to jump in and help them. When’s the last time you asked somebody for help? This morning, I'm asking; I'm learning. This is a new learned behavior, though. In all the years I've known you, this is different. I would always be the one eager to help but rarely asked for help, and that destroys relationships. There's no

way to have a real relationship with somebody unless it’s bidirectional. It can't just be you helping somebody and never needing help, because then again it’s the exact same principle: you create a hero-victim dynamic. The power dynamics in any relationship are super important, and we have the best relationships when we're on equal footing—different but equal. I always think about it as like, you know, the X-Men. Everyone's got different powers, but everyone can fight the battles together, and you respect the other's opinion; you respect the other person's skills and talents. But if somebody is always the one

who can shoot laser beams and blow stuff up, while the other person is just saying, "Oh, thank you, I appreciate that; thank you for helping me," it’s not a real friendship. I had never thought about any of this until dinner last night with you, and I stayed up late just going over all the different ways that I do this in my own life with my friends. From always offering—it's not even offering to pay for dinner; I’ll race up to the waiter while everybody's sitting down or going to the bathroom to make sure I’m the one

who pays. I was just playing this stuff in my head, going, "Oh my God, this is crazy." I went on an apology tour after I had that realization, reaching out to a lot of people, and I said, "Hey, I’m really sorry I did this to you." Of course, people were kind of caught off guard, because I don’t think they even realized it. But when I said it to them, they were like, "Yeah, thank you." So now my close friends and I have this understanding. Oftentimes, I’m still able to buy lunch or dinner or whatever because

I enjoy it, and they know I enjoy it. I love hospitality; I love to provide care for people. It’s a core part of my personality. But sometimes they say, "Thank you, but no thank you," and you know what? I feel super loved in that. The cool part is that before, I didn't feel loved either way. If somebody else bought a meal, I would feel frustrated and irritable about it, like they took something away from me. And if I bought the meal, I would start playing with ideas in my head: "Oh, am I only a checkbook?

Do people really like me?" And it’s like, well, you’re the one who insisted on buying dinner. But then you’re also considering that the other person could have insisted on buying dinner more, and you start getting into this weird psychology where you find yourself fighting back enough to get the old "alligator arms." Now it's the inverse of that, and I think this is a good metaphor for life. I think that the more I meet what I would call elders, there’s a difference between elders and the elderly. The elderly are often self-focused—incurved, as Blaise Pascal would call

it, incurved on themselves. They’re irritable; life is all about them and what they need. Then you have elders, who are the inverse of this—outwardly focused. The more I meet these types of Elders who are genuinely caring and loving, the more I see them exhibiting this type of behavior. No matter their circumstances—whether in good situations or bad—they live with joy, lightness, and freedom. Then I see Elder Lee, and I can pull back and reflect on my own life: no matter my circumstances, I find myself living in fear and shame and hiding. I think that's the core

issue we are really talking about here. At the very essence of all this is the fact that there are really only two ways to live: you are either going to live out of fear, or you are going to live out of genuine love and care for others and for yourself. That's it; everything else arises between those two. Fear-driven living is scarce; it is the way of the world. A famous author in the 70s said that nature is "red in tooth and claw." This reflects the idea that you are either going to be a predator or

you are going to be prey. Everything becomes a battle; everything is competitive. Believe me, when I am at my worst, that is who I am. And by the way, the world loves my false self—the world loves that fear-driven self. I can get an extraordinarily incredible amount done in that state. A friend of mine calls it "clean fuel versus dirty fuel." It's very difficult to see; from the outside, the car looks the same. It is very difficult to understand whether it is clean fuel or dirty fuel that is operating the car. I mean, that car can

go fast; it can take a lot of people with it. If I'm running on dirty fuel, I’ve learned throughout my life that it can be a more potent fuel for me in the short term. I can get more stuff done quicker and sometimes even with higher excellence using dirty fuel than I do with clean fuel. The problem is, it's filled with all kinds of contaminants, and eventually, you scorch yourself, the car breaks down, and you go off the rails, blowing yourself up—whatever analogy you want to use. So, getting back to the original question: what's changed?

I think that more and more, I'm trying to operate on clean fuel. I'm trying to be self-unconcerned. I'm trying to become an Elder. I think people listening resonate a lot with this, so I'm curious what other ways you have found yourself subcontrolling your relationships, whether it’s with your marriage or your friends. The paying is an example, but I’m sure you’ve got others. You get older, and you get better at hiding your motivations. You end up wrapping them, sometimes consciously, sometimes unconsciously, in these seemingly good packages. But the reality was that I was demanding control; I

was demanding care; I was demanding people to see me and praise me. So, how do I navigate that on a daily basis? By the way, this is not a victory declared or anything; this is an ongoing battle. I would say on an hour-by-hour, minute-by-minute basis, I can tell so quickly if I am operating out of fear or love. The test is whether I have peace or not. Am I anxious or not? When I am anxious and fearful, I have a tendency to catastrophize the future, always running down different rabbit holes of "what ifs" that might

happen. I've been given an incredible capacity to do that, which is useful in my day job as an investor; I can run down a tremendous number of scenarios. However, in my personal life, it's terrible, and I hate it. It's the dark side of creativity, right? When you have vision and creativity, you can envision a future that is beautiful, bright, loving, and wonderful—or you can envision a terrible, dystopian future. In terms of examples, I would go into meetings needing to take over the meeting in order to gain praise. I've been given the gift to say things

and think quickly on my feet, which genuinely earns me praise. But I mean, no one is perfect. We created an organization of permanent equity that is kindly confrontational about ideas; we want to embrace friction and diversity of thought. So, the last thing in the world I want to do is create an organization of yes-men or yes-women. We want divergent thinking and a lot of variety. I don't think that the praise was coming from a place of sycophancy; it genuinely arose from my false self. When I’m really charged up, I have the capacity to envision a

future that many people find appealing. Though my vision of that future is really driving my need to be liked, my need to be respected, my need to be praised, and so G and I would—I would have this high anxiety in these meetings, right? And then I'd get out of them, and it's like, I mean, I'm so wired up; there's so much cortisol in my system because I craved that. I needed that; that was like my sort of drug of choice in that setting, to the degree that I almost lost my right eye as a result

of excess cortisol in my system. That’s how stressed I was. And I wasn't stressed in the sense of—I mean, yes, like what I call normal stresses. Like, I mean, there are always going to be sickness and death, and as we've grown as an organization, there's just a lot of brokenness. But I would say the vast majority of the stress that I was experiencing was self-induced. It was because I wasn't okay, and I knew I wasn't okay, but I didn't know how else to cope with it rather than try to get praise, try to grab things

from other people, right? So I was incurved, as Blaise Pascal would say; I was the one who was inwardly focused and focused on my needs and what I wanted. I was not on the path to being an elder; I was on the track to being elderly. The inverse of that is I get more freedom as I, you know, this stuff kind of comes out in relationships and friendships—in my marriage, in counseling sessions. You know, as this stuff kind of comes up and out and there's healing around it, I find myself sitting in meetings and letting

other people talk. Imagine that! Not having to always be the leader of everything, not having to have my identity based on short-term wins, not being competitive. Competitiveness is the opposite of relationship; it is the antithesis of relationship. Like, when we're competitive with somebody, it's I win and you lose. That's horrible, especially when I'm dealing with—like, my profession doesn't have to be competitive. When I go out and play tennis or pickleball with somebody, like, I don't have to win. But before, I felt like I had to win because I'm a winner; winners win! Right? Like, if

I don't win, I'm a loser. If I don't win, I'm not okay. If I don't win, all that stuff's going to bubble up from the basement, and I'm going to feel terrible. I used to literally lose in tennis and feel terrible for days! Another thing: I would fight with my wife, and I would go do a bunch of emails. It's an interesting behavior. Why would I do that? Well, because I get praised for doing email. I get a lot of interactivity. Oh, hey, thank you so much for that! Oh, wow, it's 11 o'clock at night

on a Friday night, and I just had a blowout fight with my wife; I'm going to go and do some emails because people are going to be like, "Oh, look how hard you work! Friday night, you're working so hard!" Social media was deadening to me. If you look at the peak of my social media sort of addiction, it was probably five years ago to three years ago. Why? Because I could go online and tickle the ears of people, and they would tell me, "Oh, this is a really insightful thing. This is really cool. Wow, you're

so great!" Because, you know, whatever validation—validation. How many likes did I get? But I found myself asking: Are we optimizing our lives for the people who know us best or the people who know us least? That's a question that haunts me. I've watched a lot of people up close and personal who, the more you get to know them, the less you like them. And I mean, that's honestly the lie that we all engage in, right? If people really knew me, would they love me? Would they even like me? Right? There are a lot of people

I've come in contact with who are bigger on the outside than they are on the inside. Like, I want to be somebody that—well, that was me, by the way. Like, I, you know, I mean, I think we all have this temptation, right? The Instagram pic of, "Oh, my life's just a vacation; everything's amazing!" Right? Twitter’s the sort of the intellectual version of that. Mm, I think these great thoughts, yeah, have all this wisdom—so wise! Now, let alone my life—my marriage is a disaster; my business is a disaster. You know, all this stuff—it's like, well, yeah,

but I can spout platitudes on Twitter, and people will praise me for it, right? Like, that's the lie; that's the trap. Yeah, this healing has occurred. It's like, I'm on social media far less—not because, like, I actually, like, genuinely want to help people, and like when I have something to say that I think could be helpful. When I engage in conversation, like, I'll go on and I'll engage in it, but like I don't feel a need now to, like, hour by hour check and see how many people have liked whatever. In my marriage, I'm trying

to be somebody who's focused purely on the good for the other, focused on the good for my wife. Like, how can I serve her and love her with no expectation of reciprocity? Like, it sounds foreign; it would sound foreign to me—like the view we have of every relationship, sort of in that fear-based, scarcity-based... Mindset is like, okay, well, Alexis Doeville called it self-interest rightly understood, right? Which is like, I do things for you so you can do things for me. Like, that's not true love and care; that's loving yourself. There's a rabbi who calls that

fish love, right? He says, you know, we treat our marriages like we do a good fish dinner, right? Where you're like, oh, I love this fish because it tastes good, because it makes me feel warm, because it satisfies the need that I have, a desire that I have. You're consuming it, right? You're a consumer of that thing. And I think that without a shift in mindset, the default assumption of the world is we are all consumers of one another. We are all eating one another, including in our marriages and personal relationships, and it's poison—straight poison.

I want to spend a lot of this conversation on investing and sort of running a business, but before we sort of transition, one of the things that you said to me last night that I found super interesting was that you'd stopped drinking unless it was a celebration. Tell me about that. Well, yeah, the last couple of years have been an exploration of interior and exterior. And I think a lot of our exterior lives reflect the accumulation of our interior lives. For me, it certainly did. I can remember the first time I was called a fat

kid. I was 10 years old, and that was an identity that I adopted. I always was just a little more overweight than everyone else. I wasn't like morbidly obese, but I carried a lot of weight. I was athletic, but I was a little bit heavier. You know, when I became an entrepreneur, it was all-consuming. I mean, my 20s were filled with—I had to win at all costs. I had to put every bit of energy into being successful. I thought that that was going to make me okay. So, my 20s were filled with a single-minded pursuit

of achievement, and I put on 50-plus pounds. In my 20s, I tipped the scales at one point at 252. I remember hopping on the scale, and I was like, whoa, I've gotten big. I started at the beginning of last year at 235-ish, so I was down from my peak, but it was just a battle I’d been engaged in—a decade-long battle with like, I’d try this diet or that diet, I'd try to work out some, I’d make a little progress, I’d slip back. It was kind of like I had this set range I really couldn't get

outside of it. Kind of all part of the same transformation occurring at the same time, right? Like, I found out that food was something I celebrated with, was something I turned to for comfort, was how I expressed love and joy and care. As my counselor said, it sounds like you eat when you're sad, and you eat when you're mad, and you eat when you're happy. I think you're going to probably be always eating, and I was like, yes, I am always eating. Like, I always have a pull towards food, right? Because I was using food—and

by the way, in a, like, there are more maladaptive behaviors, right? It just happened to be one that you can't hide very well. But I was using food to do a job for me, and sometimes that job was, you know, in concert with joy and care, and sometimes that was, you know, in concert with pain. But food was like the tool of choice that would make me both feel out of control and in control at the same time. And so as those sort of things started releasing, and the junk that was underneath them that caused

that pain started releasing, I felt a real freedom. You know, I wrote this publicly in my annual letter this year: you had a huge impact on me. And it’s funny how we don’t—and I don’t think when you said it you realized how impactful it was going to be, but it was like a lightning bolt. You told me— I was complaining to you, I think it was maybe January 4th or 5th of last year. Yeah, and you told me that, you know, you’re working out, or it was like, oh man, yeah, like I’ve got a New

Year's resolution, I’m going to drop some weight, you know, whatever, and it’s just really hard to work out, and I feel kind of defeated about it because it’s like, you know when you're headed to failure. Yeah, and it’s like sort of—that’s the thing about dieting, and that’s the thing about these short bursts of like New Year’s resolutions, is they head towards failure because they’re not sustainable. And so I remember you saying this one thing to me that completely shifted internally how I thought about health, and you said, well, I just work out every day. It’s

part of my identity. I don’t have a choice if I’m going to work out; I just have a choice what I do. And I remember it hit me like a ton of bricks. I was like, oh my gosh, yeah, you’re right. And around that time, another good friend of ours, Patrick, I was on the phone with him and, you know, the best of friends tell you the real truth. Like, the pinnacle of friendship is to tell each other the real truth, the hard truth—the truth that you gain nothing from. From, and you have everything to

lose because that is true vulnerability—that is truly giving the other person control. I remember Patrick took a risk, and I said something; I used to make jokes about being a fat kid. Right? This is that identity that was imprinted upon me, and they're funny; people laugh at jokes about being fat, right? Self-effacing, all that stuff. And he goes, “Would you knock that [ __ ] off?” It was like a very stern voice. He was like, “Not okay. Like, I've heard you say this over and over again. You made jokes about being fat—like, not okay. You

got to quit that. You're not a fat kid.” He’s like, “Why do you do that to yourself?” And it's, again, this idea that we can't see each other clearly, but we can see ourselves clearly. That really flipped a switch in me. I was like, “I'm not a fat kid. I'm going to be healthy. I'm going to be a healthy person whose identity includes working out every day.” No, I'm not putting my salvation in that. I'm not putting my goodness in that. I don't think that people who work out are better than people who don't work

out, but I'm going to make it a core part of me that I'm going to honor this body that's been given to me. I've got one container in this life, and it's important. When I say, “Basically every day, like I am now,” I work with a couple of people on the fitness side, and their biggest problem with me is that I work out too much now. Like, literally, this is not like a bragging thing. This is like I love it so much now, and this is something—I hated it! I would dread it. I was out

of shape. I mean, I hated working out. And so now it's like I feel the joy, and I feel privileged that I get to work out. I have an opportunity to move my body and to experience this world. So whether it's going on a run, biking, or playing a sport—I love pickleball and tennis—or just getting to go on a hike or a walk with a friend, I love it. You know, the Greeks had this very dualistic view—it's like body versus soul—like we are embodied creatures; we are one and the same. That's not the proper view.

Our physical health impacts our mental health and vice versa, right? And so I've seen this wonderful change: I have more energy to play with my children, and my relationships are better. I can feel better just in general. So, you know, when you feel better, and you can move better, it's all this virtuous upward loop, right? An inverse downward loop when those things start to fail. And so the alcohol thing—very, very long-winded way of saying it—I just noticed that when I drank alcohol, things felt hard. It turns out alcohol is one of the biggest inhibitors of

testosterone, especially in men. We think of testosterone as the libido hormone or whatever, and it is, but that's not the point. I wasn't like, “Oh, well, I'm drinking.” I was basically drinking almost every day, and I was drinking a lot. I got to the point—I probably drank, to say this even now—I would never in a million years define myself as having any sort of addiction. I could not drink and be okay, but I was drinking like three, four, or five drinks a night every night. You know, you get home, and you open up a bottle

of white wine while making dinner. We cook all the time; we love cooking. My wife and I—it's like kind of a core part of what we do. And you know, we're making this meal, and you open another bottle of wine—maybe a red, have a little bit of that—and then it's like, “Oh man, you know, it would be really great to have a little aged tequila or some Cazadores or something.” And, you know, before long, it really adds up, and it affects your sleep. For me, I just noticed: testosterone, the best definition I've heard of it,

is that it makes hard things seem easy. So when I drink, hard things seem hard, and when I don't drink, hard things seem easier. I can very clearly tell. So I just said, “It's not worth it,” and tried to come up with other alternatives to get the ritual of it and the specialness of it. It's kind of like, you know, you can mark your days, right? I mean, for a lot of my life, it was like alternating between caffeine being one part of my day and alcohol being another part. Now, I don't drink caffeine and

I don't drink alcohol for very different reasons, but both of them are health-related, and my life is way better for it. So my excuse now—I shouldn't say “excuse”; the way I think about it is that when I celebrate, it's the only time I let myself drink. The interesting thing to me when we were talking last night is you mentioned—you said the word... "Rule, which I thought was really interesting: do you have any other rules that you've adopted in the last couple of years that have really helped you sort of unlock the next level? Yeah, this

is actually a huge part of a lot of these changes that I've made in my life as well. How we spend our days is how we spend our lives. Our habits are who we are, and habits are very sticky and hard to change. They require a tremendous amount of focus, and it's very difficult to add multiple habits at once, is what I found. I'm also not a personality that loves habits; I don't love structure. I really enjoy the variety of life, and so in many ways, habits grate on me. But I've really come, as I

get older, to appreciate the value of good habits. So the habits I try, and I would say on most days—almost all days—I get up, and the first thing I do is read and pray. I always try to tell my kids and my wife that I see them, I know them, and I love them, and that there's nothing they can do to ever move outside of my love for them. One of the questions I love asking my kids now is, 'What do I do when you feel most loved?' and I really try to focus on doing

those things for them. That's sort of the magic question that unlocks a tremendous amount of intimacy with anyone, really. Any friendship, if you ask that same question, you'd be shocked at the answers you get. Because in my marriage, and in my friendships, in my relationship with my children, to some degree, I used to try to love them the way I wanted to be loved, and that doesn't work very well. Because really what you're doing is you're loving yourself by doing that. Then I kind of went through a phase where I was like, 'Okay, well, I'm

going to love them the way they should want to be loved.' That doesn't work well either. Why don't they love it? Why don't they love it, right? Then I started really being like, 'Okay, I'm going to pretend like I have no preconceived notions of how somebody wants to be loved and just going to ask them.' And do you know what's interesting? Most people can tell you pretty quickly, but it's shocking to them what comes out of their mouth. Oh, interesting. So most people don't actually know how they want to be loved; it's not something they

think about. And I mean, you can use this analogy at work too, right? Like, you know, a question I'll ask somebody is, 'When do you really feel seen and appreciated?' I think this is the question we're all trying to ask: how do we want to be loved and really getting down on somebody's level with them and getting in the muck and the mire with them—that's real relationship. Let's switch gears and talk about business a little. But I think a good segue question is: how do you balance love with operating? You're one of the best operators

I've ever met in my life. How do you balance those two things? We're taught to come at everything from a competitive point of view, which you do exceptionally well—or did exceptionally well for a number of years—and it made you a huge success. Then how do you get the same results, or better results, operating out of love? Well, I think the lie that we tell ourselves is that if we don't act out of scarcity, there won't be enough. And what that does is it isolates us, and it shuts us down, and it isolates and shuts down

everyone. I mean, anxiety is contagious; scarcity is contagious. As soon as one person acts scarce, the fear ripples through the entire crowd. Love is fragile; care is genuinely fragile. This either fear mindset or this abundance mindset, it's a love mindset. It requires a tremendous amount of protection in order to engage in it. And look, I'm not going to sit here and pretend that I would often make the same decisions if I weren't already in a position of success. You're operating out of a position of strength already, yeah. I'm coming—often times I'm already coming from a

position of strength. I do think, though, I would hope if I hit reset, and I could go back, knowing what I know now, life is just way better no matter how you slice it—operating from a position of abundance and love and care, no matter if you have resources or not. But money makes you more of what you already are, right? So if you look at people with a tremendous amount of resources who made that money through scarcity and through high competition and through stepping on people on the way up, when they get to the top,

they continue to exhibit that behavior. I think there are a number of people who experience that, and I—by the way, that was me in my 20s. My 20s were filled with doing whatever it took to make it, and I would hide it. And you know, I'd do it in a more gentle way, but my heart was scarce, and I still battle this on a daily basis now. So it's not like, again, there's no victory declared here. But what is..." Sustainable long-term is not a sort of Mexican standoff with everyone in your life. I mean, that's

how most business is done. It's like there's power structures, and it's like, well, I'm going to make myself indispensable, so you can't get rid of me, right? And it's like, oh, well, I wish I could get rid of that guy, but I can't, right? It's like that's a horrible, confrontational, competitive, scarce mindset to be in business. I feel like this is the norm, unfortunately. It's really the norm in the finance world. I mean, I feel like I've, um, I felt backwards in finance. I've joked that I'm the Forrest Gump of private equity, and it is

as scarce as it gets. I mean, it is all zero-sum; that's how it's treated. As we've moved towards a position of abundance, as we've moved towards an ability to try to treat people with honor and care and create win-win relationships, I mean, that's really what we're trying to do. You know, one of our mentors, both of us, Peter Kaufman, talks a lot about this, right? It's like the only sustainable long-term path is that everyone has to win, or it won't work. If there are any losers in a system, it's not sustainable. So I think that's

just something that we've really tried to pursue. And so what does that practically look like? I think that is a question, right? It looks like not protecting yourself all the time, but giving people the ability, if they want to act scarce, to do so, but in like lower-stakes ways. So, like, one of my favorite things to do is to be almost open myself up to being taken advantage of early on in a relationship. So if they do, then you're like, okay, great! And by the way, there's no judgment in this. It's not like, "How dare

you?" or "I'm somehow better," you know, whatever. It's just, "Hey, I just don't think you're in a position right now. I was there before, but you're not in a position right now to be able to engage in our system because our system requires a tremendous amount of mutual trust and care." Now, again, we're imperfect. We screw up all the time; we're asking for forgiveness all the time. We say sorry all the time. I don't want to paint this picture of like idealistic "we got it all together." We have a lot of things to work on,

right? But I think most people are trying to operate out of a position of abundance. Most of us are trying to work towards wins for everyone. We're trying to be thoughtful with not just the buyer and the seller. You know, in private equity, we buy businesses; we're not trying to just think about the buyer and the seller—buyer being us, seller being the person who's selling us this thing. We're trying to be thoughtful about the executive leadership teams at these companies. We're trying to be thoughtful about the employees, the rank and file. We're trying to be

responsible and be thoughtful towards our customers and our vendors, and the communities, maybe even regulators, depending on the situation. What does a win look like for a community that we purchase a business in? I don't know; it's an interesting question. I think it's different for every business. What does a win look like for the construction worker on a job business we bought? There are interesting questions to ask, right? We can't make anybody happy; we can't make anybody fulfilled, but we certainly can create an environment that allows for them to be happier, freer, fulfilled. This is

where I think, for the rest of my career, the engaging part for me is. It's not been about money for a long time. Thankfully, I haven't had to worry about money for a while now. For me, I'm like, wow, what if when we buy a business, not only is the work environment better, but maybe we allow them to provide the environment, maybe show them a better way? This idea of "everything's relative," right? Maybe we can show them a better way where their marriages get better, their friendships get better, and their relationship with their children gets

better. They're more engaged people; they're more active because, like, I don't want people who are working 80–100 hours a week every week. Now, look, there are weeks where I work 100 hours; sometimes, you have to get stuff done, right? So there's no shame in that. But if that's your norm, you just cannot sustain a healthy lifestyle, healthy relationships, and a healthy physical body working that much consistently. There's just no way. There's not enough time in the day to do it. So I don't want people who are sustainably—like, the whole finance world is full of just,

you know, chewing people up and spitting them out. They use people as objects, right? And they throw them away when the object doesn't become useful. I mean, my fantasy—and this maybe, you know, how you look at delusions of grandeur—is could we show people a better way that actually creates higher returns long-term by treating people well? You create higher returns over time by using little to no debt. As weird as that is in the finance world, and believe me, I know all the people who are watching this. I get the math; you don't have to send

me the math. I understand how leverage works; I can do the math too. But I think there's real value in examining why. Why is it that we have a system? especially in the leverage buyout world of private equity, where the norm is buy, lever, strip, and flip, right? I'm going to lever this business to the moon. I'm going to try to use as little equity as I can. I'm going to try to sell it as quickly as I can to generate the highest return I can. There's no way to make good long-term decisions with short-term

capital and short-term time horizons. There's no way. And by the way, what are we doing? If all we're doing is having a series of short-term transactional relationships that you move your life through, that's where you end up with these people who can buy anything, who've made hundreds of millions, not billions, of dollars, who are miserable. Like, I've met these people. They have their IRR etched on their tombstone. Like, no one gives a [__]. No one cares at the end of the day. Like, David Brooks, I think, calls them eulogy virtues. Yeah, yeah, like, no one

at somebody's eulogy was like, "He was a great man. Made a ton of money, hated his life, hated his wife," but he got 26.5% IRR. But that net IRR—whoa, boy, let me tell you, he was one of the best! Yeah, I mean, and look, we admire greatness. Like, we're a society that worships outliers, and so you're not wrong to play that game. That is a game to be played. There is a game there, and it does lead to certain things that are good; it also makes you lose your soul. And also, I don't want to

give the impression that we are trying to absolutely shoot the lights out in returns—just in a different way. How you go about it, your way is more sustainable. And there are a couple of things I want to follow up on that we talked about. Going back to the first part: allowing people an opportunity to almost take advantage of you. Often, I find that the first request by somebody is very telling, or the first offer: "Here's what we want; here's what we need from you." And if that doesn't come across as fair, it's like the biggest

signal in the world that it's like, "Oh, this is probably not a relationship that is going to be win-win." I'm going to have to work to try to make it win-win, but you've given me this valuable piece of information on day one without even intentionally doing so. Amen. But I also would say the slight twist I'd make to that is to give grace, that like I will fall down; you will fall down and make offers to people, even though maybe we actually are in a heart space. Most of the time, that's not transactional. This happens

to me all the time, where I will fall down and do something transactional, totally. And so it's like what I often do in that situation is say, "Hey, maybe this was unintentional. Maybe you're having a bad day." Whatever the reason, this came across to me as transactional. If I misinterpreted it, maybe I don't understand what you're actually saying—that sentiment underneath it—but it feels short-term, feels transactional, feels extractive in what you offered. Did I misunderstand? And usually, that reaction, the more defensive they are, the more kind of like, "What are you talking about?" Right? Like, the

water we swim in culturally is transactive, extractive; it removes control. It says you will be okay if you can build your own kingdom. So, like, it's perfectly normal for that to be the way people interact. That is the norm. So, like, I just want to be careful with how steeped in that someone is and how much they realize that maybe there’s a better way. What I don't want to do is come across as judging them or condemning them—oh, of course, based on that, which is a real danger, right? Because, I mean, you can get self-righteous

pretty quickly. It's just a signal, right? It's just a signal. If anything, even if they are highly transactional and sort of my—I have this weird feeling that rises up in me; it's like a, uh, like I don't know, "Spidey sense," right? It's that I think it's like a protective thing where you're like, "Okay, I can feel myself rising in competitiveness, rising in scarcity to meet their scarcity," and I'm like, "Oh, I don't like that. That's that dirty fuel that I feel like it's almost like a direct injection of dirty fuel into my system." And I'm

like, "Oh, yeah," and then it’s like, "Okay, well, even if I say, 'Hey, I don't think we're in a position right now to probably do something on this,' or like, I don't think the system—it would work for you engaging in the system right now," try to show them a better way and encourage them; don't condemn them, right? I think that's the thing that we try to do. Now, oftentimes, I think people don't take it as such. It feels—I mean, look, if somebody makes you an offer and you decline, there's rejection in that. And again, I

totally get this because I feel this way; when you get rejected, it touches things that are way deeper than just that mere surface-level rejection, totally. So, when it travels down and starts ping-ponging around and hitting all those things down below, that's where you get these outsized reactions to things. And again, the response that you want to... have is when you see somebody have an outsize reaction to be can feel stupid. Belittling them in that conflict pattern is something that I, uh, really have enjoyed studying. Um, so we all have three basic moves in conflict. And

actually, if you watch these, it’s fun—like now it’s like whenever I engage in conflict, I know my pattern and I very much know my wife's pattern, and, uh, I try to guess what other people’s patterns are. You can watch people go through these phases, but there’s a, uh, it’s called "move against," which is like, "No, you’re wrong! Screw you! I want to make you submit to me!" Right? Like, it’s very much like a force of submission. Right? So this is somebody who gets up in your face, who’s yelling, or who’s kind of like talking down

to you—like very, very confrontational. Right? That’s kind of like one phase. And by the way, again, we do all three of these; it just depends on the order. But we all have an order to how we do these things, and then, by the way, how they interact with one another is super interesting as well. Um, the second one is "move towards" the person. So the first one is "move against," and the second one is "move towards." "Move towards" is, "We need to be okay! I’m not okay unless we’re okay! Let’s just gloss over whatever’s happened.

It’s okay; it’ll be fine. You know, let’s just water under the bridge; let’s just move on." Right? Let’s avoid it. It’s avoided in a way that feels very relational, but it’s actually not ’cause it’s not for the good of the other. It’s actually for their good that they want to have things be okay, um, but it actually doesn’t address the underlying issue at all. And then the third one is "move away." So this is to isolate. And so if you watch, all of your conflict will follow one of these patterns. Talk to me about debt

and your thoughts on debt and the optionality it gives you and when it's appropriate and when it's not appropriate. Debt is not a source of return; it is an amplifier of return. So it makes good things be great. It can take mediocre things and destroy them, and of course, it takes bad things and nukes them. The higher your confidence in the predictability of the future, the more debt you can use. I say "can use," not "should use." In a perfect world of perfect information, where you and I own a business and it’s a recurring revenue

business, we are for sure going to make unlevered— we’re going to make $2 million this year, $3 million the following year, $4 million the following year, and it will go up exactly $1 million in free cash flow every year into the future. Mathematically, you can create a formula to know exactly how much debt you can maximize in that business. You pull out the equity; the equity returns look out of this world incredible. And because you know exactly what the future is, there’s no risk in that. So businesses that have high predictability of revenues and incomes,

and feel like that they are—um, well, I shouldn’t say "feel" in this case since we’re creating a scenario—they know that outside events are really going to not affect them, then they can lever a tremendous amount, and it makes complete and perfect math sense. Um, the reality is that, um, the world, I believe, is largely unknown and unknowable. The future is murky, and so it is a form of pride, hubris, to use more debt than you should. Now, this is very broad. This is like, you know, 60,000 feet because everything’s relative. Right? How much debt should

you use? In the world I play in, we are buying loosely functioning disasters that sometimes make money. I mean, these are small to medium-sized businesses—call it $3 million to $20 million of free cash flow. You know, my general view after looking behind the curtain at thousands and thousands of businesses is that all businesses are loosely functioning disasters. Like, whether it’s a not-for-profit, or for-profit, or government institution—people are messy. When you get multiple people together, that mess compounds. When you get large groups together, that mess compounds even further. It’s exponential, and the volatility of that messiness

is tremendous. And so, when you get to a smaller end of the market, these are for-profit companies that are making between $3 million and $20 million a year in free cash flow, the volatility of them is tremendous. Um, and hence, the price that we pay is on average less than—because we’re paying to accept that risk. So all investing, at the end of the day, is the assumption of risk. The ideal investment scenario is you are assuming a risk that is knowable, um, you are being paid more to assume that risk, and you have some ability

to mitigate that risk. And that’s what we’re trying to do in our business. We’re trying to find things that are highly risky. Right? Because we wouldn’t pay the price that we’re paying for them if they weren’t highly risky, but that we have talents, relationships, and systems that we can diagnose what the risks are, properly analyze the probability and the magnitude of that risk, and then work to mitigate it. And that’s where our returns come from. The math to me is far less clear that over the long term, debt makes you more money. I’ll give you

an example of this: We bought an aerospace business in the fall of 2019. I don't know if you... Know this, Shane: Aerospace never goes down; it's always flat or goes up. We were told by some of the people advising us on that deal, "Are you guys—did you guys get dropped on your head as a child or something? Like, you're not putting any debt on an aerospace business! What is wrong with you?" Like, this is tons of assets, highly leveraged; banks would be happy to provide—predictable. It's predictable! Look at the business. And we said, "Yeah, we

don't feel like that's a responsible thing to do." Again, debt only helps the buyer and the seller; it doesn't help the leadership team, it doesn't help the employees, it doesn't help the communities, it doesn't help the regulators, it doesn't help your customers, and it doesn't help your vendors. There are all these stakeholders at the table that it doesn't help, but it does help, in certain circumstances, the buyer and the seller. Which, again, if you sort of play short-term games, win short-term prizes—area of SC, non-recourse debt: heads I win, tails you lose. There are a lot

of incentives to use debt irresponsibly. You know, I think that most private equity firms look at, you know, they're the gas and the bankers are the brakes, and they'll just do whatever the bankers allow them to do. And it's sort of up to the bankers to say no. And so, our aerospace business— um, you know, we were called idiots. I mean, actually, even on Twitter, I think when we came out with our annual letter that year, people were like—like Finance Bros were like, "You guys are morons!" I was like, "Maybe!" And oftentimes we are morons,

and it’s good to be called out for it. But in this particular case, I don't think we were. And this is obviously way before we knew that there was going to be a pandemic. And, you know, this idea of like, did we get lucky? Did we get good? I think you can know that things are not going to play out the way you want them to, prepare for them not playing out, and keep optionality open, which is going to decrease your returns in any given year but give you the ability to survive over decades. So,

the pandemic rolls around and we're worried. You know, demand in the industry—in our segment—went off at one point by 88%. We started to struggle, and we looked at it, and we were like, "Okay, let's..." And by the way, the leadership team there did an incredible job of maintaining positive cash flow every single month through the entire pandemic. Everyone else was negotiating with their banks; everyone else was firing people, and we were the only ones hiring. And we were building systems, and we were taking risks, and we were able to do that because we didn't have

any debt. Everyone else was tied up. We weren't tied up. And the alternative is we leverage the thing up, and for, I don't know, four or five months, we get a better return, and then we negotiate with the bank. Hopefully, we salvage it; maybe we have to inject more equity down the road. We're sure as heck not hiring; we're not buying parts packages for pennies on the dollar; we're not setting up for 10 years of future success and growth. We're not, you know, implementing new ERP systems; we're not implementing new processes and ordering systems. The

whole thing gave us two years to completely rebuild that business from the ground up, and to see the fruits of that is astounding. The business is dramatically worth more than it was when we bought it, in spite of having a pandemic and dramatically decreased demand. We can't predict the future. When I was talking to Chris Davis, who's on the board of Berkshire, he mentioned it's a strong signal if you're looking for a good business that they don't have any debt, or they have very little debt, because debt masks so many things, and the fragility involved

is just off the charts. And people don't realize the risk they're taking. There's also a world of difference between debt at, you know, 2%—if you can get long-term debt at 2%—versus, you know, now, S8, and even higher, depending on the circumstances. When people enter into a debt transaction, they just assume that the world is going to stay the exact same as it is today. "I'm going to make the same revenue; the interest rates aren't going to go up; they'll only positively surprise me to the downside." And then you find out that’s not the case, and

then all of your free cash flow effectively starts getting consumed by debt. And it doesn't take much; it takes like a 5% to 10% downturn in the business—which is a perfectly normal business cycle—a reasonable cycle to then throw the business into chaos. Yeah, like, I can't imagine being an operator. And by the way, we've never seen a business that we want to purchase—ever in the history of the firm—that has debt on it. Like, when we buy it, that has debt on it—like, no families get wealthy by being like, "Oh yeah, we have this great operating

business; let's pull a bunch of income from the future into the present and lever up, because that would be awesome! So we can increase our consumption temporarily so we can buy a bigger house." Like, no one does that, and for very good reason; it doesn't make any sense. But somehow we've gotten ourselves as an industry... In the finance industry, it's like it makes no sense how families build businesses. By the way, every business starts as a small business; every business starts as a family-owned business. They then take a business that has been operated a certain

way for a very long time, gone through ups and downs, survived for 20, 30, 50, or even 100 years, maybe, and then all of a sudden it's like, "Actually, what we want to do now is completely gut how the business operates and runs." We need to hit it with the steroid needle; we're going to jack it up with debt, we're going to strip it of a bunch of cost structure, we're going to hire a bunch of new people who are going to do amazing things in a short period of time, and then we're going to

flip it to somebody else. And by the way, once you get on that treadmill, like once you sell to private equity, traditional private equity does a leveraged buyout, that business is forever going to be flipped to the next person, or eventually might get sold to strategic buyers, but it forever is relegated to a lack of independence; it will never be an independent ongoing concern for very long after that. There are just no examples of this. So for us, I don't think we're smart; I don't think we're trying to be geniuses. We just look at it

like, okay, the whole world is built on an entrepreneur or a small group of entrepreneurs getting together and creating something that the world needs. It's hard. They built it over a long period of time; they inherently acknowledge the fragility of it. We just want to continue to honor their legacy, honor all the stakeholders, and all try to win together over the long term. I couldn't imagine a worse thing to do than to put debt on that. I think people miss, over the long term, the lack of debt actually works out better, but for the short

term, I have this saying: "The lack of patience changes the outcome." So when you lever up to get your immediate returns and then you're sort of playing with house money, you can justify almost any behavior. When you think long-term, like a family thinks of a business, you sort of go, "Well, we can't do that because what we want is optionality." You miss the fact that what you guys did—I mean, you had a period of two years where you made more progress than you would have in probably 10 or 20—where you're strong and you're operating from

a position of strength, and it's almost playing on easy mode in a way, right? It's like, "Oh, now we can expand our business. People are probably discounting parts at these fire sale prices; we can stock up on them, and our margins are going to expand because of that. We know the business is eventually going to come back." I mean, I think it depends on how you look at our roles. Are we owners? And I'm not talking about legal definitions here; I'm talking about mindset. If you own something, it is your property to do with it

whatever you want. You can do anything you want with it. The pushback to everything—if I was going to strongman the opposing argument—is, "Who are you to tell me what risks to take? You can take it. Who are you to tell me how to run my business? I own it; I can do whatever I want." I used to feel that way. A big shift for me was becoming a steward. It's this idea of stewardship and not ownership. The way I look at it is that families are entrusting us to be stewards of their company. It's a

responsibility that we have. Yes, we get benefits from being a steward; yes, we get to share in the fruits of the labor and progress of the company. But at the end of the day, my job is to make sure that these businesses remain intact and healthy. When you look at it from that position, the world becomes a lot clearer: what's in the best interest of everyone else, but also me. I mean, I don't want to do things that harm us; but if we align incentives properly, things that help us should help everyone else and vice

versa. We will be taken care of if we take care of our people; we'll be taken care of if we take care of our customers. It's not a complicated thing. But I think again, are we owners or are we stewards? I think often families take a stewardship mindset of ownership. It's exactly—um, it's interesting to me. I try not to judge other people for what they do or what they choose because, I mean, we're each playing our own game; we're each sort of doing what rationally makes sense for us given everything going on in our life.

And if we switched shoes, we'd probably see the world very differently than we do. But people, I think they just underappreciate the fact that they are not thinking about really what they're doing over a longer period of time. If you structure your thinking, stewardship is a great example. Over a longer period of time, you eliminate a lot of poor behavior that you would otherwise get or a lot of things that can take you out of the game. Yeah, for sure. Let's talk about incentives. How do you set incentives for the CEOs of... These businesses—how do

you think about them? Uh, walk me through one in detail. For example, yeah, well, so the—I think the ideal system is everyone's eating at the same table, right? So there's not different tables that the food falls onto one and then falls to the other, right? Everyone's incentives are aligned to achieve the same goals. For us, when we look at traditional private equity and the traditional 2 and 20 model, right? So on the amount of capital that you have either gotten to invest or have invested, depending on the terms of the agreement with your limited partners,

you get a 2% fee annually that goes to covering your overhead costs and expenses of operations of the firm, the seeking out, the doing of the deals, the oversight and governance post-close, and then, once you pay them back with a return—typically 6 to 8%, maybe 10% depending on the situation—then you get to share in the upsides of that. And, you know, the LPs, the people supplying you with the money, provide you that capital for usually in private equity 10 years roughly, which again goes back to time horizon. "10 years sounds like a long time, Shane.

Isn't that plenty of time to buy a business and hold it?" Maybe! I think if you talk to most private equity people, they would say it's not the deals that they did that like really hurt—that they did that went poorly. The ones that hurt the most are the ones that they were doing great with, and they could see a long future compounding, but they just had to sell the business. You’re like, "But 10 years is a long time." MH, but the reality is it takes time to find a business, get the transaction done. There’s a

sort of initial phase of getting to know the business. You know, once you buy, you really never know what you actually buy; no matter how much due diligence you do, you don’t really know until you get into the weeds post-close. So there’s a period of orientation, then there’s a period of, in traditional private equity, growth and trying to hit some sort of metrics to then sell it to somebody else, which, by the way, selling takes time too. So you got to buy—it takes time. You got to operate—it takes time. You got to sell—it takes time.

So they're really, at max, if you hit it perfectly in the fund lifecycle, maybe you get five years—five years at most. Most private equity firms now are targeting what they like, which is 2 to 3 years. So from the time we buy something till the time we sell it, it's two or three years; again, maybe four or five. If you get past five, it’s really distressed at that point, like you’re trying to get rid of it, and you can’t. When we think about incentives, an incentive for traditional private equity would be: "Shane, I’d like for

you to come on. I’d like you to run—do us a tour of duty." Right? The tours of duty is kind of the way that leadership has done in traditional private equity. "Once you do a tour of duty, it’s going to be 2 to 3 years. Look, you’re not going to see your family much; you’re going to work your tail off. But there’s this pot of gold at the end of the rainbow. If you can get us our returns, you get our investors our returns, then you get to share in the upside of that." It’s a

highly levered bet of sort of your time and attention, and we think that that doesn’t make much alignment. This is where you see private equity detonating companies; this is where you see lots of problems. I mean, private equity, you know, as an industry, when I tell somebody I’m in private equity, it’s like we look up to lawyers in reputation these days. You know, lawyers have a better reputation than we do, and for a very good reason. Like, there’s been a lot of bad behavior. And, by the way, the incentives are for the bad behavior. All

the poles of traditional private equity leverage buyout model is towards bad behavior—short-termism, treating people poorly, cutting—all these things that hurt. I mean, you’re damaging. When you fire somebody, you are hurting not just them but their entire family, their friend group; like you’re hurting communities. Now, it’s also not healthy to keep somebody in the role that they’re in because you want to fire them. That’s not healthy either; that’s not kind. We can talk about that as a separate point. What we are trying to do, though, is we’re trying to have a complete perfect alignment between our

LPs, us, and the people who operate these businesses on a day-to-day basis. So we’re trying to all eat from the same table, trying to use the same metrics. Practically, what does that look like? We are unusual in our fee model—now it’s unique. I mean, we couldn’t even get audited right out of the gate because no one knew what to do with us. We take no fees of any kind, no reimbursements of any kind; there’s no cash that comes from either our LPs or the companies to us—zero guaranteed revenue. You’re like, "How do you run the

firm?" Thankfully, when we started the firm, we were operators, so we came in with cash flow and with businesses and fell backwards into this whole thing of private equity. I remember the first deal I did… I remember it was as close to accidental as you could get. I bought a business. I remember my lawyer—um—he was like, "We just got to do due diligence." I typed into Google, "due diligence," and it was Media Cross. We still own it today. I remember getting that deal done, and I called up a friend who was like my one finance

friend from undergrad. I was like, "Hey, I did this thing. I think it's a good deal. I don't know." He goes, "Oh, you did a private equity deal." I literally Googled "private equity." Most of my career has been to Google. When I started studying it, I was like, "What? This doesn't make any sense." All the incentives are off. So, what I said was, when we came in and we ended up taking outside capital for the first time in 2017, I was like, "I don't need your fees. I don't want your fees. I don't want the

incentive to gather more and more capital, which forces you to go upmarket." We can talk about that. I said, "I don't want to be able to win when you lose. I want a win-win or a lose-lose situation. I am willing to take the risk. I wanted to be entrepreneurial because that was my background; I was an entrepreneur." So, we have a model where we take no fees of any kind—no reimbursements of any kind from the portfolio companies or from our LPs. We get a percentage of free cash flow as we return cash back. That's how

we share with our investors. Well, it turns out what that does for us is it gives us the perfectly aligned ability to reinvest in the portfolio if there are high-return, high-probability projects. We would be idiots not to take the cash, defer gratification, and reinvest it, often pre-tax, at high rates of return with high probability. That's what any family would do, right? That's what we do. That's what our investors want—they want to defer gratification. We want to defer gratification, and the same thing—we want to incentivize our leaders to do the exact same thing. So, oftentimes, the

metrics that they're measured on is on free cash flow, but again, it's not free cash flow in a short period of time; it's free cash flow over a long period. When we don't have to deal with the capital for high-probability, high-return reinvestments, the dumbest possible thing you could do is keep a bunch of cash. I call it the bladder problem. The more money you have, the more likely you are to piss it away. This is where you see these businesses being run in ways that you're like, "They are murdering money. They are destroying capital. How

in the world are they getting away with this?" It's like, "Well, they're kingdom building." They're fusion building. Their incentives are to build a bigger business because, by the way, you hire the compensation consultants that tell you, "Well, yeah, the team—the same team—and they haven't really made a great return, but the business is bigger. And, by the way, bigger businesses command higher salaries." So, you play the game. It's a bigger business; it's a higher salary, more comp. It's like their incentives are off. The firm that bought them, they're on a two-and-twenty buy, lever, strip, and flip.

Their incentives and the leadership team's incentives are often misaligned. LPs are misaligned. Everyone up and down the value chain of the traditional private equity structure is misaligned. Now, there's so much money flowing through the system, and there are enough safeguards and enough discernment over a long enough period of time; it all kind of has worked. You can make an argument that when rates are continually decreasing for the better part of two and a half decades, interesting weird distortions happen in the market. We just want a perfect alignment. We want that operator in the business to

say, "The first thing I want to do is keep a healthy business with strong cash flow. Keep the golden goose cranking out eggs. Second, we want to take the proceeds, free cash flow, and look for high-return, high-probability projects in the companies. If we can find them, especially pre-tax, fantastic! Reinvest the cash." They want to reinvest the cash because now they reinvested $100, and now they've got $25 more every other year following that. We love that too! We'd be happy to defer—we're getting $25 as well ourselves. Now our investors are like, "Of course, keep the capital.

You've got great things to do with it! Keep it." So up and down the value chain, we're completely aligned. When we should hold cash, we do, and reinvest it. When we don't have anything good to do with it, we send it out. So, is it a simple sort of like two-variable formula for all your CEOs, then, in terms of free cash flow and invested capital? Yep! Everyone's just incentivized on that. And then, do the CEOs get compensated on the cash distributed? Yep, oftentimes, yeah. I mean, it depends on the situation, where sometimes the CEOs are

rolling forward quite a bit of equity depending on the situation. So, sometimes they're getting equity or getting cash kickers on top of that, but oftentimes they're 10%, 15%, or 20% owners in these businesses. The incentive is naturally baked in. We love that! We don't want to buy 100% of a company, right? If we have our choice, we're buying 51% to 70% of the business. Sure! Here's the text with proper punctuation: "Want? We don't allow non-strategic actors. Yeah, we want people who are actively engaged in the business to own the remainder. How do you think about

hiring and firing CEOs? How do you know you have the right CEO, and how do you know when it's time to move on? It's hard; it's hard, and it's messy. The answer, since we're talking about comparing us to traditional private equity, I would say one of the things that traditional private equity has done better than us in some ways is held people accountable. I think they go too far in one direction. I think we've just been honest and transparent about it; we've been tolerant of a lack of performance to a degree that is unhealthy—not only

for the companies and the returns, but also for the people that are engaging in that behavior. This is an active area of discussion right now in the firm. I mean, I'm giving you a real live view of what we're discussing, and ultimately, it's a failure on my part. I'm the CEO; I'm responsible for setting the tone, and I deferred too much early in my career to the promises and to the optimism that things would get better when things weren't great. If you look at where we have really succeeded, it's working with people who were doing

well and making them better. Where we've really fallen down as a firm is when things get dicey. We tend to defer to relationships, and we tend to trust the people that we have, even when there are many warning signs that things are not okay. I would say this is the nice versus kind principle. We've screwed up. Being kind to somebody is saying, ‘Hey, I think you're in the wrong role,’ and they're stressed out; their lives are not enjoyable. They're fear-based, right? When you get into a position where things are not going well and you don't

know why and you don't know how to get out of it, it's terrifying. Part of our role is to help people. We look fundamentally like our job is to serve and help others. If we can serve and help others succeed, we're going to succeed; our LPs are going to succeed. To be honest, we've screwed this up. We have not done a good job of getting people the help and moving people into roles that they should be in or having them move on to outside roles, and we need to do better at it. Does it ever

work to change? I mean, I don't have a ton of experience with this working out; maybe you do. Were you to change a role like, ‘Hey, you're CEO, but you'd really make a great CTO in the same company’? Because then you create all these internal politics of like, ‘Who do I report to? My loyalties to the person who hired me?’ Where is it just easier to sort of transition and move on? I mean, that would be wonderful to be able to do that. I think that a lot of people's careers would benefit if they had

the humility to be able to do that. Fundamentally, we all struggle with pride, and we can't see ourselves clearly. We are a mystery to ourselves, and how we see ourselves in our talents and our weaknesses is often different than how other people see us. This is why we need each other. This is the whole point of relationships. This is the value and the terror of where we've gone. As a side note, with social media being so isolating and with not having in-person relationships, it's no wonder that deaths of despair, suicide attempts, and anxieties are through

the roof, right? We would love to be able to say to somebody, ‘Hey, you're in the CEO role or maybe the CFO role or whatever it is, and we need you to take a step back to move forward.’ Careers often die by suicide, not by homicide. Let’s not double-click on that; over and over again, I've watched this tragedy happen, which is the Peter Principle. Someone rises and they rise beyond their abilities, and then they can't take a step back. Their pride, their ego—their identity is rooted now in their title, in their position. You say to

them, ‘We love you; we think you're awesome. We'd love for you to continue to be with us. The role you're currently in is hurting you, hurting those around you, and hurting the company.’ They'll acknowledge that, and then you'll say, ‘Great, could we get you into this role?’ No; absolutely not. People fight and claw for territory—kingdom building. It's hard to go from being king to still being an important person in the kingdom, but you're not the king anymore. It'd be hard for me too. Would I be okay with our LPs coming to me and saying, ‘Brent,

I don't think you're the right person to lead permanent equity’? I'm not going to lie and say, ‘Oh, that'd be a great conversation to have.’ I hope that I would meet it with curiosity. I'd hope I'd meet it with self-reflection and say, ‘Wow, I really want to hear. I mean, I think I disagree, but I want to meet it with curiosity and see what they have to say and see if I could discern out of it that maybe I'm not in the right role.’ What have you learned about hiring people that most people miss?" Journey

I've been on, speaking of these added tools in the toolkit, is I've really become much more familiar with different personality testing. Specifically, I've looked at a bunch of them, and I really like the combination of Myers-Briggs and INAG. If you think about our business as, you know, we take money and we turn it into more money, I think you miss the most important thing that we really do, which is our whole business is predicated on predicting the behaviors of people. If we can predict the behaviors of people, there's no way to lose, and when we

don't predict the behaviors of people, we're almost certain to lose, like it increases incredible volatility in the system. If I think about my job as CEO, I need to be helping our team to be the most thoughtful, well-educated, and up to speed on predicting human behavior. I mean, this is where the knowledge project has been super helpful—the work that you've done collecting the best of what other people have figured out and distilling it. This is what we're all trying to pursue specifically, around the wisdom of clicking over these lenses that these personality tests provide, and

giving you a framework to create empathy and predictability in relationships. I think that's probably been the biggest leap forward. What most people get wrong is that most people don't understand why others are doing what they're doing; they don't understand how they should think about incentives based on the individual and not just the financial incentives, and they don't have much empathy for how other people react, so they take things personally that aren't personal. Everyone acts rationally in the moment. This is like the heroin addict who's choosing heroin over eating a meal or leaving their family; in

that moment, they believe they're doing the right thing for themselves and that it's rational to pursue that hit versus doing everything else. So, the question you have to ask yourself is: why? Right? The same thing applies in companies and with leadership in these firms: the question is why? What do we think? Why did that person go off the rails? How did that person suddenly disintegrate before our eyes? Or why is that person performing so incredibly well? These different personality tests—no one is in a box; no one is simply in the 16 types for Myers-Briggs or

whatever it might be. There's no grouping that will perfectly describe anyone. That's not the point. You've missed it if you think that you're going to put somebody into a box and it's going to predict 100% of their behavior. That's why I like having multiple assessments; they give you a 3D look at people. My experience has been eye-opening. I assumed that everyone else operated the way I do. I assumed people wanted what I wanted. It turns out that I am weird—so are you; so is everyone you meet. They're all unique because they are mixtures of all

these different axes of how we each sit on these things, and how they interplay and interact with one another. But I can tell you, as an example, once I understand sort of the four axes of Myers-Briggs: where do you gather your energy is the first one; this is introverted vs. extroverted. This is not how you show up in the world; this is where you gather energy. So, introverts can appear extroverted, and extroverts can appear introverted. That's where you get these very basic ideas about how the world works. You hear a little bit of these concepts

and get misperceptions of what they actually mean. So, it's really important to understand: are you getting your energy from inner life, or are you more solar powered, getting your energy from other people and from the world? The second axis is how do you process information? Are you intuitive, or are you high-sensing? This tells you a lot about where somebody starts in how they think about life. Sensors think about life in the present; they're present-oriented. They walk from the present into the future; they're very practical, reasonable, and rational. Intuitives, like maniacs like me, start in the

future and then walk back into the present. We get excited about ideas; we envision this future and wonder what it might be, how it might work, and who could come along with us. Then, a sensor comes along and says, "Excuse me, I'm glad that you're 10 years in the future right now with these grandiose visions of where you're going, but we've got to make payroll this week, and, by the way, the fire alarm is going off." So, you need both. That's the beauty of it—none of these traits, being introverted or extroverted, are inherently bad or

good; they're just strengths and weaknesses. There are always upsides and downsides to each one of these. But once I can tell where someone derives their energy from and how they process information, the third axis is how they make decisions. This is a really important one. Thinkers and feelers represent two basic categories. Thinkers are all about ideas and truth; they're seeking truth and ideas. They're very achievement-oriented—they want to get things ordered up and neatly packaged. That's how they make decisions: based on what is true and how they seek it. Feelers, on the other hand... On the

other hand, by the way, most men are thinkers. So, 70% of men are thinkers; 30% are feelers. Seventy percent of women are feelers, and 30% are thinkers. When we go back up to sensing and intuitive, it's about 75-25 sensing to intuitive. So, 75% of people are present-oriented and 25% are future-oriented. And so I'm like this super weird combination, right? Where I'm external focused, I'm an extrovert who is intuitive. So right there, I'm in the 25%, right? Introvert-extroverts are 50/50, and I'm in 25%. Then I'm in the 30% of men that are feelers. So, feelers base

everything on relationships and values; we feel our way to decision-making. It's, "How will it impact the world around me? How will it impact my relationships? How will it make people feel?" Now again, it's not like I don't have a rational side, and I can't consider ideas, and it doesn't mean a thinker can't feel anything—that's not the point. The point is, which is the primary lens that you look through in life? Right? Then the last one, which is really interesting, is lifestyle. This is a J versus a P, a judger versus a perceiver, and it's really

about how you like to move through the world. Do you move through the world in sort of an orderly way? Do you like structure? Do you like to, you have a decision to make, gather information, make a decision, and move on? Right? You like things structured. Or are you a maniac, like me, who is a perceiver, who is kind of open for whatever? I loop on things; I need to be forced to make a decision. I need a deadline to do things. So again, if you understand people based on these four parameters, then you could

really have a lot of empathy. Like my wife and I did this personal testing together in each other's presence, and I'll never forget my— you know, we're going through these lists of like, "Are you more like this or more like this?" you know, whatever. And she's like, "Of course this! Only a maniac would be that." And I'm like, "Yep, I'm the other one." And literally at one point she looked over, and I could tell by the look on her face I was like, "I have children with this man? Like, what? Who is this?" Right? But

again, we're all in our own heads. We think that the world works the same way, but for us, it created a tremendous amount of empathy—like how I made decisions and how she makes decisions. By the way, we're opposite on every single category you can imagine. That might create some friction in a marriage; same thing in work relationships. Right? You ask, what do people mostly get wrong? I think what we get wrong is we assume everyone is like us. So if you have a certain attribute set, you tend to want to look at the whole world

through that attribute set and say, "Oh, well everyone I hire should have that attribute set." Yeah, and if they don't, they're a bad fit, which is totally not true. And so we think about a lot of this stuff as we are recruiting. We think about a lot of like, "Okay, what are the things that we're asking this person to do, and what type of person would be good for that?" And then the other one that I've really enjoyed is Enneagram because it really shows you what your underlying insecurity is and what your primary drives are.

So there's nine numbers, and each one has a very different set of pluses and minuses—strengths and weaknesses. So when you're able, again none of them are perfect; you're not, it's like "Oh, I'm a B person!" No, like I'm a 3-2, okay? Right? Which in Enneagram means I’m an achiever, and I'm like kind of a people pleaser; like I like to serve. Which sounds, "Oh, he's an achiever and likes to serve people," like that's, again like look at it—no, no! It comes with huge downsides. Like my worst fear is I’m not enough. My worst fear is

if people knew me they wouldn't like me. I'm adaptive to other people, and so it's like, "Do I know the real me?" My serving of others quickly turns into people-pleasing. Do you give people personality tests as part of the recruiting process? Yeah, we do. Yeah, we really— and by the way, we don't automatically ask people as part of that. Like it's not like we're like, "Oh, if they don't fit this exact personality, then..." but what it does is it allows us, if we're getting; you know, it's usually when we're pretty serious with a candidate, right?

So we're trying to make sure that we're—what we don't want to do is we don't want to project onto them what we think they are and then come to find out later that they're not actually capable. And so when we get really serious, kind of down to the final like three to five candidates is usually when we start testing, and they often learn things about it. And sometimes we actually had this happen recently—somebody was like, "I don't think based on the testing that I went through and all that that I actually would be good for

this job." They opted out. I want to switch to acquisitions. So I think a good way to dive into this subject is: what's the playbook when you take over a company? So you go through a process internally, you come to a decision; do you guys write memos? Internally, yeah, we do what's in that memo, so we are, um, describing what I would call the overall situation of the business. Um, who are they? What business are they in? How does it work? We also think about, like, what is the core action of the business? So oftentimes,

things—our favorite deals—are ones that look weird or different on the surface. There may be a little furry, fuzzy things on the deal, or they're misunderstood, and hence the price and the connection between the price and the value is off, right? So we're trying to look for mispriced opportunities, and so, in order to be mispriced, means that something about it is either risky that we can, we're doing jobs right, you know, this is assuming we're correct in how we do this—not always correct, but we're trying—means that there's a divergence between the risk and our ability to

mitigate it, and other people's ability to mitigate it, right? Or there's a lack of information that the other parties have based on their ability to dive into the, um, weeds on a deal. And so, uh, we like things that are misunderstood. I'll never forget, um, the second large deal I did was on a pool business that we still own. We've never sold anything, so, I mean, we still own everything. I shouldn't keep caveating that. It's not like we've sold anything. So, um, but the pool business, I remember talking about it with you back in the

day, and you know, most pool builders get big because they partner with, uh, development firms, and they go through these massive boom and bust cycles, and it's feast or famine all the time. The other thing they do is they're tempted to be vertically integrated and do all the work themselves, right? Because you make more money at every step, you know, the more margin, but you're constantly then, in the booms, hiring a tremendous amount of people, which creates cultural issues, tremendous liability, all kinds of—I mean, it's just madness. Margins end up not being nearly as good

as you ever think they should be, and then in the bust cycles, you're having to let go of a whole bunch of people who you want to keep, but you have no choice because the business will implode, right? And so there are two unusual things. When I first got the deal memo on this, I remember thinking to myself, like, uh, pool builder—a big pool builder—like, largest single-location pool builder in the country. So, like, at the time it was really large, and I was like, yep, they partner with—they're probably vertically integrated; they probably partner with, um,

development firms, and like, that's just not, you know, that's not something we want to do. And then I started asking just a few questions. I was like, hey, can you tell me what percentage of your revenue is direct to consumer? Yeah, I was expecting it to be, you know, 10% or 15%. It was 97%. And then I said, oh, interesting, like, what is your capex, capital expenditures on an annual basis? And it was like microscopic. I was like, weird, tiny capex, good free cash flow, direct to consumer, man, that's a really durable business. That's an

example of, like, the risks we were taking and the way that the company appeared. Like, the core action of that business is they are in the business of marketing pools—like selling pools and then handling the logistics—but they're, you know, they're subbing out the actual construction, the hiring, the firing, the risk—all those things, the boom and the bust—to other people. And what that creates is a very capital-light, highly efficient, high cash flow, high durability business that, again, everyone else was looking at as a “quote unquote” construction business. So other people that may be interested in it

were turned off, and they're like, no, I don't want that because that's a—I’m going to put that in the bucket of construction. I don't want to take that to a, you know, my senior partner or to the loan commit, you know, to the investment committee and say, um, hey guys, I think we should buy a mom-and-pop construction business in Phoenix. They're going to be like, what in the world’s wrong with you, right? Versus we look at that and we're like, ooh, that's really attractive. Yeah, so those are the types of examples. So we're probably to

put all that into the memo. Um, we're trying to put all in the memo the things that we think are holding it back. So first principles—like, let's go to kind of first principles on a business that we would acquire. So this is a business that's long-tenured. Um, they've been around for, on average, a long time, and they're still fairly small. So something is holding it back. We think of it as the kind of lids on the business, and we're trying to figure out why they aren't bigger, right? There’s something—so by definition, there’s product-market fit. If

we're acquiring it, by definition, there’s some sort of moat. So a moat being defined as you can generate above-average returns on invested capital. There's something unusual about the business that has allowed them to get into business, build the business into a successful, again, minimum sort of three million dollars of free cash flow—not a hard and fast rule. We've done some smaller deals, but on average, for new platforms, we're, you know, three million. That means there's something special about the business; it's really good in some ways, and on the flip side, if it's not... Bigger and

has been around for a long time, there's something holding it back. Holding it back. And so our job is, through those memos, to collect all the findings of where's the moat, why do we think it's transferable, how durable do we think it is, and on the flip side, what do we think the opportunities are for growth, and make sure that all of that triangulates with price. Of course, um, I had the privilege of spending some time with Buffett at one point, and I asked him this battery of questions, and he kind of, I think at

some point, got frustrated with me. I was probably being annoying, and he said, “Price is my due diligence.” It was kind of like the showstopper—a drop-the-mic moment. He was like, because I was asking him all kinds of questions like, “How do you think about this?” or “How do you think about that?” and ultimately, he said, “I use price as my major due diligence filter,” which I thought was brilliant. It’s like this simple heuristic: the higher the price you pay for it, the more you're pricing it to perfection. The more things have to go right, the

lower the price, the more you can absorb things. And so, you know, we are, because of the nature of these being smaller companies, they're messy; they've got some weird stuff going on. Usually in these things, they're not bigger, so there must be some lids on these things. We're trying to figure that out and we're trying to correlate that to price. The cool part is after close, like all the problems are merely opportunities. I try to remind our team of this all the time because you get in these operating situations; there's a lot going on. Sometimes

relationships are very strange; there's weird power dynamics—all this stuff's going on. And I say to them, “Yeah, it's hard, but this is what we get paid to do. Like we're in the business of shaving fur.” So, do you have projections in this moment? Yeah, we’re, um, do you like to do three scenarios—like base, upside, downside? How do you think about that? Yeah, we’re trying to stress test where we think based on the history of the business it’s going, often assuming for most of the deals we do that there is no growth. We want the business

to underwrite with no change in trajectory. If it can’t stand on its own, like we’re not big on quote-unquote synergies. We’re not big on trying to do this massive change; if the business has been operating a certain way on a certain trajectory for 30 years, it is nothing but hubris to come in and think that within a short period of time you're going to completely change the trajectory of the business. Yeah, it can happen. There are some tricks and some outside perspective that you can kind of look and see and run a playbook from time

to time, but for the most part, like there are no easy solutions. Like I was talking with a Harvard-educated searcher the other day—actually, when I say the other day, it was probably a year and a half ago—and he bought a business and had all these grand plans. He was going to introduce all this technology and all these changing systems; it was an old-school business, and he was going to revolutionize it with technology. And this is kind of like if you go on Twitter; I don't know what we call it, or whatever, the group of people

that are trying to do this SMB land or whatever—this is often the dominant narrative of people who haven't done it, right? So, people who haven't actually been in the weeds, who haven't bought a business, or who haven't tried to change it, it’s like, “This is super simple: you buy things for cheap; huge amount of upside, you go in and you transform them; these guys are idiots.” Yeah, these guys are idiots; they don’t know what they’re doing. It’s like, dude, yeah, you may have been to Harvard; you may be well educated; that guy's been working in

the business for 30 years. Do you not think that he knows everything you know and far more? Of course not! So anyway, this guy came in, he had all these grand plans, and I talked to him about, I don’t know, a year later—like six months ago—and I was like, “How's all that going?” and he was like, “Oh my gosh, I haven’t done anything that I wanted to do.” I was like, “Oh, interesting! Tell me about that.” And look, the business is actually doing well; like, he’s glad he bought it. Yeah, yeah, but how it went

post-close was not filled with, “Oh man, this is perfect! Now we can hit this huge growth trajectory.” Or whatever. He’s like, “Yeah, our servers went out like the second day on the job; the phones don’t work; we have all these issues; the head of sales left shortly thereafter; had to rep—,” you know, it’s like this constant firefighting mode running a business. The only people who think buying a business and operating it are easy are most of the people who have never done it. There’s a small group of people who got lucky the first time, and

usually, the second and third time they get smoked. I mean, look, we took the better part of a decade toiling away in obscurity doing things like, you know, I joked that like we were running the world’s smallest family office for a good amount of... Time there just slowly compounding, trying to learn systems, trying to get you. I mean, we were just getting smacked around constantly, but that then allowed us, through that decade, to get good at this. And then we were able to scale. Like, if I had been given fifty or a hundred million right

out of the gate, I would have lost every penny. Yeah, and this market is so inefficient, which is, by the way, good and bad. Inefficiency being defined as, can you make a lot of money or lose a lot of money depending on skill? Right? So, like, the argument is: if I gave you a million dollars to invest in the stock market and I said, “Hey, I’m going to let you keep everything you lose,” right? So lose as much money as you can, and I’ll give you 60 days to try to lose as much money as

you can in the stock market. Yeah, it'd be really difficult for you to lose a lot of money. Yeah, in fact, you might end up making money in the private markets. Like, give me 48 hours, and I can lose a million dollars—like, it's super easy, right? Which means skill really matters. Which means if you want to have it as a career, there's a lot of value in honing your skill set. So to me, that's the ultimate mode; it's very simple what we're trying to do, it's just really, really hard. And judgment matters. And so, that's

the reason why we put everything out on the internet. Like, we literally have our entire playbook on the internet. Like, you can go on the Permanent Equity website and you can see our entire due diligence toolkit—like, not only just the questions we ask, but the why underneath each question. Why would we do that? Doesn’t that spark a bunch of competitors? Doesn’t that help a bunch of people? Yeah, sure, helps everybody, helps everyone. Yeah, and we're stewards, and we're unconcerned—there's abundance. Do you go back a year later or is there a milestone, like a predictable milestone,

where you go back and you review this memo? And now you've owned the business for a while—like, what can we learn? Yeah, we actually do this quarterly. So, every single quarter we have, um, we call them baseball cards. They're like one-pagers, maybe a little bit longer than one-pagers, that explain the overall strategy, the overall purchase price, the rate of return so far, where we've done well for the wrong reasons, where we've done well for the right reasons, vice versa. So it's like the entire memo is a constantly updated living document of every single investment we've

ever made and how we're doing—almost like Value Line for your businesses. Yeah, for sure! And like, but here's the thing: how would we do it any other way? Yeah, like, if we're in the business of investing, of buying small private companies, trying to make them better, we've got to learn; we got to get better. Like, how would we know if we were getting better or not? How would we know? How would we learn if we weren't doing a lookback? So, I mean, to me, it's just, of course, obvious. And I mean, look, if we're not

good at what we do, we should do something else. Like, don’t waste this life doing things that you aren't good at, for God's sakes. Like, that'd be terrible. Do the CEOs make that baseball card, or does the—because you guys—what’s your structure? You have almost like a portfolio manager who’s in charge of multiple CEOs? Yeah, so right now our structure is we have a dual hook-in structure post-close, where our financial team and their financial team hook together. Okay? And we're constantly getting feedback loops of what call information from that. So our goal with our financial team

is keeping score; that's the easy part. The hard part is giving actionable real-time information to all the stakeholders to make good decisions, right? That’s their primary role: to help those companies, which, by the way, this idea is completely foreign. We come into most of these small businesses and they're like, “Yay! Yeah, we give all our stuff to this accountant, and the accountant tells us how we did.” We're like, “Sure, that’s not what we're talking about at all.” What we're talking about is, on a day-to-day, week-to-week basis, what are the metrics you're looking at? How accurate

are they? How updated are they? How can you make decisions? Right? So we’ve got a back group that’s working with them to try to increase the quality of those feedback loops. And then we’ve got, you know, what I call like a board of directors in a box model where there's one point person for Permanent Equity that accesses all the resources of Permanent Equity and kind of is the Sherpa, the guide for the person internally. So, “Oh, you got an issue with marketing, or you need help with that?” Like, we've got external and internal resources: recruiting,

external and internal resources, legal, external and internal—you know. So we've got all these—you sort of, um, helpers that we have, and that person's job is to help direct them as well as govern the business. Those are updated based on the constant feedback loops of the business over that course order, uh, in concert with the leadership teams. But we’re mostly doing the authorship of them. And then you don’t step in and, like, start issuing directives? You want the finance plugged in, and you want the metrics that they’re looking at, or you want specific metrics for you,

or both? We want information every which way. The more high signal—we're trying to separate the signal from the noise, right? So there’s tremendous amounts of information being... Thrown off by these businesses that don't matter, we're trying to get down to a handful of metrics that we can agree on with the leadership team and us, working in concert to understand what they're telling us. Um, that's actually one of the most difficult things post-close: just getting on the same page about what matters totally, and when it matters. And again, we're coming in hopefully with high humility, saying

you all are the experts, we're not. Yeah, but we're asking questions like, "Okay, well, if that's the business model, wouldn't it make sense that this would be a leading indicator?" And sometimes they'll be like, "No," and we’re like, "Oh, interesting, tell us why." Right? We try to come at it from that perspective, instead of just telling them what we want to see. We ask, "Do you think this would be helpful? What are you looking at and why? Why aren't you looking at this? Why are you looking at this? How does this work?" Again, this is

not rocket science; it's like treating people as humans, being humble, being kind. Long-term, things usually work out. Do you do anything within the business from the first day, or are you just sort of assessing? What's the reporting cadence back to you? Is it weekly, monthly, quarterly? Yeah, so we are usually in touch on a weekly basis. Depending on if we're going through periods of negative change or positive change, then we're more active and helpful—being supportive, being corrective maybe if we need to be. If things are in the box, smooth sailing, no storms on the horizon,

then we can be a lot less hands-on. We always tell our leaders, "We're always available; everyone has your cell phone." Like, yeah, you can get in contact; we're the easiest people in the world to get in contact with. Yeah, running a business is lonely. If you've never run a business, if you've never been in the CEO spot, you can look up from the organization, and it looks rosy. "Oh, look, that person gets paid a lot more; look at all the freedom they have. Oh, I want to be the one to set vision and whatever." Looking

down from that position, there's usually no one to share sorrow with; there are no frustrations. You’re isolated. So one of the things we do is just try to be relationally connected and offer to be a release valve for the very natural human tendencies we have to be seen and heard, to blow off steam, and consult on difficult situations. You know, again, it's interesting going back to personality typing. We try to understand for our CEOs if they're internal or external processors. That's a really important piece. If you're a CEO as an internal processor, then you can

go away with your thoughts and be fine. If you're an external processor and you're the CEO, you have no one to external process with, or you end up creating inappropriate relationships with people who work for you. Yeah, so that’s fraud. One of the things that we can do is, if we're adept at that and understanding the people, then we can say, "Hey, that person's an external processor; they need somebody to talk to. Come talk to us; let's work through things." The only things I would say we're aggressive about post-close in the short term is if

there are just any laws being broken, which sounds funny to say. My guess is 80% of the small businesses out there are either knowingly or should know that they're breaking some sort of rules. There's a lot of government regulation depending on the state you're in, and often, by the way, federal regulation, state regulation, and local regulation will oftentimes conflict with one another. It requires a tremendous amount of background and understanding to know how to be in compliance. I wish they'd simplify this; the amount of stuff you have to keep up with is just insane, astonishing.

Yeah, why don't you do a totally hands-off model like Buffett? Just because it would miserably fail in the scale of business you're dealing with. Why would that fail? People get divorced, people have health issues, people die, people lose interest; things are constantly changing. The ability to self-replicate is unbelievably rare. The reason why we are in the position we're in, to be able to buy these businesses, is because we are the best option for the business to transition. Oftentimes, there isn't a family member who has the capacity—either financial capacity or talent capacity—to be able to do

it, or some combination of both. These businesses are not ones that you can just leave alone; there's no passive income in working in small business land. Another way to think about it is like, you know, sort of buying an index of small businesses, right? I mean, from time to time, people come up with this idea of, "Oh, what if you just put like $1,000 with, you know, a thousand of these small businesses and created like an index?" The reality is over a long period of time that index is zero. It's really hard. The governance of

these things is difficult; the norm for most small businesses is entropy, decay, and dying a slow death, being wound down. That's the norm in the small business world. You have to fight to grow; it takes dynamic leadership, it takes vision, it takes risk-taking, it takes capital, and it takes mitigating risk. You’re doing all these things. Yeah, the ability, um, to do that is non-existent in our area of the market. By the way, having spent time with both Buffett and Munger, they would say the same thing. Go deeper on that. When you look at them early

on in their journey—so this is like, let's go back to the Buffett Partnership; let's go back to actually when Buffett first met Munger. Buffett was invested in Sandborn Maps and Dempster Mill; those are the two primary investments. I think this represented 70 or 75% of the assets of the Buffett Partnership. One of the things that Buffett and Munger connected very early on about was struggling businesses and the struggles he was having with those two businesses. Um, you know the story; I think it's been told a number of times, but it's not often remembered because of

where they are now. There have been like five seasons of Berkshire, and where they are now bears zero resemblance to where they were in the early days. Where they were in the early days is where we are—where we like to play—and this is where, again, by the way, they said they generated the highest returns: the smallest amount of capital, the highest returns, being able to access small companies. But, uh, Dempster Mill was a disaster. Like Buffett had gotten sideways relationally with people, and he was kind of desperate. Yeah, and he met this guy, Charlie Munger,

with whom he started to develop a relationship. I mean, they actually talked about it at the annual meeting this year, um, kind of how they got together. They had a family that brought them together, and when they met each other, it was like kindred spirits. They stayed in touch, and one of the things that Munger asked Buffett was, you know, "What problems are you facing?" Buffett was like, "Oh, I've got this business that, like, I don't know what we're going to do; it's upside down." Sandborn Maps is a whole different story, and it was kind

of upside down in a different way that worked out. But Dempster Mill was just a mess. Like he needed somebody to go to the middle of Iowa (I think it was Iowa) and fix this company and get it fixed up and make money in that business. He didn't have anybody because he was a, you know, stock investor, passive investor, and became activist and active in that business by the nature of how much stock he bought. And again, this is where, you know, look, the balance sheet was stuffed: like they had a lot of resources, low

free cash flow yield—all these things that we get access to as well in our area of the market. He got access to them in his area of the market, right? Things just don't work out, so you get sideways operating issues, the value of the business starts to go pear-shaped. Um, and so he got in touch with Munger, and Munger said, "Hey, I know this guy, Harry Bottle." Yeah, this is a famous Harry Bottle story. They convinced Harry Bottle to move his family from Los Angeles to the middle of nowhere, in the heartland. Harry Bottle fixed

the business; they ended up selling it. And that—I mean, Buffett said without Harry Bottle, without Charlie Munger, without a few of these things going a different way early on, there is no Berkshire, there is no Warren Buffett, there is no institution the way it is today. One is it's good to acknowledge just how much luck plays a role in all this stuff, totally, right? I mean, like, a big part of humility is just acknowledging we're far less in control than we really think we are. Also, when things do happen and you do see a need,

talk about it, voice it, see how you can access people and resources. And so, um, I would just argue that no one can take a business that's small, loosely functioning, sometimes makes money, and leave it alone. Uh, these are highly variable assets with very difficult attributes about them, and it's a knife fight. The other story is like Berkshire Hathaway, right? If you think he was hands-off and not in touch, I think it was Malcolm Chase who took it—yeah, yeah, like they were talking daily. Uh, and he—he wouldn't let him reinvest in the business, but he

knew the numbers better than Chase did. He still knows the numbers better than I would imagine a lot of the operating CEOs do, for sure. I mean, Buffalo News—like, Buffett and Munger were very, very active in many of their situations. Now, as they've gotten into massive businesses that are, you know, you're hiring really high-powered, really high-paid operators, like they're going to be better at the operating than they are. So, I mean, at a certain point, like, it flips, and you have such access to capital and such a need for size that some of those problems

take care of themselves. Now you've got the other problem, which is the fact that Berkshire hasn't beaten the market in 20 years, 25 years now. Yeah, well why? Because they're so freaking big. Yeah, so you've got—I mean, there's problems either way, and there's pluses and minuses either way. You just get to choose which one you want to engage in. Where do people go wrong doing what you're doing? As they scale, they try to go too fast, uh, too soon, assuming they know too much. So we, from the time we bought the first business to the

time I bought the second business, was four years—four years of toiling away and correcting and learning and trying to get a good foundation of... Capital and into position to do the next deal. Now, we were looking for deals in between, but it's hard—buying one business, one small to medium-sized business, negotiating it, documenting it, closing it, operating it, and having some sort of either through distributions or through a sale positive outcome one time is brutally difficult. It's a brutally difficult thing to do. Now, get to do that again, and again, and again. And, oh, by the

way, this is an interesting dip that happens where now you've got, let's say, you've done this three times—three brutally difficult times—and you’ve just now cash flowed them, so you still retain them. So now you've got a portfolio of three companies. Well, now you can't be CEO of three companies, I guess, unless you're Elon Musk, and you know somehow he's figured out how to do this. But most normal people can't even operate one business well, let alone two or three, so you've got to make a choice. Okay, well, now I'm going to take my free cash

flow from three of these companies, and I'm going to build a layer of overhead to be able to then scale and manage. So, somebody's got to be out there looking for deals, interacting with capital partners. Diligence really matters—legal due diligence, financial due diligence, technology due diligence. Somebody's got to be managing all of that, documenting it, negotiating that process all the way through. And then, of course, post-close, operating these things, right? It's a lot to worry about. Oh, and by the way, you've got regulators all mixed in there as well. There are a lot of places

to hit a pothole. And so you say, "Whoo, I'm working 100 hours a week every week, and yeah, we're making a bunch of money, things are going great." I'm making up a scenario, but now you've got to basically take all of your earnings, all the free cash flow of your business, and go to zero again. So, you start at zero or with very little, you invest it, you do well, you do well, you do well, you run the gauntlet two or three times. Now you’ve got to go back to zero because you've got to take

all your free cash flow and reinvest it in that next layer. That's brutally difficult. Now, you've got a whole other set of issues. Now you've got meta problems at the head level. Now you've got personnel issues, now you've got culture problems, now you've got technology issues, and now you've got an operating business that's trying to operate businesses. And you've got the same issues in the operating business, the parent CEO, as you do in all the smaller businesses. It's brutally difficult. And then you go through another phase where you're like, "Okay, now we've got a tight

group of people. It's a small group. Now we've got three, four, or five companies, maybe six." Well, now you've got to build a much larger organization. You've got to go through the whole cycle again. So, every time on the way up the cycle, you've got to pass through this gauntlet over and over and over and over again. I mean, it is a miracle that Permanent Equity has 15 companies. It's a miracle. It's a miracle that we have a team that, for the most part, loves each other and cares about each other and wants to do

good things. Like, literally, not a day goes by when I don't think it's a miracle. And by the way, the future is not secure. Like, we might screw up badly, and so there's always work to be done. There’s no free lunch; nothing's easy. So why do you do what you do, given all of that? I think I have the best job in the world. I get to meet extraordinary people from very different cultures around the United States. One day we'll be doing a dinner in New York at a Michelin-starred restaurant, and the next day we're

eating at Hardee's in the middle of Ohio. We will go from Oregon to Florida to New Mexico. The cultures are different, the food's different, the people's different, and the businesses are all different. I mean, I can't imagine. We have a blast doing what we do, and it's hard, and it's stressful, and it's tiring. Why do I do it? Because I feel called to help families transition. I feel called. I mean, you know, in my paradigm as a Jesus follower, work is pre-fall. Work is for our good. Work is something we should engage in deeply. This

is our co-creation that we get to do. And I feel that; like, I feel that on a daily basis. There are thistles and thorns, and it's difficult, and it's fallen, and it's broken, and it's messy. And so that’s life, though; that's what we get to do. And I can't imagine a better job than getting to serve the families and the institutions that give us capital, that trust us with their capital for 30 years. The amount of trust that they have with us to give somebody capital for 30 years—there's nothing you can get back in 30

years. I don't take that lightly; that's incredible. I feel honored that somebody would trust us that much. I want to serve them; I want to serve them well. The families that sell us their life’s work, sometimes generational work—like, that is a heavy burden in some ways, and what an honor in other ways. And then all the people who we get to work with who are trying to be as excellent as they can at their craft—like, I get to interact with so many interesting. Uh, people, and we get to do such interesting things. I don't know,

like I said, I think I have the best job in the world. We always send out the same, um, question, which is: What is success for you? Uh, success would be to be an ambassador of the Kingdom of God. My life transformed, uh, when I became a follower of Jesus, and I, uh, I've been rescued. The thing that I want to do most is to— we're called to love and serve people around us. Um, we worship a God who condescended Himself into the physical realm—who's the author, who wrote Himself into the ultimate book of reality,

and came to serve, not to be served, and to, um, rescue. I want to, with that same love that I've been given, give that to other people and serve them well. What a beautiful way to end this conversation. Thank you!