Buyers and Builders
00:33:37 · Chris Rolls
[00:33:37] S1: It's an interesting one. Shelley was actually internally within PieLAB in our business development team. And her role was to get in touch with businesses, start the conversation around are they interested in... You know, have they sorted out succession? What are they thinking of? Are they gonna hand the business down their children? Are they gonna sell it? So that it increases our dual flow pipeline. And in Australia, unlike a lot of countries, we don't have much publicly available data. So you look at, you know, some of the Nordic regions in in Europe where irrespective of the size of the business, they have to lodge their accounts and and those accounts are publicly available. That doesn't happen here in Australia. A business has to be a very big business in order to be required to lodge their accounts with the government. So... And and on top of that, we don't have... We have, you know, pretty strict privacy rules. So it's actually really hard when you see it... Have a business name. You might have ABC Proprietary Limited Business or abc.com.au. You know, you're trying to work out, well, who owns that business and how big is that business and does it make any profit and how long have they been around. All of those questions are very hard to find out in Australia. And what Shelley, did over the last couple of years is she really went deep on AI. Now she doesn't have a computer science background or a data engine... A data science background or anything like that. She was just inquisitive, which by the way is one of our values. We are... We have four values and one of them is around being inquisitive. And she was exactly that. And she spent her own time outside of work really researching, understanding how you could use various AI tools. She taught herself to code in Python. She basically eliminated hundreds and hundreds of hours on data research to find out who businesses were. She created a suite of tools that we're able to take a spreadsheet of say 500 business names and URLs, put it into the tools that she's created and come out with perfectly cleansed data. Even down to the level of detail of, you know, when was company founded, who are the directors, where do they live, how many employees do they have. And she did all of that with AI. And then we noticed that, well, actually that information can be very useful.
00:36:01 · Chris Rolls, Mikk
All of our businesses are b to b. That information is pretty useful when it comes to helping the sales teams and other businesses. And so we started doing some work helping them cleanse data and find information for potential customers. And then she started using her skills to help our internal accounting team, reduce the amount of work that they were doing to automate certain processes. And we thought, you know what? Her skills are far more valuable helping everybody else across our portfolio implement artificial intelligence and automation than it is as a business development manager. So we moved her into the role. So we didn't recruit her externally. We... She she, I guess, grew up through the organization and she's doing a great job. It's been incredibly valuable. [00:36:49] S0: We need more people like Shelley. [00:36:51] S1: Absolutely. She's definitely a textbook case of what you can do if you put your mind to it. [00:36:57] S0: Now one thing is automation. What else have you improved when it comes to portcodes? And what has been the feedback from those CEOs of portfolio companies? Because not all of them are like Shelley who are willing to learn new stuff.
00:37:11 · Chris Rolls
[00:37:11] S1: No, they're not. Although, if you've got the right CEOs, then they should be reasonably entrepreneurial and be looking for ways of of doing things better. You know, when it comes to implementing things in our portfolio companies for clarity, our business is run-in in a decentralized manner. So ultimately, the CEO is responsible for what they do. They call the shots. Their job is to generate profits and send us the cash. And so, you know, we largely leave them to do that, but we provide them with the opportunity to get help if they want it from people like Shelley. And so some of them run these programs internally, some of them don't. Some of our businesses are in the technology space. So, you know, those those businesses are often more advanced, you know, when it comes to take up of new technology than some of our others. But it really sort of it it it really depends like the use cases of a a very, you know, wide and and varied. I talked about the the invoicing one that we did in our exercise physiology business. You know, I'll tell you what we have done, which is just... It sounds so basic, but, you know, a deep deep dive courses around how to use AI. And that might sound simple for a lot of people who are, I guess, you know, open to the use of new technology. But if you think about some of these businesses, you might take a business like, say, our strata management business that has 50 or 60 people in it. They've been in the strata management industry most of their lives. It's not an industry that embraces technology. Just showing them how they can, you know, use, for example, artificial intelligence to decode strata management laws. So there's an entire, you know, government act around all of the laws that they have to abide by. It's hundreds of pages long, and it's not always clear how they should act in certain circumstances. And what they used to be doing was getting the act out and scrolling through pages and pages of PDFs trying to find certain sections that says, okay, in this case, here's what you need to do with the act. Now, of course, with AI, you can do that in a fraction of a second if they were using it. But if they're not using it, of course, they don't get the benefit. And so sometimes it's just running them through, did you know about tools like Notebook LM?
00:39:36 · Chris Rolls
Did you know that you can connect folders, you know, on your drive into co work and have, you know, Claude, you know, go through folders and and pull out certain contracts or certain information within contracts. All of those really basic use cases can save a lot of time and money in a small business. I mean, is, you know, every small business that exists, well, certainly in Australia have employment agreements in in place. And periodically, people would need to do things like, gee, I know one of my employees is thinking of leaving, how much notice they have to give me? And what historically they would do and everyone would do is they would find the employment contract and maybe it's a five page employment contract and go through the five pages and work out what the notice period is. Now if you've got all those employment and contracts in a folder and you just point an artificial intelligence tool at it, well, you can find that information in a second. So it might only save ten minutes each time you do it, but multiply it across hundreds of people across all of our portfolio companies and these sorts of incidents happening hundreds of times a week. It's it's many, many, many hours that you can eliminate.
00:40:52 · Mikk
[00:40:52] S0: Chris, when it comes to creating value, we cover three things. Increasing the prices, trying to reduce the cost, and number three was just simply selling more products and services. But there is one more. There is those add on bolt on acquisitions. How big of a fan of this are you and how many of those have you you done when it comes to portfolio companies and and growing them?
00:41:16 · Chris Rolls
[00:41:16] S1: Yeah. We haven't done many. It's not... I mean, when you think about it as as an investor, as a capital allocator, there's a handful of things that you can you can do when you have excess capital. I mean, you can return it to shareholders as a dividend. You can turn it to shareholders as a share buyback. You can make an acquisition or you can so make a fresh acquisition. So for us, a whole new portfolio company. You can buy a bolt on or you can invest in the growth of your of your portfolio companies, maybe putting more sales people on them. And they're really give or take a bit. They're your five options. And of course, you know, what you wanna do is focus on the one that gets you that the highest return on capital. So on the assumption that we can get a higher return on capital than our shareholders can, then we don't pay it out as a dividend and we don't. You know, so what is the best return on capital? Usually for us, usually, it's buying a whole fresh new portfolio company. And so that is generally our preference. But every now and then, the opportunity comes for a bolt ons, bolt something into an existing business and we've done that once again and we've we've used the strata management industry as an example. We've made two bolt on acquisitions in that space. And that's because the small businesses go for very low multiples. So you're buying those at a very low multiple which means your return on capital is high. And the reason they're low is because a very small strata management business doesn't make any profit. But if you effectively buy that business and what you're buying is the contracts to manage a strata management business and you put it into a business that is already operating, you can very often eliminate a lot of the cost of that and the revenue, a high proportion of revenue goes straight to the bottom line. So they're very value accretive acquisitions. But they're not without risk. And one of the things that is always, in my view under underestimated is the is the... You you assume that you're gonna make these... Have these synergies and what is underestimated is the risk. And in particular, cultural risk. Are the people in the business that you're buying gonna fit in with the people in the business that you're you're merging into? And if the answer is no, it can be a very expensive exercise.