Buyers and Builders
00:37:05 · Mikk
[00:37:05] S0: Is there anything else you can share when it comes to talent? Why I'm asking this is maybe trying to get some of the lessons you learned yourself, lessons you learned from Alpine because they've been doing that for even longer. I'm asking this, maybe there is a potential seller watching this interview or listening to this interview, and they're thinking of whether to sell to someone else or whether they should be selling to you. And they are very interested in rolling equity into Evergreen because it's a it's a growing asset, and they're very excited about this. So what they can expect maybe when it comes to this talent part? Maybe you can share more.
00:37:43 · Ramsey Sahyoun, Mikk
[00:37:43] S1: Yeah. Yeah. I I... You know, I think typical private equity will be like, you know, we'll buy 70 or 80%. The founder will, you know, maybe roll some equity and then we'll sell it again in in three or five years, but they're not really making the business better, they're just kind of like riding the existing team for, like, one last three to five year run. And and I think what what Alpine noticed and instilled in us is just this belief that talent drives investing... You know, management talent drives investing outcomes. And so it's not acceptable to just focus on, you know, the levers you're gonna do on pricing or sales and marketing or cost, like, without addressing the talent piece. Do you have the right talent in the business? How can you supplement? Like, what talent can you add to the business that's just gonna change the trajectory of the company? These are small businesses. Like, one person can move the needle on on the results of a business. So, you know, I think first and foremost, we think about that. We just try to have a view into, you know, what talent can we add to this business to help it get to the next level. [00:39:17] S0: You have so much data. It's it's it's question for maybe listeners. What have you learned about the difference between motivating a founder who rolls equity and motivating a non founder CEO you install after the acquisition? Maybe you can share some of the data you've seen.
00:39:36 · Ramsey Sahyoun
[00:39:36] S1: I think with a founder who has already had a big liquidity event, there are things you can do on incentives, of course, like rollover equity helps. And we have a long term incentive plan that I'll talk about a little bit. And and and that... Those those things help. But I think with founders, there needs to be some intrinsic, more qualitative level of motivation. Like, they gotta feel connected to the company. They gotta feel empowered. They gotta I think with a founder, think it's a lot more qualitative. And then I think with a hired manager that hasn't had a big liquidity event, like, they could be more motivated with incentives. I think that would be kind of like my overarching learning. As far as like how we incentivize people that lead our individual businesses, we have incentive plan. I won't get into the specifics, but we call it the Multiplier's Club. It's all about, you know, doubling the earnings of a business within a five year period. And then there's it's rolling, so obviously you could do more than double a business after that. But it's entirely within the control of the operator, and I think that's really an important aspect. Like, it's not at the holdco level. It's it's focused on the individual business that that CEO is running. Yeah. So I I think that's another important thing is to just make it, you know, and you need to have incentives that people can actually affect the outcomes on. Like, it doesn't make sense to, you know, judge or incentivize someone based on, you know, what acquisitions we're doing. And it doesn't make sense to, like, incentivize someone that's running a MSP in, you know, Washington DC with, you know, based on how much M and A we do in the ERP consulting space. Like, doesn't make sense. So I think tying it to something that the operator can really have control over is critical.
00:41:54 · Mikk
[00:41:54] S0: Now again, when it comes to all the data you've seen and if we take the acquisitions, which are so called best performing, and maybe we take the ones which haven't been as you expected. So obviously, there isn't like a red line between there. It's about those small things. But what would you bring out when it comes to the ones which did very well and the ones where maybe you made a mistake with this certain acquisition, specific acquisition.
00:42:26 · Ramsey Sahyoun
[00:42:26] S1: I think there are things that are... You know, we do these postmortem analyses of... And we do have a lot... You know, we have over a 100 data point, you know, a 160 data points now on on acquisitions. So, I I think maybe a few things that that we've learned through those. Customer concentration, you know, that that is a that is a thing that people pay attention to, like how much of your revenue is concentrated in one customer or five customers. That's a risk that people pay attention to for a reason. Like, that we... We've... It... It's it's pretty clear that, like, businesses with high customer concentration tend to underperform businesses with lower customer... With a more diversified customer base. I think we have actually found another counterintuitive, maybe counterintuitive thing we found is that our businesses that have generally lower profit margins when we buy them, we're able to grow those businesses more more quickly and expand margins, and I think that sometimes businesses are highly optimized before they're sold to you. And that can be tough because you don't get an opportunity to optimize those businesses, and you're having to invest a lot, in some cases, just to stabilize the business. So, yeah, we we've been focusing a lot on companies where there's been real investment in the team and growing the business, and maybe that's translated to lower profit margins. But we can benefit from that in the future by not having to hire as much when we grow... When we add new customers. So I think those those are a couple of things that are kinda top of mind for us right right now. We just... Our most recent postmortem analysis was just sent around, and those were a couple of the takeaways.
00:44:22 · Mikk
[00:44:22] S0: Did you ever expect to grow this thing so large in in short ten years? Was it like a plan, or you just did your work, gave your best, learned from each other, learned from Alpine, and just went went doing this day by day? Or how has it been?