Prof G Markets
00:11:26 · Luca Ferrari
[00:11:26] S2: The, let's say, the investment part of what we do is absolutely important. Clearly we grow primarily through acquisitions or serial acquire. The part that would distinguish us from any private equity I've seen, I would say there are three very important differences. And one is that we are not a fund, we don't buy to sell, we've never sold a material business, so we buy to hold and operate forever. The second, perhaps more important difference is that when we acquire a company, at least T private equities I'm aware of, or I've seen operate, they do intervene, obviously they may cut costs, maybe intervene on monetization, they may change the executive team, but the interventions are relatively, relatively superficial. And you can tell by looking at the team at private equity firms, it's mostly small teams of financial professionals. Banish Spoons takes a different route, we do those things as well, but we take a different route in that we rebuild the org often completely, or in large part, we may re architect the cloud infrastructure completely, rewrite big chunks of the code base, accelerate product development, reimagine monetization from the ground up marketing. So it's a much, much deeper transformation to the point that sometimes we, it's almost like we buy brand customer base, user base, and try to overhaul everything else very deeply. And that, again, that's represented in the in the team we have, which is, even if you look just to the core team, forget for a second the acquired teams, that's roughly 800 people, and overwhelmingly, they're software engineers, data scientists, product managers, product designers. So naturally, you know, most of the work we do is that sort of work. We also have our our... We we have our own team of financial professionals because we need that too, but there's this additional piece. And the and the third big difference is that while pretty much all private equities buy businesses and they keep them separate to sell them down the line, sometimes they put a couple of synergistic businesses together, but that's the extent to which they put things together. We integrate everything super deeply onto the same platform. An investor some time ago told me that after due diligence in Bending Spoons, that they found that we... It's almost like we buy companies and then we...
00:13:43 · Luca Ferrari
They get stripped down to a product installed on a shared operating system. And I think it's a bit of a simplistic metaphor, but there's truth to it. So if you look at how we do things, generally we within a few months from the the moment the acquisition closes, we swap out the entire, let's say, technological foundation. We have built dozens of proprietary technologies, whether it's AI orchestration, data processing, AB testing, recruiting, payment management, credentials management, like basically every component of running a digital business we're built in house, natively integrated, and that's swapped out for whatever third party vendor things the business is using. We have this core centralized team for R and D, G and A, marketing, who we redeployed very fluidly across all of our businesses to go after R and D opportunities, when they're exhausted, we withdraw them, so we keep cost efficient. So to the point that it would be almost impossible to sell one of our businesses, even if we wanted to, so that's the downside of our model. So there are similarities with private equities, first and foremost, the focus on acquisitions, but I think the day to day operational approach is in integration and transformation is different. So it's bit of a hybrid I'd say.
00:14:58 · Ed Elson
[00:14:58] S1: One of the cliches, but it's also true about the private equity strategy is that you buy a company and then you dramatically cut the costs of the company, which usually comes in the form of layoffs. And that is something that you guys have demonstrated as well. This is a pattern that is pretty consistent across the companies that you acquire. It's also something I think that peep... Some people criticize you guys for rightly or wrongly. But when you look at some of the the strategic decisions you've made, like we transfer staff, for example, two months after you bought it, 75 of the of of the employees had been cut. I mean, how central is headcount reduction to the strategy? And what do you make of, one, the fact that that does sound very... Also very similar to the private equity model, and two, the criticisms that people might have that, well, you're cutting head count.
00:15:53 · Luca Ferrari
[00:15:53] S2: If it's a moral moral judgment, if if someone thinks that trying to make a business as successful as possible is bad. I I don't have any defense against that. It's a completely valid point of view. I disagree obviously, or I wouldn't do it. I think in general, the world tends to work better. The economic pie tends to grow larger if businesses are run at excellent level. But, you know, it's a perfectly, I respect the fact that someone would disagree with me on that point. We definitely, we have done it almost every single time. So it's definitely been a pattern. I would say that in general, cost efficiencies have been approximately 50% of our value creation of all. And within that 50%, probably the org part, it's probably roughly a little over half. So maybe I would say of 100% of of our value creation, I'd say maybe 30, 35% has been about optimizing organizations. One thing we do that's I believe misunderstood is people tend to think that we end up reducing headcount simply because we wanna cut costs. And while optimizing cost is obviously a significant driver, we actually try, I'd say just as important for us is that we make that org far better positioned to kick ass for a long time. The, in my view, flawed assumption some people have is that the number of people you have in a company is almost, you know, definitively gonna determine whether the company produces great product, it innovates quickly. We are of the opinion that if there is a correlation between headcount and say innovation or the ability to optimize customer experience monetization, that's a weak correlation at best, and that what drives those virtuous outcomes for the most part is talent density, whether people use powerful tools, whether the culture is one of, you know, rationality, high performance, whether or not you have a lot of red tape or you actually give people plenty of space. So what we try to do is bring these companies back to what I would call startup mode, small teams of supremely talented people. We'd get out of the way, give them plenty of, you know, very wide mandate, very powerful technologies. I mentioned them quickly earlier.
00:18:10 · Luca Ferrari
And what we see consistently is that magic happens despite going down in headcount maybe 80%, sometimes more demonstrably, and we we publish a lot of this stuff on the various blogs or brands, but demonstrably the rate of which we fix bugs, reduce say technical incidents, or launch new features goes up sometimes dramatically. So yes, we we have absolutely consistently cut headcount, no doubt about it, sometimes dramatically. So we do so also, no doubt about it, for for cost efficiency, but equally we have been able through the same means to make these businesses a lot more competitive from the point of view of product quality and a pace of innovation. So for us, it's really a win win, but I understand that it's painful for those involved, we try to mitigate the unavoidable, I think, pain of being laid off, which sucks. I mean, it's a very tough thing to go through, by being transparent, offering top of market separation packages, by being empathetic and flexible, but that doesn't make that transition painless. It makes it a little bit less painful. And we... If we could do what we do without that objectively bad element, we will certainly be very happy to to avoid it. None of us enjoys that part of our jobs for sure.
00:19:29 · Ed Elson
[00:19:29] S1: My understanding is also that you are you are specifically finding companies that are struggling, struggling on basically every metric, struggling with their profitability, struggling with their business model, and these are companies that otherwise would have been stagnating and perhaps would have done the layoffs anyway. I guess this gets to the the next question, which is how do you identify what company is the right company for your business model, for integration with your software products and your software team? What makes a company acquirable?