Brent Beshore - Private Equity for “Boring” Businesses

Brent Beshore is the founder and CEO of Permanent Equity, a unique private equity firm that buys cash-generating small and mid-sized businesses— with the intention to hold them indefinitely. 

Permanent Equity owns over a dozen businesses in diverse sectors including aerospace, building and construction, and martech. 

On this episode of World of DaaS, Auren and Brent discuss:

• Secrets to good acquisitions
• Running a PE firm with no leverage and no fees
• Incentives and efficiency in business
• Building in Flyover County

Looking for more tech, data and venture capital intel? Head to WorldofDaaS.com for our podcast, newsletter and events, and follow us on X @WorldOfDaaS.  

You can find Auren Hoffman on X at @auren and Brent Beshore on X at @BrentBeshore. World of DaaS is brought to you by SafeGraph & Flex Capital. 

Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com)

Transcript

Auren Hoffman: 0:02

Welcome to World of DaaS, a show for data enthusiasts. I'm your host, Auren Hoffman, ceo of Safegraph and GPFlex Capital. For more conversations, videos and transcripts, visit safegraphcom. Slash podcasts Brent Beshore is the founder and CEO of Permanent Equity. They buy cash generating small and medium-sized businesses with the intention of holding them forever. Permanent Equity owns over a dozen businesses in sectors including aerospace, building and construction and MarTech. Brent, welcome to World of DaaS. Hey, thank you for having me on. I appreciate it Really excited. Now, what experiences turned you off from traditional private equity?

Brent Beshore: 0:47

I never really had an experience in traditional private equity. To be honest. You may laugh at this, but I can remember I actually bought my first business and a friend of mine from college said, oh, you did a private equity deal and I literally Googled private equity and I was like, oh, I'll be damned, who knew? There's a whole industry of people who buy these companies. I joke that I'm the Forrest Gump of private equity for a reason. Literally I didn't even know it existed. So what did I not like about traditional private equity? I just didn't know existed. And so try to do something from first principles. And it seemed to work out From a first principles perspective.

Auren Hoffman: 1:20

Now that you know a lot more about private equity, what do you think one should be doing much differently from a first principles perspective?

Brent Beshore: 1:28

So if you look at the model of permanent equity the firm that I founded and run in many ways we're almost the exact opposite of private equity. In fact, I remember during our last fundraise, an institutional investor, we got through the conversation and he said, let me just get this straight. You're telling me that the opposite of private equity is going to return me more than traditional private equity and I was like, yes, I think that's exactly what I'm saying. So if you look at traditional private equity, what do they do? They acquire with as much debt as they possibly can. They typically will change out leadership pretty quickly, bring in new leadership, change over the firm. They'll probably know who they want to sell it to. They'll try to go through a period of rapid change and then resell the company to another firm within a fairly short period of time.

Brent Beshore: 2:13

So if you look at our model, we buy with no intention of selling the business and we can determine we can talk about a little bit later. That doesn't mean we will never sell. We actually have never sold but it doesn't mean we never will sell. It just means we have no intention of selling the business. We typically use no debt in our transactions. We love to work with people who are already in place. You're doing all with equity. Yeah, we're using 100% equity when we do our deals.

Auren Hoffman: 2:34

Why is that? That is really the essence of private equity. Private equity used to be called a leverage buyout. That was the name before they rebranded it private equity. So the whole idea was to buy these things with debt. Why did you decide that that's not a good?

Brent Beshore: 2:49

thing my background. I was an operator before, founded a number of companies and I was a CEO. I just couldn't imagine the pressure of trying to run a small company with a bunch of debt on it. Yeah, just layering on the debt. It's already super stressful.

Auren Hoffman: 3:03

So I have friends who are private equity backed CEOs and, like, all they think about is dealing with the covenants, making their debt payments. It's a huge, huge thing that's in the back of their head.

Brent Beshore: 3:12

Yeah, absolutely. And so, if you think about it, our area of the market, the businesses, are already struggling in a lot of ways. If we're typically purchasing the company, it's between three on the low end of earnings a year and call it on the high end 20-ish of earnings. So these are fairly small businesses. I mean, they're heavy cashflow, they're very successful, but they're still small and they're resource constrained. And when you take all the resources that you're going to be generating to try to grow the business, hire people, compensate them well, just have some margin of safety and you're going to pull all that out and send it to a bank. It doesn't leave much margin of error for anything else. And so we actually think that our model returns on average over a long period of time. A higher return because you're able to take advantage of cycles in a way that you wouldn't otherwise. I mean, look, let's just take a step back. I mean, this is an area that probably anybody in finance who knows what we're doing will probably most disagree with me on. But let me give you an example. So if you know exactly what the future holds, you should try to leverage the business up as much as you can. I think, and I think this has been proved out over a long period of time not the first person to say this that the world is unknown and unknowable. For the most part, you can't predict what was happening. I don't know many people who are like oh yeah, we're going to go through a global pandemic, everything's going to be turned upside down. Whole lives are going to be turned upside down. As an example, in that particular area, we bought up an aerospace business in the fall of 2019. I don't know if you know this Aerospace businesses never go down. The industry never goes down. It always is at least flat or up. And so I remember when we were buying that business, one of the people the advisors on that deal was like you guys are morons. You are the first people I've ever seen in my entire career to not use debt in buying an aerospace business. And we were like, yeah, we're idiots. Yeah, sorry, they just didn't get it.

Brent Beshore: 4:54

Now, what happened in 2020, obviously was hopefully once in a lifetime event, but it's indicative of what's possible. We were the only ones that didn't have debt. We were the only ones who retained cashflow positive status the whole way through COVID. We were able to make 10 years of progress in two years because we were able to hire people no one else could hire, reinvest. We weren't dealing with a bank all the time, we were able to run the business the way we think it should be run, and now the fruits of that are the business is much larger, much more successful than it's been.

Brent Beshore: 5:21

If we'd had debt, we couldn't have been able to do that Now. Would we have had higher returns on equity on paper, when we had done the modeling? Yeah, of course, the math's not hard to work out. It's not like we don't know how to do the math, but the point is, most of these businesses are highly cyclical. Most of these businesses will go through shocks. The world is unknowable, and so we want to be able to, when everyone else is having to deal with banks and everyone else is retreating, we want to be able to take steps forward and really gain ground.

Auren Hoffman: 5:46

Yeah, okay, interesting. And potentially, if you're dealing with less debt over a long period of time in like a base case or a bear case, you're going to do better. If there's like a bull case where the company does super well, maybe you do worse. It really depends on how the model works out. Yeah, for sure, it also depends on your time horizon. If you have a 30-year time horizon typical private equity firm has four to five years or something then you're also going to have a different way of modeling it out as well. What are some other non-obvious lessons you've learned after your first dozen acquisitions or so?

Brent Beshore: 6:19

I like to joke about this, but it's really true. All businesses are loosely functioning disasters, and some happen to make money. I've seen a lot of businesses Some are larger, some are smaller. I've never seen a business where there's not constant chaos and disorder going on. I mean, they're people.

Auren Hoffman: 6:33

Businesses are people. I have never seen a well-run company ever in my entire life, yes, yes the best company I've ever seen is like mediocre, and this should encourage us. And so including all the ones I've run I've ever seen is like mediocre, and this should encourage us. And so including all the ones I've run. I've never run a well-known company. I've never worked in one. I've never seen one. They're actually always way more messed up than people think that's exactly right.

Brent Beshore: 6:53

And, by the way, this should be an encouragement, because I feel like when I say this, sometimes people think I'm being condescending. I'm like, look, I'm saying this about our company as well and the organizations that we own. We have constant disorder and chaos all the time, and people are messy. When you get a bunch of messy people together, it's gonna be a mess, and so what we like to say is okay, look, the more disordered and the more chaos we're stepping into. As long as we know we can try to predict the chaos and we know what the chaos is gonna be, the more that we can look at that as opportunities. And so I remind this of our team all the time Once we close. I mean, we've never had a deal where we closed and not found something weird, hairy, unexpected after close, ever.

Brent Beshore: 7:32

It's a form of humility to pay a lower price. It's a form of humility not to use debt. And it's a form of humility not to assume that you know what you can do with it post-close. Those are all three kind of core tenets of what we do. We try to go into it with high humility to say, look, we're going to try to serve the people. Well, we're going to try to serve the customers well, all the stakeholders. We hope to have a win-win long-term. But we need to get to know the business. We need to know what's there and we're not going to lever it up, we're not going to try to flip it within a short how things go. We've seen some data, we've seen some due diligence. Now we're going to tell you how to run the business right off the close. It doesn't make sense to us.

Brent Beshore: 8:11

I would say just one in general is that businesses are loosely functioning. Disasters, I would say. Another one is most businesses, and often careers as well, die by suicide, not by homicide. Competitors don't matter as much. Competitors don't matter as much. Competitors don't matter. But even in careers wise, it's not that your career suffers because somebody else out competes you. It's often that you do something stupid or you just can't see past your own limited perspective.

Brent Beshore: 8:35

And so I mean most businesses are capped by the willingness of the leader to be humble and to learn. Frankly, it's very rare to find somebody who has been quote unquote successful right. I mean, if we're buying the business, the business is making a lot of money. I mean, these are the chairman of the country club. These are the kings of their regions. These are people who everyone looks up to. It's super rare to find people who we get into business with and we want to buy the business from, that are humble and generous and gentle and kind, and I mean those are the people we're looking to be in business with. But oftentimes I mean they think they're experts at everything and there's nothing to learn and that's why the business is capped and ultimately that same mentality cascades down into the leadership of the firm and ultimately into the employees as well.

Auren Hoffman: 9:17

When you're looking to buy a business. What do you think are like the non-negotiable things, unapproachable things? You must have these things or they must not appear to buy.

Brent Beshore: 9:29

They're maybe a little bit less obvious. Yeah, I mean, I would say a core business model that works. So we're not buying things that need to be proven. And, by the way, there are some private equity-ish firms that will take flyers on things. I mean, I don't know how many scooter businesses that we saw over a two-year period, but there was a lot of money sloshing around in the making scooters, renting scooters, doing fleets of scooters. I mean, there was this whole scooter rush and we saw a bunch of these businesses.

Auren Hoffman: 9:54

Well, I presume you're buying businesses that have been around for a while in general, so you're not buying a fad. If something's only been around for two years, it's hard to know how it's going to appear when. If it's been around for 20 years, it's a little bit more predictable, yeah, but I'll give you the exception to that.

Brent Beshore: 10:08

So, like on the scooter business, obviously there's a whole VC crush on the front end to a bunch of these. Scooters were going to be the next everything. But what that actually created was a cascading downward effect. And what you maybe didn't realize is, even in the small business world that we're in, we saw scooter deals. We saw scooter deals of scooter companies that were previously making something else. For a long time they added the scooter market. They're servicing scooters or they're making the parts that go into scooters or whatever the thing may be. And so we saw companies that were making half a million dollars. Five years ago they made a million dollars. Then all of a sudden they made four million, seven million, twelve million dollars.

Brent Beshore: 10:44

Right, they're trying to sell these companies, and so what we would say is that's a business model that's still unproven. So anyway, first one proven core business model that works, people we can work with. I would say size is meaningful for us. So we see a lot of deals these days that I mean, frankly, just the size that we're at, we just can't do. There's a date and time. The first deal I ever did was a sub $500,000 a year free cash flow deal. It doesn't work for us anymore to buy those types of businesses unless they're very on the higher growth end and we have a specific purpose for them, or one of your businesses, buying those businesses or something like that Correct as a bolt-on.

Brent Beshore: 11:16

Yeah, but as a standalone business it doesn't make sense for us. And then this is one that's maybe obvious, maybe not is a seller that's willing and able. We have a lot of businesses that we look at where the seller is just playing around. They want to feel good about their business, they are bored with their business, so they go out and they're like, oh, I'll see who wants to potentially flirt with me. Those are the worst. So we like to have somebody who's serious about wanting to do something and there's some event that's forcing them to move forward in some way.

Auren Hoffman: 11:43

On the flip side, what do you think some buyers would say are like huge weaknesses that you can overlook.

Brent Beshore: 11:50

Non-recurring revenue is a big one. So most buyers in private equity love non-recurring revenue. They're excited about that as a category, for very good reason. The predictability of recurring revenue, all things told, is better. It's more predictable. I would say that we are much more comfortable that if the business model itself is predictable overall. So I'll give you an example of this. We own a pool business in Phoenix Arizona. It's an oven. Swimming is not a luxury, it's a utility. Out there, some of the homes that we put pools into. The pool is 50% of the home value. These are necessary things. Once you sell a pool, it's not like you're selling a recurring revenue pool every year. Right, you build it and it's one and done, but the predictability of the demand for the pools is constant. People oftentimes will look at something like that and say, oh well, there's no predictable recurring revenue there, even though the revenue is fairly stable over a very long period of time.

Auren Hoffman: 12:43

Most businesses, even investment banks, don't have occurring revenue Exactly.

Brent Beshore: 12:47

Exactly yeah, and so I would say I mean maybe the other one that we are able to get much more comfortable with is just general lack of professionalization. It's still on some old QuickBooks thing somewhere.

Brent Beshore: 12:58

Man, you would be shocked. We've looked at deals where, frankly, the people who've been running it for a long time don't understand basic accounting and so their books are just wrong. And we come in and we ask basic questions and they're like, oh shoot, we shouldn't have been subtracting inventory, we should be capitalizing that. And we're like, yes, that's called tax fraud. And they're like, oh, sorry about that. Well, yeah, our books historically aren't correct anymore. Or you come in and like when was the last time you did a count on your inventory? We've never done a count on our inventory. Well, how do you know if it's there or not? Well, we sell it and then we just go back to the warehouse and if it's not there, then we tell people, sorry, it's not there, great, how do you value that business?

Brent Beshore: 13:37

There's ways that you can get around these things, but I think most people want I mean, like I would say, a down-the-middle private equity deal is a professionalized team that's used to working with professional money. They have repeatable systems in place already. It's built to scale. Everything's kind of teed up, tied with a bow and you're just going to pay for it. And again, we talk about this as a team a lot. Every negative about a business. If you solve it, if you buy it at the right price, every negative becomes a positive, because when you solve it, the business becomes more valuable. It's not just about the quantity of earnings, it's also about the quality of the earnings as well.

Auren Hoffman: 14:10

How does one go about building some sort of repeatable motion to find engage with a ton of these small businesses?

Brent Beshore: 14:17

Look, this is the difficult part about building a firm. As I like to say, buying one company is brutally difficult. If I was going to start from scratch, even knowing what I know now, I would budget three years to find the right opportunity and close it. And then you've got to run that opportunity, you've got to cash flow it, or some people sell it, and then you got to start over again. It requires finding good people and building repeatable systems.

Brent Beshore: 14:39

I would say that probably the thing that's most enabled our success is the fact that we were capital constrained and resource constrained for a very long time. I mean, we toiled away in obscurity, kind of honing our craft, for the better part of a decade before we took on outside capital. At the time it felt slow and monotonous. The years would go by and you'd say, golly, we didn't do a deal again this year. It didn't feel like we were making much progress. But what we were doing is we were building culture, we were building systems, we were building relationships, and so I think that's just the hard work that it takes to build a firm, In some ways a firm you're selling yourself.

Auren Hoffman: 15:14

You're going out, just like a sales team goes out and finds an enterprise, sales team goes out and finds deals. I assume you're out there constantly selling yourself to potential acquisitions.

Brent Beshore: 15:25

What makes us a little bit different is we typically don't go outbound to anybody, and this is something we've learned from operating businesses is that we want to attract the right people and repel the wrong people. How do you do that? It's through content. It's the only way to scale conversations, and so most people are coming inbound to us. I mean, the exceptions are we have a group of relationships nationally that we are emailing, that we're conversing with, that. We're going outbound, like any relationship would, but we're not knocking on sellers' doors and saying hey, by the way, I'm Brent, this is what we do. Do you ever want to sell your business? We're waiting for them to find us.

Brent Beshore: 16:00

It's tough because the power dynamics if you go outbound or all off we tried it in the past and what we get a lot of times is people saying, well, sure, make me an offer that I can't refuse. And we're like well, that's not really how this works, that's not what we're trying to do. We're trying to create a mutually beneficial transaction. They're like, yeah, I don't need that, I'm not interested in selling them. I'm like okay, great. Now when somebody comes to you and they've read everything about your firm, they know about you, it's like you're jumping to the 10th conversation. So it's just much more efficient on both sides for us to put ourselves out there and for people to come inbound.

Auren Hoffman: 16:32

Now you mentioned like you no longer can do these $500,000 revenue deals. What happens with a lot of PE firms is kind of start small but then they kind of realize it's almost the same amount of work to buy a company that's 10 times as big. So then they kind of move up market over time. Is there a sense that as you're more successful you're just going to inevitably have to do bigger and bigger?

Brent Beshore: 16:54

deals. Yeah well, it's funny because I think the fee model mostly has to do with wanting to go up market. So returns I mean, if you look at returns of any private equity firm in terms of rate of return, it always decreases the larger the firm gets. This is not a complicated phenomenon. Very rarely do people get more successful as they get bigger. So why do people do it? Well, the incentive is to gather fees, as you know as much as anybody. I mean, it's like when your model is built on two and 20,. That two is pretty attractive and the 20, you have to wait for 10 plus years on to really harvest. So the incentive for most people is raise bigger and bigger funds. And as you raise bigger and bigger funds, you have to do bigger and bigger deals.

Brent Beshore: 17:35

We've made the decision that we will do larger deals, but only if they're relatively priced in the same ballpark the smaller deals will be in. We have done some larger transactions, but they've been very reasonable valuations and with families who care deeply what happens next, which is sort of our target audience. Our fee and model is totally different. So we take no fees of any kind, no reimbursements of any kind. Zero cash flow comes from the LPs or from the portfolio companies to us. So we're all self-funded internally from our own cash flow from companies and then we take a percentage of free cash flow above a hurdle as we return cash back to investors. So we're 100% aligned. There's no way for us to make money unless our investors make more money. It's impossible. That incentivizes us.

Auren Hoffman: 18:17

You mentioned you fund operations from cash flow, but where's the cash flow coming from for the permanent equity firm? It's just permanent equity firm itself owns businesses.

Brent Beshore: 18:26

Before we ever took on outside capital, we started and bought businesses ourselves. I used to joke that I ran the world's smallest family office. At one time it was all just my capital. I'd gotten an SBA loan. That's how I got started. Paid that back, started cash flowing, rolled that cash into more investments. Those start cash flowing. You start rolling that cash flow. Now you pay a lot of taxes, change in working capital. It's not like it was a lot. This is fairly small numbers, but that had provided the foundation and to build the team where, whenever we went to raise capital, I said, look, I don't need fees, I already funded the team. We're fine Even to the day.

Brent Beshore: 19:01

We have different revenue streams now coming in, but we still own companies outside the funds that help fund it. And then obviously, we've got tremendous amount of cash flow coming off the investments. We're in a position now where we can just take cash whenever we return cash back to investors, and that's the model that we love. It perfectly aligns us, which is just radically different. And so for us, we're pretty much the only people where, unless we perform, we don't get paid. In fact, we pay. We lose money unless we perform. So for us, we want to do bigger deals if we think they're fantastic. We want to do smaller deals if they're fantastic.

Brent Beshore: 19:34

Now, some they're just a certain size and overall, with the portfolio, the size it is and the revenues and profits where they are, that it just doesn't make sense. It's kind of like any organization regardless of fee model, at a certain point you can't do deals that you used to do. We actually think the area of the market we're in now, though, is relatively priced, appropriately and better for us than even down market. I mean, you can buy something that's generating $500,000 in free cash flow for call it, three times multiple, maybe three and a half times multiple, but you can go up market and buy something that's much more sophisticated, much more stable, for relatively not much more. So it's all about value is quality and price, and I think a lot of people get this wrong. Price is dependent on what you're actually buying, and something that looks cheap on the surface often is priced for a reason that way. At least, we found that.

Auren Hoffman: 20:21

If you already kind of started with like a holding company, you had this like mini Berkshire Hathaway where you're buying and then you're using the cash flow of those to help you buy other companies et cetera. Why not just keep that going? And then, if you need more equity, why not just raise equity into the holding company? Why do the funds with it?

Brent Beshore: 20:41

One. We didn't want to value the current assets. Ultimately, we need to value current assets that we had if we were going to create a holding company structure. We explored doing this with some investors. The valuations never matched up. Because we bought it for X, they want us to sell it for Y. We think it's worth a lot more. We wouldn't have bought it and we're throwing all our chips into this thing that's already working. It actually felt more risky to us to do it that way.

Brent Beshore: 21:02

We didn't like the fund structure because of the two and 20 model and so really we'd given up raising outside capital until I met this guy I don't know if you've ever heard of him, named Patrick O'Shaughnessy. He was just some dude back then, but apparently a lot of people know him now he's become a dear friend. But back then it was just a guy who, on Twitter, who I met, who said hey, can I come visit you in Missouri? He came and visited about 13 hours later. We had a great conversation. He said I want my family to invest in what you're doing, believe in what you're doing, and I said great, there's one problem we don't take outside capital. And he said well, why? And I said because we don't want to create a holding company for all these reasons and we don't want to create a traditional private equity fund for these reasons.

Brent Beshore: 21:40

And he asked me the question that, frankly, no one else had ever asked me, and I said okay, and so went back and designed permanent equity, basically the way it is today, went back to him and his father and said, hey, here's what I'm thinking. And they said that looks great. Here's a couple of tweaks here and there, but that looks great, let's do it. And that's really how we started raising outside capital. And so for me, our model is the best of both worlds. We have a really long-term capital, so we have a 30-year lock on our capital. So no guaranteed liquidity for 30 years, complete autonomy over the capital. And whenever we need new capital, we just raise a new fund that basically acts as a holdco, but it's a de novo holdco the entire time. So our first fund was, in essence, a $50 million holdco that we raised and deployed.

Auren Hoffman: 22:21

So the fund itself is basically a holdco. That's correct, that makes sense, okay. But I assume like, if you do sell, it's structured in a tax efficient way to like get the investment rather than like do a double taxation or something.

Brent Beshore: 22:34

Correct. Yeah, it's all pass through taxation and it's incredibly efficient.

Auren Hoffman: 22:38

Now, I'm sure one of the companies you admire, one of the companies I deeply admire, is Constellation Software. What have you learned from them?

Brent Beshore: 22:47

I tell you what. I had the pleasure of spending some time with Mark, unfortunately not recently. You met him in person, yeah, yeah so.

Auren Hoffman: 22:51

Mark, oh my gosh, he's probably like the top guy I would love to meet. Yeah, but he's a little bit of a recluse.

Brent Beshore: 22:57

Yeah, mark's great. Yeah, I'll never forget. I was at dinner, gosh, it was probably 2018 or 19. And I just got like a form through the website and I look at my phone and it was Mark Leonard. Hi, I'm Mark Leonard, and here's what I do and here's my cell phone number and I'd like for you to give me a call. And I was like, okay, somebody's probably pranking me. Surely that can't just be Mark Leonard who hit my contact form on the website. Sure enough, it was Mark and he'd been following us for a while. That's so cool. So, and he'd been following us for a while, and that's so cool. So, yeah, I called him and, graciously, I got to go up and I got to spend some time with him and board of directors and some of the senior staff up in Toronto and had a wonderful time. They're incredible people, incredibly sharp, and I would say you asked me what's?

Brent Beshore: 23:38

The thing I probably learned most from him is just that incentives really matter. One of the things I talked to him a lot about is, broadly, most people understand that incentives matter. I mean, munger's talked about this a ton. It's kind of like cliche at this point to talk about it, but underneath it, what you're trying to do with incentives is stop people from doing something or start people doing something.

Brent Beshore: 23:57

So every time you think about an incentive, it's what is the thing that that person would have otherwise done or not done and what is the incentive going to do to move them in a direction, and just making sure you really understand.

Brent Beshore: 24:09

But for that incentive that person would have not done something or would have done something that I either want them to do or don't want them to do. And I think Mark's done a beautiful job of structuring incentives and he would say not perfectly, I think that he's talked publicly about this, so I'm not giving away anything, anything in confidence, but I think he would say that if he had to start over again, he probably would have tweaked the constellation incentives for their team to be more growth oriented on organic assets as opposed to acquisitions, because he's incentivized kind of them to be equally the same and it's a lot easier to go out and acquire growth than it is to generate organic growth. And so I think anything like that that're trying to do, you're trying to create as simple a model as possible to generate great incentives while also getting the desired result.

Auren Hoffman: 24:53

Incentives do matter, but I think one of the things that they've done super well is they have brought in people that have internal incentives that match their values. If you have to constantly design the incentive and someone's trying to work around it, it is really hard to do. But somehow they've found these people that kind of like fit, what they believe in and they have a very interesting, very unique culture which maybe attracts a very unique type of person.

Brent Beshore: 25:23

Yeah, I love it. I think it's again attract the right people and repel the wrong people. The repelling of the wrong people is arguably more valuable than even the attracting of the right people. You just don't get people, you don't get actors in your system that are going to gum up the works. So I would absolutely agree with that. I admire the team. I admire what they're doing.

Brent Beshore: 25:41

The other thing I learned from them, and I talked a lot about, is just standing firm on valuation, knowing what you can pay, knowing what works, not moving, and they're very, very disciplined in that and we try to be disciplined as well. And, by the way, it's easy to talk about discipline when you're not having to exert it. I mean, 2021 and 2022 for us were difficult, really, really difficult, because I mean we were getting outbid. We didn't change the way that we bid on companies and we were getting outbid. We didn't change the way that we bid on companies and we were getting outbid by gosh 50, 80% at one point, pretty regularly In fact, I mean we were told by some intermediaries that they were like we'll never show you another deal because you're signing in the ballpark. We're like guys, we haven't changed how we've been bidding these things for the last five years and they're like, yeah, but the market's passed you by and thankfully now now that's come back down. But man, it's tough.

Auren Hoffman: 26:24

I assume when you're buying these small businesses, at least part of your thesis is there's probably some sort of way to techify them a bit. So you've got a trucking company and then you can tech enable it and make their customers happier and allow them to operate more efficiently. Is that part of the playbook?

Brent Beshore: 26:41

Yeah, I would say kind of. I'll tell you a couple of stories and maybe this will illustrate the point. So one of the companies that we acquired, we couldn't figure out why sales were not working, why sales were down, and there was a certain platform online that we were supposed to be getting a lot of sales from. We just couldn't figure out. And finally somebody backtraced it when I was on our team and it looked and, by the way, all the sales were being sent to a fax machine that was not plugged in I'm not joking To a fax machine that was not plugged in. We literally plugged in the fax machine and orders started coming out.

Brent Beshore: 27:12

We had another deal that we looked at where we asked them like, hey, what are some challenges you guys face? And one of the challenges they faced was that the internet kept going out, and we were like that's so weird, Not in a rural area, they're in an urban area. What we found out was that the head of IT had taped the spike bar to the side of a file cabinet that was tied to the router and from time to time the duct tape would go loose and the internet would go out for the entire thing for like 10 minutes.

Brent Beshore: 27:43

So the answer is yes, we try to techify some of these businesses, but the bar is low is what you're saying For most of these businesses. But the bar is low is what you're saying For most of these small companies. The bar is very low, and that's not to impugn these small companies. They're, for the most part, fairly wisely using their time. It's just that there's so much more problems, bigger problems, to face they're not looking for the latest technology to implement. So, yes, we come in and we try to do the most lightweight, most efficient. We're not on the cutting edge, the bleeding edge, of a lot of technology, but we're also not lead-eyed.

Brent Beshore: 28:25

So we've got'm going to go buy this company and I have all these grand plans. We're under LOI and I said, great, keep in touch, let me know how it goes. His whole thesis was he was going to go in and he was going to implement all this technology and software and it was going to revolutionize the business. And I caught up with him about six months after he bought the business and I said hey, that going? How's the revolution going on inside the business? He goes, I haven't done any of it and I was like what do you mean? I thought you were going to come in and install all these things and he goes, the sales guy quit and sales went through the floor and then the internet stopped working and we couldn't figure it out for like three days.

Auren Hoffman: 28:57

It was like thing after thing.

Brent Beshore: 28:58

That happens. So I would say is it takes actually a long time. We use the term internally about quality of earnings versus quantity of earnings. I mentioned that before in the podcast. It takes a lot of quality building internally to then enable you to actually implement new systems and processes, technology or not, and it takes a lot of trust. I mean, look, people have a certain way of doing things and when you tell them, hey, we need you to switch over this new system, there's a high switching cost, there's a lot of friction created, so you need to have a lot of trust and relationships.

Auren Hoffman: 29:27

So you've got these 12 companies now, and are you running them better now because of economy of scale, than you were when you had two companies, or are you running them better just because you have more knowledge and you've seen more things that go wrong and you're more experienced?

Brent Beshore: 29:41

Yeah, I would say there's very few economies of scale across disparate businesses and in fact we don't underwrite for that at all. I would say we've learned, not surprisingly, that technology is important. So we have a group that internally looks at technology across all the companies. We have a group that looks at talent across all the companies. These are, I would call it, specialized services that we can come in and it's part of the everything tastes like like chicken layer of business, where it doesn't matter if you're operating a software business or a manufacturer or construction. You all got to have the certain same things. That's really the layer that we try to focus on. And yeah, I would say we've learned things, but there's not a lot of. I mean, group healthcare is one of the things that we've looked at exploring. Right now we don't have one united healthcare plan. We don't have like a self-insured plan. It's one of the things we might do in the future, but again, it all comes with trade-offs and oftentimes those aren't the biggest problems that we're facing.

Auren Hoffman: 30:31

Now, how do you guys deal with labor shortages? One of the companies I'm involved with. They have about a thousand people and their average worker was making, let's say, $15 an hour a few years ago and now they're making maybe over $25 an hour same worker, just because the labor costs have gone up. How do you guys deal with some of those types of things?

Brent Beshore: 30:51

There's no secret to it. Try to be a good employer who sees people and treats them well. I mean, everyone's looking beyond dollars. You got to pay people competitively, whatever the market is for labor. Beyond that, though, I mean most people are looking for meaning and looking to be respected. Even if you're working a traditional construction job, you want to be treated with respect.

Auren Hoffman: 31:11

I read your annual letter where, like an older general partner once told you that you should stick exactly to what you told your investors you would do, even if it led to like mediocre returns and pass up better opportunities. Yes, walk us through that. What was going on there with that advice?

Brent Beshore: 31:27

The question is when you get outside investors, what's the job they're hiring you to do is the question and, by the way, this is not an obvious answer. You'd think that most people are hiring somebody to invest their capital to generate the highest return. Most of the times, that's actually not the case, right?

Auren Hoffman: 31:42

Because they have a diversified portfolio themselves. It's not like all their eggs are in your basket. They've got a ton of different baskets that they're in. So it's really just to watch your basket.

Brent Beshore: 31:51

Exactly, yeah.

Brent Beshore: 31:53

So this is the big issue.

Brent Beshore: 31:54

The big issue is that if you are hired to fill a certain slot for them and you veer outside that slot, well now all their risk profiles are off, their allocations are off, and so what this person was telling me and, by the way, it's very wise advice is once you take on outside capital and I would say this is arguably true, arguably not, but this is his perspective Once you take on outside capital, you are forgoing the ability to generate the highest returns you could possibly generate, because the highest returns are going to come from outlier investments. They're going to come from investments that, by just definitionally, aren't attractive to other people, that you're able to get at a better price or that you're paying up for something that other people don't see the quality in. So you're going to do something from an outlier perspective to generate outlier returns by definition. When you take outside capital and you say, hey, here's what we're going to do, we're going to take your money, we're going to invest in these types of things, right, we're never going to go below.

Brent Beshore: 32:45

X thing or you're never going to go below YPE, or whatever it is, exactly, exactly, and so what he was saying is the best possible thing, if you're trying to be a professional investor, if you're taking other people's capital, investing on their behalf, is to do exactly what you said. You do exactly what you said you do, to be consistent, even if it means generating lower returns. For me, I have a hard time with that. The way that we're aligned with our investors, I mean, I want to generate great long-term returns, and this is what we tell our investors. We say hey, we're not a vintage of fund model. You're not hiring us to go out and deploy capital over a short period of time. We have a 10-year investment period on our funds, so we have a long time to invest capital, and I said to him look, we may invest all the capital in year one, or we may take nine years to invest all the capital, or 10 years, or we may return some capital back to you. We only want to do good deals, and so, if all the good deals come along in a short period of time, we're going to try to do all the good deals. If one good deal comes along every five years, we're going to do one good deal.

Brent Beshore: 33:41

What that means, though, is that you're breaking a lot of paradigms, and, in fact, when we fundraised last time it's been a long time, but we fundraised I mean, people had a lot of problems with it. It's like do we put you into traditional PE bucket where you don't return capital the way that traditional PE does? In the time horizon? You got different aspects to it returning cash flow back. How do you value that? What does the marks look like? How are we incentivized based on the marks?

Brent Beshore: 34:02

All the things that a traditional PE firm is set up to do. We just do things a lot differently, and so, again, I think this is a feature of our system it attracts the right people. It repels the wrong people. So the people who were short-term oriented, who loved debt, who said, hey, we want you to burn the ships and get it done, those are the people who we said no, we just want a good fit. And the people who are long-term oriented, who saw that compounding and treating people well over a long period of time was going to generate higher returns, those are the people who invested with us. We feel blessed by that.

Auren Hoffman: 34:32

Also, in some ways, the higher percentage of net worth that the principals have, the general partners have, in the funds in some ways a little bit more aligned too, because you want to get good returns, but you also don't want to lose your money. You don't want it to go to zero. If you have 90% of your money in the fund, you you don't want it to go to zero. If you have 90% of your money in the fund, you certainly don't want it to go to zero, but you're trying to generate as much wealth as you can, too, for yourself.

Brent Beshore: 34:53

Absolutely. I mean. People ask me what I invest in, I say I have two asset classes. I have cash and highly illiquid private investments. That's it. We don't invest in anything outside our own stuff. It's just all internally.

Auren Hoffman: 35:04

That makes a lot of sense. So you kind of describe your portfolio as quote-unquote boring businesses. Some of them seem like incredibly interesting and unique. I think you own a matchmaking firm. You own a roller coaster manufacturer. Those don't seem like boring at all.

Brent Beshore: 35:19

Yeah, we kind of jokingly use the term boring. It gets people's attention and, look, no one thinks their business is boring. We don't think any of our businesses are boring. We joke about boring because they just make money. They're boring in the sense they're not exciting in terms of making money or not. They all produce cashflow. We think is a nice feature of a boring business. We have really interesting businesses. We have an aerospace business. All of them are interesting. But yeah, we have a matchmaking firm. It's the highest in matchmaking firm in the world. It's called Selective Search.

Brent Beshore: 35:48

If you'd asked me at any time prior to purchasing it that we were going to own it, I would have laughed. In fact, the person, Emily, who leads our deal team she came in and she said hey, sit down, shut up, I don't want to hear a word from you. I'm going to explain this business to you. She got like three sentences and I was like there up I told you just be quiet, Listen. The more she talked, the more we looked at it. Oh, it's not a dating business. This isn't like setting up dates for rich people. This is a true matchmaking business. So you get one introduction at a time. Both have to opt out before you get another introduction. People are searching for long-term monogamous relationships, healthy relationships. These people are searching for the right things and so, yeah, it's a wonderful business, great team, it's been quite the adventure. I mean, the stories that they have are incredible.

Auren Hoffman: 36:34

Some of the businesses you have don't seem like good for. Like a roll-ups quote, unquote I know it's the evil word, but that does seem like a business where it could make sense. Someone else has this like amazing similar type of business in Cleveland and someone else has a similar business in Dallas or something, and you know we roll up and then there's some sort of economy of scale as okay, well, this person happens to be traveling a lot between Cleveland and Dallas or something. Their mom lives in Dallas and they're going to visit off. It seems like there's some businesses where you could like deploy more capital, do more acquisitions and really fuel them forward. How do you think about that when you're buying them?

Brent Beshore: 37:10

Yeah, I mean we're always thinking about what other opportunities there are to do combinations. I mean, the reality is, in the matchmaking business, there's really only two or three firms worldwide that are like them. They're not geographically focused.

Auren Hoffman: 37:21

Yeah, I would have thought there were like thousands of them. Okay, I didn't realize that.

Brent Beshore: 37:24

No, I mean there's matchmakers a lot of places. The way they do them, the systems, the way that they match the whole thing is very unusual. They work at a very high level worldwide. They match people all over the place.

Auren Hoffman: 37:37

Oh gosh, you don't have to live in the same town. These are people who are a little bit more mobile.

Brent Beshore: 37:42

Yeah, I mean, they do some really amazing. They specialize in what I would say very difficult to find or very important matches. So they have somebody who came to them and said he loves golf, he was widowed and he's like look, I have all these other requirements, but I want the woman who I marry to be an under seven handicap golfer. That is an interesting challenge I would have like turned down that business, though Cause.

Auren Hoffman: 38:03

is that really the most important criteria for somebody you're going to?

Brent Beshore: 38:05

marry Like, come on, it was a huge part of his life, Value judgments aside, but yeah, so they do very interesting, unusual, unusual matches is, I would say, their specialty.

Brent Beshore: 38:17

Getting back to the original question about roll-ups, we are often looking for what other businesses can be combined. One of the best things about having a smaller company is there's usually a lot of room to grow organically. A lot of businesses that are larger do combinations because there's no other way to do it, or a private equity firm is trying to bolt on a lot of things quickly and put lipstick on the pig in order to sell it to somebody else. Because we have such a long-term view oftentimes we say, okay, look, could we go and buy a competitor or could we go into this market through purchase? Yeah, of course we could, but we'd rather just take our systems, take our people and start something new, which takes longer, but we feel like the quality of it is a lot higher. I mean, as you know, most roll-ups die a pretty terrible death. Slower growth and organic growth makes a lot more sense for most of these businesses.

Auren Hoffman: 38:57

Now a few personal questions. Your Twitter bio says you're a former atheist who now follows Jesus. Tell us a bit about that conversion.

Brent Beshore: 39:06

I'm as shocked as anybody. I was a hardcore atheist in my 20s, In my early 20s. It was the peak of the new atheist Dawkins.

Auren Hoffman: 39:13

Hitchens Sam Harris, sam Harris.

Brent Beshore: 39:16

Yeah, that whole crew and religion never made sense to me. If I was going to define religion as there's a set of rules and if I do them I'll get favor in this life and the next, how in the world do I know if I did enough of them right? Did I do them the right way? What if I don't get favor in this life? Does that mean I'm doing the wrong way? It just never made sense to me. I just wholesale rejected it.

Brent Beshore: 39:37

My 20s were filled with pursuing, I would say, worldly prizes and I got a lot of them, and at the end of my 20s I was just empty. I mean I feel like I can relate to. Look so many people have talked to this Tom Brady after he won the Super Bowls. I mean it feels like every time somebody wins anything big, they're like oh crap, I'm the same person I was before. I felt the same way.

Brent Beshore: 39:57

I can remember in my late 20s, just everything tasted dull, everything was kind of gray, and it was about that time that I started meeting people who there's just something so different about their lives. I asked them I'm like what do you have? What is the thing that you have that I don't? They were like oh, I follow Jesus. And I was like you got to be freaking, kidding me. You follow Jesus, what? What does that make any sense? Well, they started talking to me about it.

Brent Beshore: 40:18

I started reading things and, lo and behold, I didn't understand that Jesus is a singular figure, I mean unique. Put aside his divinity for a second. I mean he's the greatest leader that's ever lived, by the number of followers by a mile. There's no one who's ever had more followers. And so they challenged me and I've challenged other people. It's like just study who he was, study why he said the things he said. He created a whole new paradigm and revolutionized the Western world. Now, I mean, we're all swimming in Christian values and Christian culture and so I started really looking at it, and then, ultimately, I determined, through extensive study, that the resurrection was true. That's ultimately what it came down to for me. The resurrection, I believe, is verifiable and historically accurate, and if that's the case, then it validated what Jesus said and who Jesus was. And so I ended up following Jesus. I apprenticed under Jesus and my life has been transformed as a result of it.

Auren Hoffman: 41:13

It's been amazing People who convert in some ways like you. They're more evangelical, they're more willing to talk about it, et cetera. It seems like you're more open about it than maybe somebody else who's. They've kind of always been that way. You're more out there, probably because of the conversion.

Brent Beshore: 41:28

Somebody asked me the other day. They said why do you share about your faith? And I said, okay, what if I had cancer and I had been cured of cancer? And then somebody else comes to me and says, hey, I have cancer and I care about them. I would want to share that. I would want to share the thing.

Auren Hoffman: 41:44

That's the same reason why people even like share, that they're a vegan or something too right, because they're like, oh, it helped me, I think it'll help you, or like I meditate, or whatever it is.

Brent Beshore: 41:52

Absolutely. I feel like my life has been transformed and the things I've learned and the things I've seen at this point it's been incredible. I mean it's not without struggle and heartache and all that, but it's well worth it. I appreciate you asking about it.

Auren Hoffman: 42:08

Yeah, yeah, absolutely. You're a business in Columbia Missouri. I wouldn't say it's the top 10 town that people would talk about as building a core acquiring entity. What's it like building a business there?

Brent Beshore: 42:17

Yeah, I would not call us the center of the financial universe by any means. I love it. For us, the quality of life here it's a college town, mizzou's here, university of Missouri's here. It's been wonderful. It's been challenging in some ways. There's not other firms in town that we trade talent with or anything like that, so it's like we're either importing talent or we're home growing it. In some ways that's been great.

Brent Beshore: 42:37

Originally it was really hard to get people to take us seriously, being from Columbia, missouri, although we got some weird street cred initially as being in agriculture, even though I've never really been on a farm before in my life just because we're from Missouri and people just assume that if you're from Missouri you must know agriculture. So now I would say it's a differentiator for us. People certainly remember us. Missouri is kind of neutral, like the Switzerland of the United States. No one dislikes Missouri. Yeah, most people haven't been here. It's the thing you fly over and look out of the airplane window, right? Regardless if we're on the East Coast or West Coast or South or North, people are kind of like oh okay, well, they're from Missouri. I think we get some like pass on skepticism. So yeah, it's been good. I mean I'd say the hardest part is just hiring people that want to move here. It's definitely a selection bias. That's been great. It's just been a gating factor for sure.

Auren Hoffman: 43:22

What's a conspiracy theory that you believe?

Brent Beshore: 43:29

Oh man, I'm going to have to go back. I think Jesus is Lord. I mean, most people would call that a conspiracy theory. That would be a core conspiracy theory, for sure the greatest conspiracy theory in history. I mean, by the way. The Apostle Paul in the New Testament says if the resurrection isn't real, then we are to be pitied. We are fools, what we are doing is a waste of time, and so it really all comes down to the resurrection, and I believe Jesus is Lord.

Auren Hoffman: 43:49

Okay, that's definitely a really good one. Last question we ask all of our guests what conventional wisdom or advice do you think is generally bad advice?

Brent Beshore: 44:02

I feel like this dominant thing now is to like, be you like, find you like. Every Disney movie is be more you, find more you like. You need to find your true inner self and express yourself. And if you express yourself and find the real you, then you'll to find your true inner self and express yourself. And if you express yourself and find the real you, then you'll be happy and all your dreams will come true.

Brent Beshore: 44:12

The problem that I have with that is like I've been like 30 different people in my life. I don't know what the real me is, and, by the way, the real me shifts and changes when I think about the times in my life when I have been the truest me. The realest me is when I've been least enjoyable to be around. Blaise Pascal calls it in curvature, where you're like curved in and on yourself, and I think this is where you get this whole like self-care movement, where it's like all me get these relationships that it's like well, you get married so the person can serve you. You know, if your friends aren't serving you the way you want to be served, you just drop them.

Brent Beshore: 44:47

Think about that for a second, though. Think about how twisted and messed up that is, if all your relationships are there to serve you and the only thing you're trying to find is just more you, it's going to be an ever-shifting pile of sand. Your relationships are never going to be long-term, you're never going to be challenged, you're never going to grow. It sounds like hell to me. It sounds like hell to me, and so, anyway. So I would just say is I want to be less me and I want to live up to a eternal standard is what I would say. The more that I live into that, ironically, the more me, I think, actually comes through.

Auren Hoffman: 45:19

That's super interesting because people change a lot. Also, just how you react to other people probably now change because, like they aren't who they are either, because they're changing. It's like every single person is like I'm totally different than what I was 10 years ago. I'm like related to that person, but I'm not even sure I'm like the brother of that person. I might be like the cousin of the person from 10 years ago.

Brent Beshore: 45:42

Exactly, my wife has married like four men and they just all happen to be me. Yeah, yeah, totally.

Auren Hoffman: 45:48

Yeah, yeah, exactly. It's hard with a relationship with other people, because if you're accepting yourself as changing, you have to accept they're changing as well. And if your wife had four of you and you had four wives, okay, now you have like 16 pairs or something of relationships that's happened over time, potentially.

Brent Beshore: 46:06

Which is beautiful. That's what makes it incredible. So, yeah, I would just say is for God's sakes, don't be more you, okay, I love that.

Auren Hoffman: 46:13

That's awesome. That's a great advice. That's great advice. All right, well, thank you, Brent B Shore, for joining us on World of DAS. I follow you at Brent B Shore on Twitter.

Auren Hoffman: 46:31

I definitely encourage our listeners to get you there. Awesome, A ton of fun, and I'm a huge admirer of yours. So thank you for being on the show. Hey, thank you so much, sir. I really appreciate it. Thanks for having me on. If you're a super data nerd, go to worldofdascom that's D-A-A-S. Worldofdascom and sign up for our weekly data as a service roundup newsletter. Thanks for listening. If you enjoyed the show, consider reading this podcast and leaving a review. For more World of DAS and DAS is D-A-A-S. You can subscribe on Spotify or Apple Podcasts or anywhere you get your podcasts, and also check out YouTube for videos. You can find me at Twitter, at at Oren that's A-U-R-E-N. Oren, and we'd love to hear from you. World of DAS is brought to you by Safegraph. Safegraph is geospatial data for physical places. Check it out at safegraphcom. And by Flex Capital. Flex Capital invests in data companies like those we talk about at World of DAS. Check it out at flexcapitalcom.