The Exchanges

Q Do you give people personality tests as part of the recruiting process?

A Yeah, we, we do. Yeah, we, we really, and by the way, we don't automatically ax 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, it's usually when we're pretty serious with a candidate, right? So we're trying to make sure that we're, 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.

AI assessment note: “Yeah, we, we do. Yeah, we, we really”

Q Where do people go wrong doing what you're doing as they scale?

A They try to go too fast, uh, too soon, assuming they know too much. So we Uh, 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, 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 is a brutally difficult thing to do. Now it gets to do that again and again and again. And oh, by the way, this is an interesting dip that happens where, so now you've got, let's say you've done this three times, three brutally difficult and you've, you've, you've just now cashflow them. So you, you still retain them. So now you've got a portfolio of three companies. Well, now you can't be a 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 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 s…

AI assessment note: “They try to go too fast, uh, too soon, assuming they know too much.”

Q So do you, Have projections in this moment? Yeah, we're, we're, um, Do you like do three scenarios like base, upside, downside, or how do you, how do you think about that?

A Yeah, we're trying to stress test where we think based on the history of the business, uh, it's going often assuming for most of the deals we do that there is no growth. So we want the business to underwrite with no change in trajectory. Um, 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. Like if you've, 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. 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's no easy solutions. Like I was talking with a, um, Uh, Harvard educated search searcher the other day. Uh, actually when I say the other day is probably a year and a half ago and, um, bought a business and had all these green plans. I was going to, he was going to introduce all this technology, all these like changing systems. It was an old school business and he was going to, you know, revolutionize with technology. And this is kind of like, if you go on Twitter, the, you know, I don't know what we call it or whatever, the group of people that are trying to do this SMB land or whatever. Um, this is…

AI assessment note: “often assuming for most of the deals we do that there is no growth.”

Q What have you learned about hiring people that most people miss?

A Well, another journey I've been on speaking of, uh, of these like added tools and toolkit is I've really become much more familiar with different personality testing. And, um, specifically like I, you know, I've looked at a bunch of them. I really like the combination of Myers-Briggs and Enneagram. If you think about our business as Um, you know, we, 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. Like 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 an increase in incredible volatility into the system. If I think about my job as CEO, I need to be helping our team to be the most thoughtful, well-educated up to speed on predicting human behavior. I mean, this is where the knowledge project is been super helpful. The work that you've done collecting the best of what other people have figured out. Getting it, distilling it, right? I mean, this is what we're all trying to pursue and specifically around the wisdom of clicking over these lenses that these personality tests provide and giving you a framework to, to create empathy and create predictability in relationships. I think that's probably been the biggest leap forward. And what most peopl…

AI assessment note: “what most people get wrong is most people don't understand why people are doing”

Q have a ton of experience with this working out. Maybe you do where you 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 And my loyalty is to the person who hired me and, or is it just easier to sort of like transition and move on?

A I mean, it would, 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, to be able to do that. Fundamentally, we all struggle with pride and we can't see ourselves clearly. Like w we are a mystery to ourselves and what we, 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 relationship. This is the value. And the, this is the, the terror of where we've gone as a side note with social media being so isolating with, with not having in-person relationships. Like this is no wonder that deaths of despair and suicide attempts and anxieties through the roof, right? We would love to be able to take 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 You know, in order to move forward, careers often die by suicide, not by homicide. Like it's not double click on that over and 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, their pride, their ego, they, their identity is rooted now in their title, in their position. And You say to them, we love you. We think you're awesome. We'd love for you to continue to be …

AI assessment note: “Someone rises and they rise beyond their abilities and then they can't take a step back.”

Q 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.

A 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 into the other, right? Everyone's, everyone's incentives are aligned to, to achieve the same goals. And for us, when we look at traditional private equity and the traditional two 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 two percent fee, uh, annually that goes to covering your overhead costs and the expenses of the operations of the firm, the seeking out the doing of the deals, the, um, the oversight and governance post-close. And then you, once you pay them back with a return, typically, uh, um, six to eight percent, 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, um, 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. Jane, 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, that were like really hurt that they did that went poorly. The ones that hurt the most ar…

AI assessment note: “when we look at traditional private equity and the traditional two and 20 model”