The Exchanges

Q And the term you're talking about is Pampered Chef. Can you walk me through that? What was that like?

A It was really interesting. So I took the role at Pampered Chef having no prior experience operating a business. I had been at Berkshire for about five years. I really had a view that the investing landscape was shifting, and more value would be created going forward on the operating side, but that very few investors actually have operating experience, especially on the more buyout side. You see it more in venture, but less on buyout. And I thought I'd be a better investor if I went and Got out of the boardroom, got into the war room, and actually went and operated a business. So I decided to become CEO of Pampered Chef. Pampered Chef was a business that was in need of transformation. It had been in decline since Berkshire bought it for about 10 years, and the fundamentals were intact. It had a really strong brand and a strong channel, so the moot was really there in terms of the business, but it had lost its way. Not dissimilar from a lot of ebbs and flows of consumer businesses, Where you grow, but your customer changes or the world changes. And in that case, the world had changed quite significantly. And the internet had come along in the early 2000, which had fundamentally shifted the business. And then the customer started shopping differently and shopping online. Um, Pampered Chef was originally started 45 years ago now by Doris Christopher in the basement of her home to r…

AI assessment note: “I took the role at Pampered Chef having no prior experience operating a business.”

Q And then you immediately went to HBS after. What was the decision-making process like to just do an undergrad and then right into HBS? You knew what you wanted, I assume?

A I think there were a couple components. One is I had a mentor who had done something similar at a different school, and she had really advocated if I knew what I wanted to do, that it was a path that allowed more efficiency and also not having to revisit it later in life. At that stage, I had found business. I had found investing. I knew I was passionate about those areas. I felt like I had a Clear direction of what I wanted to go do. I also think going straight from college to business school, which I advise the students now, is you're really on three metrics. You need to make sure you're ready. Socially, you're going to be with students who are much older than you are on average. Academically, can you bring something to the classroom that's valuable and insightful? And then career-wise, you're going to be competing for jobs with other people who have more experience than you. Socially, I'd always felt You know, like I was older than my peers. I think the nature of growing up again in a farm or a family business is you oftentimes just get more independence and you age a little bit quicker. Second, I think in terms of academically, I hadn't been in a traditional career, but I had run our family business from, you know, a young age, and so I felt like I had experiences to draw from that would help me in the classroom and be relevant. And then third, from a career perspective, I …

AI assessment note: “I think there were a couple components. One is I had a mentor”

Q We've already talked a little bit about management, and I think most of our listeners will understand a little bit of immersion of safety enough for the conversation anyway. What did you mean by more potential? Is that like a lottery ticket?

A No, it's less a lottery ticket, but really, like, where's the opportunity to sort of grow this business, and what does it look like? So, for example, we partnered with a company, Marine Concepts, sells boat covers. Now, when we partnered with the company, it was started by a gentleman Randy Kent, based at a lake of the Ozarks, He had a facility and a market in Lake of the Ozarks. He had great market share there, great NPS. The product was incredibly, um, you know, strong. He had moved a little bit and sold some in Florida, but really he hadn't expanded beyond that. So the more potential there was, can we take this company that has a great product, has a great reputation, great NPS, great margins, and expand it? And in this case, we wanted to build out a dealer network. So can we expand that through a dealer network and growth? So that was the more potential in that business was How do we expand it and doing something that they're not doing today versus a business where you may come in and it's already at full potential, right? The business is operating super well, not as many growth drivers or growth opportunities left where, what are you going to go do? Like, it's growing in GDP probably, like, it's going to be hard to really go accelerate growth in Coke, whereas for us, playing in the mid-sized market, there's a lot more opportunity. Or JM Tess, that was a forty-year-old busi…

AI assessment note: “No, it's less a lottery ticket, but really, like, where's the opportunity”

Q What are some of the lessons you remember from growing up on the farm and the responsibilities that you had at such a young age and how you think about that in relation to parenting now?

A I joke, I spent much of my life trying to get off the farm and now I want a farm for my own kids because I think it's such a valuable landscape to learn and to learn work ethic and commitment and problem solving all the things that come with, with being on a farm. My dad, you know, he owned this farm and he loved it. And so the first Lesson I learned. When you find something you love, it really is a passion and something that you enjoy, and you're not really working. My dad worked harder than anyone I've ever seen, you know, late at night, early in the mornings, all summer long, all throughout the winter. He took a small break, but that was about it for him, and it wasn't working. It was what he loved. That passion was something that I recognized and saw early on. Second, I learned a lot of independence. On a farm, just the nature of it is you're figuring things out. There's a lot of inherent dangers or risks I was driving when I was, you know, 1112 years old on the farm, not necessarily on the road yet, but I learned how to navigate unfamiliar situations, which was an important lesson for me early on. And then I also learned, you know, in essence business from a very fundamentally young age. When I was probably in third, fourth grade, I started running my own farmer's market stand, and so my dad would take me down in the morning, drop me off, I would run it for the day, and he…

AI assessment note: “now I want a farm for my own kids because I think it's such a valuable landscape”

Q How do you go about finding companies? You've acquired a few now.

A We find areas that we like. So we say, if we want to go fishing, we want to find a pond with a lot of great fish. And so we want to understand what is an industry that we think has a strong moat or competitive advantage. And we usually look at that by saying, okay, what are the returns on capital in the space? So quantitatively, can we see if there is a moat? And then qualitatively, can we understand the moat more effectively? How wide is the moat? Uh, is it getting wider or more narrow over time? Is it durable? Like, is it going to withstand the test of time? And so we're trying to sort of find those spaces. Once we find industries that we think are a fit there, we spend a fair amount of time reaching out to businesses, finding businesses, getting introduced to businesses. We have operating advisors who help us understand as well, and then we really try to get smart and find how do we add value in these companies. And then another group of businesses we have are just people who come to us, people who hear about what we're doing, who are excited, And so they'll come to us and say, are you interested in my business? Um, which we appreciate. And we always have the same assessment of, you know, what's the mode of the business? You know, quantitatively, qualitatively, can we assess it? And then how do we think about those areas? And what we've also done is we have built a community…

AI assessment note: “we spend a fair amount of time reaching out to businesses, finding businesses”

Q You guys have embraced AI internally at Cambric. How are you using it?

A Yeah, so we think of AI in three different ways. One is at Cambric. How do we become, use it, um, and ultimately become smarter, more efficient, more productive in our own processes and how we operate. And so that's everything from, you know, We use it for better note-taking, um, research on businesses, um, moving faster as we sort of deep dive in a space and getting smarter, um, as we think about, uh, the businesses more holistically. We definitely are using it. The second way we're thinking about it is what are the industries and businesses where AI will affect the industry and potentially strengthen the mode, as we sort of talked about a bit earlier, and Um, are there spaces that we think are attractive? So looking in sort of what we call sort of AI-enabled services, businesses where we think it can strengthen the mode of the business. That we're still earlier stages on because I think there's a lot of uncertainty of what happens in different businesses, but we're spending time thinking about that. And then the third is in our companies. And in our companies, there's two, I think, main ways we think it can be helpful. One is just structured way to help our businesses Think about the key management aspects where they can be more effective. So an example would be hiring. We have a hiring process. We have a structured, um, you, you do a scorecard, and you do this in terms of so…

AI assessment note: “We use it for better note-taking, um, research on businesses”

Q I want to speak just a little bit about inflation. How do you think about inflation in relation to investing?

A Yeah, I mean, I think that, um, a few things. One is, when we think about businesses, we try to find businesses that we think, and this goes back to, like, has the moat, is that typically they're a little bit more insulated from inflation because they usually can pass it on to their customers. If you have a better business that's higher quality, that has a moat, you usually can pass on inflation, and so it's less It's an issue, but it's less of an issue for the businesses that can do that, and so we're trying to be thoughtful about that. Second, with our businesses, you know, even if there is inflation, we don't want to pass it on or pass on all of it. It's like, how do we improve productivity in our business so that, in essence, we're combating some of the inflation we may be experiencing, and we think most businesses can improve productivity, you know, two to five percent a year, every year, Just by being disciplined about it. And so that's a way to also counter some of the impacts with it. But I think that's, like, the level of how we think about it in our businesses. You also have to usually think about, you know, new investments, um, what that means in terms of your willingness to pay, the consequences with that, you know, ultimately translates into interest rates as well. Those are all things that we factor in. That being said, like, I've never been a macro investor. I th…

AI assessment note: “we try to find businesses that... are a little bit more insulated from inflation”

Q There's so much to unpack there. I want to go back to maybe the first jumping off point there, which is long-term. Everybody says long-term. It's become this sort of thing that's easy to say, and what's the difference between saying it and living it?

A I think of it in three different ways. One is, do you think long-term? Do you have a long-term horizon In perspective. A lot of people can say, I think long term, and they may, but that's only one component. The second is you have a structure that actually allows you to think long term. Because if you naturally have a structure that doesn't allow for that, or doesn't encourage that, you're going to be pitting yourself with your long term horizon against your structure that is going to encourage you to make shorter term decisions. In essence, if you're focused on selling a business from three to five years, You're going to make short-term decisions if your structure is going to require you or incentivize you to do that. And then the third is, I think there's differing degrees of long-term. There is the fifty-year long-term, which I think is really, really long-term, and then there's differing gradients of that that can be utilized and be thought about. And I don't think all long-term is equal, and I don't think you need to do 50 years to be sort of long-term. I think there's some in the middle that allows you to Take advantage of that horizon, take advantage of that structure, but give you some flexibility where you're not locking yourself up forever.

AI assessment note: “The second is you have a structure that actually allows you to think long term.”

Q Are there tells in those interviews that you're doing with people that maybe they're not the right fit for where you're going, or that this person isn't as good as you thought they were going in?

A I would say, um, the biggest tell I say is called hand-waving, where you're talking to someone about something, you ask a question, and rather than answering the question, they sort of go all over, they're sort of hand-waving around, or you start to drill in more, and the hand-waving begins, where they can't really understand or explain it. Typically people who really know their craft and know their business and know the fundamentals can really explain why we do certain things, why we don't. They may not have all the skills to go fix it, but they understand what the issues are and what the problems are. And then our goal is to help them understand, okay, this is how we can go address that or solve it. But that usually is the biggest tell for me of, um, is can they get clear? Can they get crisp? Do they really understand what's going on in their space? And it doesn't mean they need to understand everything in the business. They need to understand the area that they're responsible for. I find oftentimes the best people just have a natural interest, curiosity to solve the issues, or they'll have views on things even outside of their area. You know, if one of the questions I'll oftentimes ask is, like, what are we not doing that we should be? And people oftentimes will say stuff in the area, but oftentimes they'll have stuff in other areas, too, that, hey, I really thought if we, y…

AI assessment note: “the biggest tell I say is called hand-waving”

Q And so, what happens, what's the playbook post-close? So, you, you've found a company, you love the management team, you love the people, it's in a great market, you think there's potential for more. Day one, now what?

A Actually, before even day one, like when we close, during the process where we're getting to know each other, we're doing diligence, we're sort of spending time with them, really understanding, um, what are their views on the industry? What are their views on the business? What does management think the biggest opportunities are? We're oftentimes doing interviews, so our Cambric Business System team will spend time meeting with 70, 75 people in the business and understanding where they think the opportunities are as well. So we're doing that during that sort of, um, diligence process going up to the close. Once we close, um, with a business, we're really trying to understand where are they on their own journey, and so we have a diagnostic to assess on all these frameworks. People, attracting talent, developing talent, engaging talent, Strategy, KPIs, budgets. What's their self-diagnostic on their sort of sophistication in these areas? And so they'll do that, and then we'll do that, and then we'll come in and say, okay, given this, what, what do we want to go build together? What does it look like? There's a few sort of critical components of the initial partnership that we do. Usually it's a part of a strategic planning process. Um, our KBS team will come in and work with the management team to sort of really think about what's the future direction of the business, and what are…

AI assessment note: “Once we close, um, with a business... we have a diagnostic to assess”

Q So you started KBS in twenty-twenty. What's changed over the five years? What have you learned from implementing this over the last half decade?

A Yeah, so, um, we, we actually started when we were at Pamper Chef, right? That were the fund foundational pieces where we were learning and trying things, and then we formally sort of codified it when we started Canberra in twenty-twenty. It has changed a lot, and it gets better every year and every season and every business we work in, and we think of it as this It's living and breathing. It's not a stagnant system. You go and implement, and then you forget about it. It really is focused on continuous improvement, and each company we engage with helps us get better at it. But the mistakes that we learned from started very early on. So when we were a Pampered Chef, we first rolled out KPIs. We rolled out KPIs to the entire organization, and we said, okay, great. We're going to do KPIs. We're going to roll it out, you know, 500 employees. We'll roll it out to everybody, and that was a huge mistake. You know, we just, it was too fast, and the organization wasn't ready. Um, they, you know, we should have started and sequenced it and started just with the executive team in year one. Once you have the executive team understanding, aligned, working towards it, then you go to the next level, and then ultimately you go to the next level. We thought we could move faster and just roll it out because it was a small business. You know, related to that, when we roll out our KPIs, we're like…

AI assessment note: “we should have started and sequenced it and started just with the executive team”

Q And how are you defining capital? Is that just equity?

A In capital, we're looking at a few different things. What's the capital actually required in the business? So what you're putting into it, your PP&E, if you need, like, lots of AR to support your business, really trying to fundamentally understand what capital is required to support this business, what inventory is required to support the business. Uh, every business was a little bit different, but there might be a business where the earnings look really great, But then they have a huge inventory on their balance sheet to support that, that level of, uh, earnings, and then that business is probably a little less, like, a less good business because you have to have this, you know, inventory to support it, and that sometimes maybe you have a lot of locations, so you need to have facilities with all the inventory, and maybe your customers require you to have a lot of inventory to support the business. There's a lot of different dynamics that, um, you've Play into that, but we're really trying to understand what capital is required to support the level of earnings that you have in this business. Your best businesses usually don't require a lot of capital. There are caveats to that, too. I mean, you can get a higher return on capital, but also potentially someone can enter the business more quickly if you don't have capital in the business. If you have capital in your business, that…

AI assessment note: “we're looking at a few different things... PP&E, if you need, like, lots of AR”

Q Where do you think modes are getting stronger?

A It's hard, you know, in the moment to look and say this mode is getting stronger because typically it's easier to look back over the course of 10 years. The mode has gotten better or gotten worse. I think AI is a good example that probably will erode a lot of modes in a lot of industries and businesses because it reduces the friction or the cost for a new entrant to come in and they can navigate the space more effectively. I do think there probably will be a subset of businesses Where AI actually makes their moat stronger, and because they already have some sort of structured system that is allowing them to have a competitive advantage, and so it might be, you know, maybe they've built out a sales force with a technician base that is hard to replicate, and for someone else to come into that, and now AI allows them to quote more effectively or reduce their costs or improve their productivity so that then their costs go down, and if their costs go down, then they can pass that on to the customer, And sort of cycle that into keeping more customers more effectively. I think it probably is a little early in the context of AI to see, okay, who's going to be the biggest winner? Who's going to be the biggest loser? Because it's a little bit more of a crapshoot at this stage, I'd say.

AI assessment note: “a subset of businesses Where AI actually makes their moat stronger”

Q to her and he was teaching her sort of like the financial aspect of running the Washington Post. And one of the things he mentioned that stood out to me was he was just showing her a balance sheet over five or 10 year period of time. What can you learn from a balance sheet, just a pure balance sheet over that period of time? What insights do you get?

A I mean, you can see a lot in a balance sheet. I mean, you can see how much inventory do you have. You can see what capital is required. You can see are your accounts receivables, like, are they going up? Are they going down? Like, there's a lot of insights that you can see from all three financial statements. And then if you, if you start to understand the business drivers of the business, you can understand this as well. And I think what you typically you'll see is that Most leaders don't always, I think we assume they understand all of that in a business, and I think some do and understand it fundamentally really well. Some understand it, you know, tactically well. Sometimes people understand it in their, like, in practice, but not necessarily the theoretical, like, how it actually works, and you win. I think it's really valuable, though, for your leaders, and not to assume your leaders understand all of that, because some people are more financially literate or financially, like, have more financial They'll acumen that others, and it doesn't mean they can't learn it, but if you equip them with those skills, they're going to be better. If you think about a CEO, for example, oftentimes CEOs are great operators. They usually have come from sales or marketing or operations. They seldom come from finance, and it's not usually the, the career trajectory, and so have they actually …

AI assessment note: “you can see how much inventory do you have. You can see what capital is required.”