Ep. 153: Chris Nicolini, Managing Director & Head of Value Creation at Brightstar Capital

Speaker A: A lot of people thought that AI was, was, was Claude and ChatGPT. It is useful as an individual, it's useful in business, but it barely scratches the needle of the capabilities that systems can do when they have the right package around them.

Speaker B: In this episode of Investors and Operators, I'm speaking with Chris Nicolini. He's a managing director and head of value creation for Brightstar Capital's Lower Middle market strategy. Before joining bright star in 2025, Chris led value creation initiatives at Abri Partners, a $17 billion private equity firm based out of Boston. Chris has over 30 years of experience as an operator at GE and everywhere in between big companies and small companies. So today we're going to be talking about value creation, AI implementation and key lessons from Chris's career. So into a warm up question though. Okay. And I would love to know why you got into the army. Why did you enlist? You know, before we talk about private equity value creation, let's go all the way back and love to hear your story, why you enlisted.

Speaker A: Well, first of all, let me just go ahead and thank, uh, you for doing this podcast, particularly around the mission of helping veterans in their transition. I was mentioning before that when, uh, veteran. When I, When I got out 25 years ago, um, there were little resources for this. They didn't exist other than, uh, standard recruiters. Uh, so I'm really happy you guys are doing this. So, you know, I joined the army out of high school, went to West Point, and really it just comes down to as simple as I wanted to serve, I wanted to do something that wasn't about me. Uh, and the military seemed a very good way to do that. And served, uh, active duty for six years. I loved every minute of it. Got out right before 9, 11, 2 months, uh, before that. And. But I did have an amazing time, um, while I was in the army.

Speaker B: So, yeah, that's kind of all right. Um, and we were connected through one of your colleagues, Chris Grillo, who actually attended our 51 vets New York City summit, and he spoke there. And so for those who are interested in helping transitioning vets get jobs, check out, uh, 51vets.org would love to get you plugged in. So let's dive into value creation. What is the difference between the value creation teams and processes at p firms with 17 billion under management, 5 billion under management, and below a billion under management?

Speaker A: Yeah. Well, what's interesting about that is you would think that all the large firms have big teams, all the, uh, smaller firms have smaller teams. And that is True in some instances. However, really the primary difference between them is the value creation. Teams in smaller funds tend to be focused, uh, more on managing or working directly in a limited number of companies for each individual, uh, and staying with them progressively during the pre investment period as well as all the way through the investment. On larger firms, they tend to have, uh, very strong functional teams who come in and do project work quite often. Um, and that's also very good. But they're kind of in and gone. Now. That's not totally true. I mean every firm is a little bit different. It's not totally size dependent, but if I was to say a kind of a key differentiator for the most part, it's along those lines.

Speaker B: What, what did you bring from, um, the previous firm with a larger overall team? What were some of the lessons that you brought from that experience, um, that have really worked within this portfolio and maybe what kind of things did not necessarily apply?

Speaker A: Well, what's interesting is the team here at Bright Star is about the same size as the team was at the last firm. I helped build that team out, but when I joined, I was the second person on that team. Uh, that was ten years ago. So I think what I brought to this firm from there is an understanding of what it takes to build those teams within a PE firm, but also how to properly leverage them. So we have here a combination of generalists and functional specialists. And I think if you don't pay attention to what the, as a generalist, which is what I am, if you don't pay attention to what the functional specialists have to offer, they, they can get left out of the picture. Uh, and you're kind of like leaving resources on the table. You have to use those resources as well as you can, as comprehensively as you can. So it's really important to develop relationships with those individuals even if you're not working with them day in and day out initially. Uh, because once you build those relationships, you get reps and the next thing you know, you don't really even have to tell the individual too much about where you need their help. You kind of tell them a little bit about the company, you tell them your theory on what they could help with, and then you allow them to go in with you to, you know, to vet those out and come up with initiatives to, to, you know, make to effect change.

Speaker B: Can you walk us through the value creation playbook? And maybe that starts with pre acquisition, the work that the team does in looking at companies?

Speaker A: Yeah, uh, you know, when we, when we look at uh, potential investments. We're looking for sectors that we have direct experience in. We're looking for founder led companies almost exclusively. Uh, we are looking for founder led companies with few exceptions. And we're looking for companies where the levers you can pull are more in your control and less in the market's control. So certainly those are, uh, you can never have 100% of that, but that's the things you look for. And then you know, the things within the companies that we really want to be able to work on or that we most commonly work on is organic growth, whether that's new markets, physical markets or product markets. Um, so that's one area. Inorganic growth certainly is a big piece of that. Um, and then using uh, other tools at our disposal to improve the potential outcome. So that might be uh, AI tools that may be digitization. It might be the fact that we have a wide network of industry experts that we have relationships with that we can bring into these deals to either, uh, help with specific point projects, come in to be uh, side by side with the CEO, be on the board of the company, uh, that help us fully understand the industry. And in most cases we will not invest in a company if we don't have a partner that really knows it uh, very, very well in that sector and more importantly that subsector. So those are the kinds of things that we make sure that we have before we invest in these companies.

Speaker B: After, you know, the pre act work is done. What does the first hundred days look like? Like what do founders need to know about the first hundred days of working with the Bright Star team? And also what are some of the misconceptions that they might not know or just might not fully expect out of that first 100 days and maybe the first year?

Speaker A: Yeah, I think, you know, the perception in some places that private equity firms once they make an investment will come in, in some ways take over. They'll descend upon you with a, with a, with a crew of uh, operators, uh, consultants and essentially tell you how things are going to be done. Uh, we don't invest in companies like that. We invest in companies where the founders and the management teams already know what they're doing. We're there to help them improve in areas of things that they don't have specific skills in. Right. So most of these founder led companies are led by uh, passionate entrepreneurs who have built these companies up to a certain size. They know sales, they know their market. Uh, what they may not know is they may not know how to digitize. So what we'll do is we will go in, we will first and foremost learn and listen to them and all the individuals throughout the organization from, from the executives down to the front line so we get a true picture of how the company operates and then what I like to do and I think this is broadly speaking the way our operators in general work. We will identify probably non tactical issues that are a big pain for the management team and we'll help them go fix them. Maybe they have an ERP that's either broken or not fully implemented or we'll help them figure uh, out how to optimize that system or replace it. We, maybe they have a pricing problem, they need to do a pricing analysis and they haven't done that. We'll, we'll do a pricing analysis for them, show them what the, you know, what the uh, what the benefit of, of uh, you know, price increases or price adjustments might be relative to lost customer base, things like that. Once we are able to do that we then have their trust and then the more strategic work can happen. So certainly we have, you know, you have to do the post closing items, board governance, finance, debt stuff. All that has to be done. And we don't quote unquote put that work on them. Um, between the operating team and the finance, the uh, investment team, we will take on the burden of doing much of that for them uh because we don't want their workload to go up. The diligent process takes a while. They're doing their day job. They also have to go through diligence so they want to get back to really running their company. They don't need us coming in and uh, giving them tons of extra work. So I think that's what we really try to concentrate on.

Speaker B: Investors and operators is the podcast of 51 Labs, a full service digital marketing agency that focuses on private equity firms, the portfolio companies and others in the M and A market. We handle everything from branding to video to websites, LinkedIn content and everywhere in between. We've done over 150 projects since 2019 and usually we do a lot of work with emerging managers so funds one through three independent sponsors but also funded uh, private equity firms reach out. Happy to help out on the revenue side. Um, when you look at pricing strategy, I'm curious of all the companies you've been exposed to in you know the portfolio companies or the private equity lens, not necessarily you know, the geography, uh background but what percentage of porkos have you worked with where you came in and found that there's actually Significant upward pricing, uh, you know, capacity. And where the founders were like, I don't want to do this, like, my customer's going away. But then a year later, like, no, it worked, guess what? And also what percentage were you did it? But hey, it didn't work or may

Speaker A: have backfired on price, I would say about 50% of the companies. There's usually opportunity there, um, instances where it doesn't work, where we've tried something and it doesn't work. Largely, uh, revolve around the case where the particular products and services that we are potentially going to increase the price in are not differentiated. They are, they are commoditized. There are competitors in the market that can do the same thing. And once you start to increase prices, they can look at the other competitor and go, well, listen, your customer service isn't any better, your delivery isn't any faster, and when things break, you're not any better at fixing it than someone else. So, you know, for the most part, we don't mess with that. If it's a product line that is not differentiated, we are generally not going to play around with price, uh, adjustments or price optimization.

Speaker B: That's interesting.

Speaker A: And there's also opportunities when you do that, by the way, that you're actually going to reduce prices. Right? Like you may have you. It's price rationalization. In many cases it's like, listen, we want to get more value. We want to have a longer lifetime value for this customer, whether it's a consumer business or a professional business. And the pricing may be lopsided, right? Like the value for the customer on some product may be much higher, but yet we're charging them less. And conversely, the value to a product might be lower, but we're charging them perhaps more.

Speaker B: So.

Speaker A: So you may have a little bit of give and take where you're reducing some prices, increasing other ones. Uh, but the net effect is overall greater wallet share from that customer and greater profitability. Uh, and then long term, you know, uh, long term, uh, value and less churn.

Speaker B: So it's interesting on pricing strategy and psychology because my wife Jing is also my co CEO and it's fascinating. Like when she came into the business in 21, she's like, we're, we're doubling prices. I don't care. I'm tired of struggling. Like we had no money. Like we, we had no idea what the heck we were doing. So 2019, 2020, like, we did not come from the agency world. She came in like number one. The business doubled that year, like oh, we should have done this two years ago. You should have quit your legal job. Um, but my psychology is that I've always wanted to invite more people to the party, more people to become clients. I just like, it's, it's. I, I love being around people. But now what that means on pricing is that I didn't want to push people away on pricing. And so we've had literally for seven years that back and forth of, uh, we're not going to, we'll push people away on pricing for this video or the website or branding. And then you know what happens? Like when we increase prices to where the, the market is, not only are we attracting the right clients, but also the right project scopes. And then our team is staffed where they can do truly deeper work and get better results for the client as opposed to double the projects at half the price and everyone spread thin. But it was interesting. Like I wonder what you have been, have seen through the founders that you have worked with and some of the, the pricing psychology or maybe how their backgrounds affected other parts of the business on hiring. So I'm just kind of curious about that.

Speaker A: Well, since you brought up your wife, I have to kind of go to my wife. My wife actually runs a nonprofit that teaches yoga in juvenile detention centers. She was one of the original founders of this nonprofit, uh, with the leader of the organization and then she took it over three years ago. And she's having, they're having trouble with, with uh, yoga instructors. Not because these people don't love what they do, but it's already a low income, um, it's already a low income, uh, profession as it is. And it's a lot, there's a lot of hassle and having to do all this logistics for the Department of Justice to be able to paperwork, you got to fill in reports you got to turn in. Meanwhile you're going day in, day out, uh, into prisons and getting clearance, going through clearance. Like there's just a lot of logistics step to make, you know, a hundred and something dollars per session. Right.

Speaker B: So what's the non profit called?

Speaker A: It's called, um, Centering Youth.

Speaker B: Centering Youth, Yeah.

Speaker A: Cool. And uh, so I, we were having this discussion. He's having trouble keeping yoga teachers. And as much as these people really care about the mission, they also need some sort of living wage to be able to continue to do this. And said Veronica, contract negotiations coming up with uh, the djj, you got to talk about what they're going to pay you per session. So therefore you can properly Compensate your folks. So she was very scared it was going to be a problem. Uh, we war gamed it for a while and ultimately the DJJ loves what they do so much. They were ready and willing to, uh, do that. And also we found ways to reduce the administrative burden to those instructors. So, you know, the instructors are the product. So we are finding a way to strengthen that quote unquote product, uh, to deliver, you know, the services to these, to these juveniles that really need it. In a way that means that their instructors are going to stay around longer. The relationships they build with the students are going to be better and stronger and it's just better for everyone. And I think, you know, a year later, the DJJ is happy, even more happy with the program, even though they're now pay anymore.

Speaker B: That's, I mean, that's a perfect case of it. And then everyone's happier.

Speaker A: Yeah, yeah. Uh, you're expanding the pie. You're not, you're not splitting the pie. Yeah, Um,

Speaker B: I guess maybe that kind of goes over to hiring philosophy. Actually, you know, we've in seven years have learned, ah, a lot of lessons the hard way. And it's really taken probably past year or two to get this core team that we do where it's like you finally feel that everything's humming. And part of that is also pain above market. Like here in Atlanta, we pay New York rates and also our bonuses are higher. But you know, then you look at the P and L and you're like, oh, that's painful.

Speaker A: Yeah.

Speaker B: But then, then it makes us think, well, you know what else is painful? Churn. Like that sucks. And it gets so hard to find the people, train the people and then that trade off. So I'm curious, like what, um, you know, through your experience still at portfolio companies in your career, like how, how have you thought about, uh, retention not just at the senior level, but throughout the organizations? Have there been common threads or maybe even hard lessons that you've, you know, learned with these portfolio companies on how to have, uh, strong retention?

Speaker A: Well, the common thread with the management team, first and foremost is you got to back the right management team. Like we don't believe here at this firm, nor at my previous firm of investing in companies where part of the thesis is, oh, we can make this company better. It's underperforming because the management team doesn't really have their heart in that. That is a dangerous, dangerous way to develop a thesis. And for the most part, I don't think that works.

Speaker B: What does that mean? Management teams that are strong already.

Speaker A: If you have five that are strong, that's great. But I think what's even more important is that the CEO, uh, is a visionary. That he's led this business for many years. He's got a team around them that will do anything for him and therefore anything for the company. So there may be cases where there's one or two people on the team that aren't A plus players, but because they have such strong loyalty and desire to work for that CEO, uh, they will work harder than they perhaps would have otherwise. They will outs. They will outstrip their normal capabilities and grow quite candidly. So that's kind of the way I think about the senior management team. And then when it comes to everything beyond everything, you know, other than that, um, it helps if it is a company that is geographically specific, that is, has a plant that needs to be staffed, or they're all in one state that you have a plan or develop a plan for hiring that is repeatable. So, for instance, uh, in my early career, I ran a manufacturing organization in Orangeburg, South Carolina. We made all the OEM brake pads for the Dodge, Durango, Dakota and Ram. And we were had to grow from 60,000 brake pads a year up to five and a half million because of all this business we had won. Well, Orangeburg is about halfway between Charleston, South Carolina and Columbia. What's in Charleston? The naval power training unit for the US Navy. What do they have? A ton of insanely smart electrical, mechanical, uh, guys that were engineers but also can do maintenance. So, so we set up a program where I started recruiting individuals from there, and then they would feed me more people from there. So a repeatable process where, you know, the skillset, you can evaluate it on a repeatable basis. And because you have good word of mouth through the first hires, you can continue to do that. So that's an example of like getting a flywheel going. And we just fed that maintenance organization. It was two people when I joined. When I left a couple years later, we had 25 guys, and I think 18 of them were from that, from that naval program that had gotten out of the Navy and joined us. So it was amazing.

Speaker B: Uh, let's change topics over to AI implementation. Um, I've been around a bunch of our clients, just went on a road trip talking to clients. And it's interesting to see that. It feels like AI implementation is at its infancy within private equity and the portfolio companies. And it's, uh, a lot of firms, uh, that I've been talking to. It has Felt like there's not a really comprehensive plan and implementation and it tends to be siloed around something around whether it's deal sourcing or legal or you know, cdd, you know, other parts. Just kind of interested about the journey that Brightstar has been on with AI implementation. You know, where is it going? Well, what are some of the challenges you guys have, uh, faced along the way?

Speaker A: When I got here a year ago, I was shocked in a positive way of uh, how much we've already, the firm had already bought into it, um, and we could talk about a lot of tools and the firm does have a lot of tools, uh, which we're all learning and adapting to and we're moving fast and trying to learn these things and eventually we'll probably not use some of these things. But there are key learnings we've had. Just uh, in the 12 months I've been here, um, we have developed many tools in house, uh, from our own teams using outside tools that are helping us first in the, not so much in deal, uh, finding deals, but in vetting deals. Uh, one of them is, uh, before a, uh, deal team can bring a deal to uh, IC for an IOI or an loi, not only do they have to do full, the normal things they would do full SIM analysis, full market analysis, et cetera, they have to run an AI agent that is a red team agent that tells us with the information from the SIEM as well as from the thesis deck, what, what the counter case is. And then on top of that, even before they go to ic, they have to have that team's response to what the red, uh, the red team says and be able to present it and talk to it. In some cases you may find as a deal team that that red red team report has called into question a lot of the things around your thesis, uh, that you now recognize that you didn't recognize before. And you may, I won't say abandon it, but you may 2, you may start to reconsider some of the things you had. So that, that's a huge one. Um, we now do multiple hackathons, firm wide hackathons. Uh, we had our annual general meeting in Florida a uh, month or two ago. And then right after that we went to our Palm beach office. Almost everyone that's from admin, through legal, through investment, through everyone in the firm. We did a hackathon where we were in groups of four or five people using tools to develop solutions to challenges that we have internally. And then we present it at the end of the day one of the key tools that came out of that was more of kind of like a back office tool. It's a tool that helps our associates grade the tests that new potential associates interviewees have to do. They have to do a modeling test. And um, we iterated that team iterated on that test and it's great and it's useful for the associates so they're not spending all this extra time doing this work. Uh, but it has limited value. Well, they've taken that uh, analysis and since then that same team has gone back and said, let's make this more broadly applicable to the firm in a way that is more important to our results. So what they've done with that is they said, listen, we know that when we model or we look at SIM analysis, we don't always get it right. So we're now going to use this tool and modify it in such a way, this agent, so that it can analyze, uh, the products that are created by, uh, both the, uh, investment bank that's brought it to us as well as our own analysis to find errors in there. And while we would find those errors anyway, we're now finding them three times as fast, which allows us to spend more time on the quantitative, I'm sorry, the qualitative analysis and not worry as much about, uh, whether or not we got something wrong on, in a toggle switch on it on a model. So I think that has huge long term implications for us.

Speaker B: Tell me more about this hackathon. So, like, when was this? Was it a half day, A full day? Who was there? The entire firm? Was that a Saturday? Uh, like, was that a hotel? And what was the structure of the agenda? And how did you divide and conquer? Like, Chris, you're handling this with the associates or the ops team? Like, how'd you guys structure the agenda?

Speaker A: Yeah, that's great. So our annual general meeting was a Wednesday, Thursday, I believe. We got there in the morning. The entire firm was there. Now there were a couple teams that were remote. Maybe 20% of the firm was back at whatever office they were at.

Speaker B: Uh, so it was around your agm. So it was around your agm, but you did it like the day before

Speaker A: the AGM M ended. Okay.

Speaker B: Yeah, it was a day after the AGM ended. Got it.

Speaker A: Yeah, yeah. And it was everyone. So we all met in a main conference room, uh, overflowing and then, and then, you know, certainly there were some remote folks, but that's everyone. That's our CEO, our cfo, like the entire firm leadership and Prior to that, uh, hackathon, we had already been carved into teams of 5, ish, 4 or 5 in some cases. These were groups that already had been working together with each other. And then we would subdivide into, um, conference rooms or offices in groups of four or five. And then we would come up with an idea of what we think we want to work on for the day. We would say, all right, what is the. We would map the problem. What is the issue we're trying to address? What tools make sense to do it? Um, what is the output of this going to be? Um, and how are we going to present it? So we had basically from 8 in the morning till 4 in the afternoon, and then at 4, we all went back into the room, we presented our products, and then, you know, there was 10 of them, 10 different groups. And then, uh, then at the end, there's actually the next week there was judging, and a, uh, couple key members of the team judged it and then. And rated the three best, uh, pieces of that. And one thing I, I hasten. I forgot to mention, we do have an internal leader of, uh, AI, uh, infrastructure process procedure for the firm that we hired directly from another PE firm. And so she has helped us frame all of this. She's the one that is, uh, setting up these hackathons. She. But more importantly, she's the ones that is leading the effort to identify external tools because there are so many out in the market, some which are the generic LLM tools, but some which are, like, specific to finance organizations, PE firms, investment banking. And she's vetting them with help from other people in the firm to say, all right, these are the. These are the tools we're gonna call our platforms. Um, and so that's been hugely helpful too. We have our next hackathon in just under a month, I believe, so we're not stopping it long. We're just gonna keep doing this. Our head of one of our managing, uh, partners, uh, for the firm has basically said, listen, if you come to the next hackathon with the same skillset you had, no matter where you were three months ago, that then you failed. That means you haven't evolved. You came to this event, so you better be getting better. You know, so if your day job is everything you do for the company and the fund, your night job is learning these tools and working on this stuff, uh, not because I want you to, but because it's gonna be the speed of innovation and the speed of our industry is gonna continue to adopt more of it. And if, if you're a PE firm in two years that doesn't have this as a, uh, major ah, part of your culture and the way you operate, you're gonna fall behind.

Speaker B: Um, and I think that's a really important insight which is that you have to have that top down leadership direction to say, um, if you are three, six months and you have the same skill set, like that's failure. Like we are growing fast and we have to adapt or we're not going to survive. Um, you don't want to be a zombie fund. And yes, we are technically still here, but like we have to adapt fast or die.

Speaker A: Yeah.

Speaker B: Um, on the, you know, the 10 groups from 8:00am to 4:00pm 10 groups, where did you find in the, in the functions of the business, whether it is sourcing, underwriting, uh, Portco, support management or you know, admin, whatever, what areas did you find that, you know, you, you're getting the most leverage from or is something that's truly going to move the needle?

Speaker A: Yeah, one of the areas we had is, you know, we get so many deal, uh, books, sims, whatever you want to call it. Like this is a constant flood, right? So deal flow is massive. And so we think we know certain things about certain sectors and we absolutely do. We got a lot of experts. But then there comes this thing where it's like a subsector within that sector that we don't quite really know. So one of the tools that was created was a subsector analysis that says based on what we know about this sector, is this subsector, is it going to work for us? Is it something we should pursue? So it does an analysis around that, that deck and, and says where it fits with the things that we have worked in, in the past and where it does not fit. And it kind of warns us if, okay, that's not to say that this isn't a good thing to invest in, but it's not something you truly think as much that you know as much about as you thought historically. And then it'll kind of give us a rating as to whether or not it thinks we should look at it. Now we don't just follow that out of hand, but when you're getting 6, 700 deal books a year, you can speed through the process of is this a no today? All right, if it's a no, let's get it up. It helps us make that no decision faster than we might have, uh, otherwise done. And that's a huge, not only is it a time saver, it's a huge clarity saver. Right? Like then you're not, you're not um, not spending a lot of cycles on stuff that is ultimately not going to, not going to end up being uh, something you really start to due diligence on.

Speaker B: When you brought in this person, uh, who's running AI implementation, what did she find of like, hey, great effort, love the energy. This is not how we do this. What were some of the early challenges you guys faced in the AI implementation?

Speaker A: I think a lot of people thought that AI was, was, was Claude and chatgpt. Uh, it is the, it is the user's entry to it. It is useful as an individual, it's useful in business. But it barely scratches the needle of the capabilities that systems uh, can do when they have the right package around them. And her introducing us to these other systems uh, and their capabilities, um, really kind of changes the conversation because you can, I'm sure you've done this. You could spend all day in ChatGPT learning a lot, but it'll just keep answering questions for you.

Speaker B: How much do you think that you're using agents to truly execute the work where you know, associates leave at XPM at night and they come back and they just actually did the work at night or across different functions in the business? Where are you guys at kind of that journey?

Speaker A: I mean one of the easiest examples is we have firm wide agents of like 30 or 30 plus agents. One of the simplest ones, and I'll bring this up just because it's the most relatable. You come in, in the morning and this agent will, will have looked at your calendar, it will have looked at everything in your email history, it'll look at the box files and it'll say you have, this is what you have on your schedule for today based on the email analysis I've done, the box folder analysis I've done, these are the things you need to know. So you have a meeting coming up. Oh wait, we set this meeting a month ago. It's a, uh, who is Chris?

Speaker B: What does he do?

Speaker A: And like why is this relevant to what you're doing? And it can just be an email sitting in your box that summarizes everything you need to know for the day. Um, and if you read that you're like 90 of the way there. Um, so I think that's a great

Speaker B: coming back from vacation for a week.

Speaker A: What's that? Yeah, yeah, totally. Yes. Yeah, yeah. Uh, or you just did a big race and your mind isn't working so well because you haven't slept in two days. Why don't you read this?

Speaker B: I don't know what you're talking about.

Speaker A: Yeah, exactly. Neither of us do.

Speaker B: So yeah, let's talk about M and A and just think it's like the buy versus built because you know we're going through this as well where you know, we bootstrapped this seven years ago. That's how we've grown. However, our entire client base, how do they grow companies, right? You buy other companies, you grow them. So you know, we're looking at doing that right now and in you know, a key service area that has you know, one of these, uh, with one of our service areas, um, but we're wrestling with, do we, is, is it, is it, is it faster and also on a risk adjusted basis better to just build this with our team or to buy it and you know, in this particular service area within you know, websites like we do awesome websites but to get uh, to you know, to double revenue in that, you know, is, is it better just to buy it?

Speaker A: Um, yeah, it's totally specific to the industry. What scale are you at now? What are your services? If you are a healthcare, retail healthcare organization and uh, you, we think of this thing called four wall EBITDA where you have multi site, right? You have the company wide ebitda, but you also have four wall within the individual clinic or practice, right? And you want to grow four wall uh, ebitda. Why? Because as you're growing four wall ebitda, uh, your corporate ebitda, your corporate cost structure doesn't go up much. So by growing four wall ebitda, uh, by adding these practices, the burden, if you will, of the corporate overhead becomes less and less and less. So your margins increase, your brand name gets much larger, your ability to share resources, both personnel systems and the like and personnel is very important in retail healthcare. Your ability to do that strengthens the business beyond kind of anything else you can do. So um, that is one of the most important things in that particular sector. Now if you're, if you're, I used to work um, in tech infrastructure. And what is tech infrastructure? It's data centers, it's managed services, cloud services, network services. Um, we would build large data centers and we would do managed services within these data centers. So when we would go look at acquisitions, we wouldn't necessarily look for more data centers. We were looking for talent, companies that have talent and products and services that we can continue to sell within our existing capacity, within our existing data centers, in our existing markets. Why? Because data centers are excessively, uh, exceedingly expensive to build. The capex requirements are insane. And listen, I got out of that industry 10 years ago before the power densities exploded to the points where they are now.

Speaker B: How many integrations do you think EVOR found?

Speaker A: Oh my God, uh, even before I got into private equity, it must have been 10, 10, 15. Um, and then since then, I don't want to say 100, but like many dozens. Many dozens. Many dozens. Maybe, maybe 30, 40, 50.

Speaker B: So out of the 30 to 50 integrations that you've done, from um, multibillion dollar to, you know, the smaller deals, where do integrations go? Well, and what are some of these best practices? And also where do M and A integrations fail and what are the common mistakes?

Speaker A: The number one mistake in a integration, um, failure is failure to deliver the message on, um, what the combined entity strategy will be in the long term and what the steps are not. The 150, 300 steps. What are the main things and milestones we need to hit in the first three months, nine months, two years for us all to be successful? And if you can get that understanding and then buy in, then things can go much, much faster. Right. And that's the only way to be successful. You have to have that alignment. If you fail to do that, either because you're unwilling to have the conversations because you know that you suspect that the people may not be on board, or you're unwilling to make a change when it needs to be made, then you're just going to fail if you do those things. I find that most of the rest of the stuff I won't say takes care of itself. You still need to do a lot of planning, but everyone's rowing in the same direction at the same cadence and things are just easier.

Speaker B: That's, that's really interesting you bring that up because one, you know, we've been looking at a bunch of, uh, M A targets and one of the companies, you know, made us kind of scratch our head. Like are we at the same op tempo? Like are they actually going to integrate? Because our client base in private equity, investment banking, etc, operates in a different time zone, which is every time zone, 25 hours in a day. Yeah, um, and being able to operate at that tempo, um, is, it's really been a cultural question because you look at team, like talented, look at the work product talented and like this could be awesome for us. But is that a 9 to 5, kind of like check in checkout culture? And that gets to your point about alignment and strategy, about where is what we are building? Are they on board for that?

Speaker A: Yeah, completely. And to your point earlier about strategy, you know, early in my career I thought strategy was the plan. This is what we do, this is what we're going to do in the future. Now, uh, as my career has evolved, strategy is not just the plan. It's about making sure that the team that is going to execute the plan understands it, believes it and is ready to do it. If you have the first one without the second one, you don't really have a strategy.

Speaker B: So strategy is not just about a plan, it's about alignment with the team to execute that plan. Um, can you, can you unpack that a little bit more?

Speaker A: Yeah. I may have hinted this earlier. If you have a strategy that relies on the market to do certain things for you, then you're at, uh, the whim of the market, right? But if you have a strategy that is designed to optimize the skills and capability of either the team you have today, the team that you're going to have in the future, you have a much better chance of being successful. So an example of this is, uh, if you think that in my managed services world, if you think that Amazon Web Services, who is a competitor, is going to continue to provide a simplified service that you can, you can beat them out on because you have more white glove experience, then that might work for a couple years, but in five years the market's gonna change enough and you're gonna be found losing massive customers to AWS because you haven't evolved either your delivery model, your support model, your pricing model to the realities of what the larger market is gonna do. So that's where there's a mismatch, right? That's the sort of thing that can happen.

Speaker B: When is a company ready to scale through M and A and when is it not ready?

Speaker A: That's good. Um, I would say they're ready to scale for M and A. When, gosh, I know I'm beating a drum here, but like when the management team believes it can be done, when the management team is fired up about it, when they are prepared to make the hard decisions that they're going to have to do to do this, um, we find that to be very common in the types of companies we acquire because, um, that's the sort of thing we're looking for. We're looking for a growth mindset. Um, the double edged sword with that however, is if you double or triple the size of a company, let's say it was the company the founder started for 15 years ago, his first year he had a million dollars. Now he's up to 120 million, or, uh, let's just say 50 million. And you have you. And it took them 10 years to get there. And you're like, well, we're going to go to 200 million in the next five years. If that founder and the management team cannot make the transition from doing everything themselves to delegating, finding good people and delegating, then they'll fail. So sometimes the hardest thing is getting someone from 50 million to 150, not because they, we can't grow them that fast, but because there's challenges with them being able to continue to manage effectively without doing it the exact same way they did over the previous 15 years.

Speaker B: Let's dive into that a little bit more. When you look at all the founders and CEOs and management teams, um, you know, there have probably been a fair amount who have not been able to make that transition from a company with 5 million of EBITDA, uh, to 50.

Speaker A: Yeah.

Speaker B: So like, how, how have the leaders who have successfully evolved, done it and the ones who have not, you know, I guess the, the inverse of that, like, why are they not able to evolve to the next level?

Speaker A: Well, I find that the ones that are very successful tend to be voracious readers. These are just habits they happen to have. They're very, they like to read a lot, they like to learn a lot. They have little or no arrogance. Almost every founder has a little bit of arrogance. It's good. That's why they got where they are. But they know, they don't know everything. So those are the guys that are successful and where the, where the key part of, you know, low ego comes into play is when you realize they're not doing the things that they need to do. And you can have a real conversation with them and they understand it and they don't resist it. Right. Like you spend some time showing them. At first you show them, just not very abruptly. Kind of show them some examples. If they're not getting it, then you have to sit down with them. You talk to them through it. The ones that are successful, the guys that are like, oh my gosh, you're right, like, like it's not all about me. Right. So those are the successful, successful guys on the opposite, ah, foot. The ones that aren't, just can't get over the fact that even though they were amazing at building it to the, to the, to where it is today, they're going to need a lot of help to build it beyond that because it's, it's not all about them. So, uh, that's, that's the key differentiator, I think.

Speaker B: Do you have in terms of your processes, when maybe in the first a hundred days or a year or whatever it is that kind of honest conversation with the founder of like, hey, you built this to 10 million of EBITDA. That's amazing. Here's what it's going to take to get to 50 million of EBITDA. Here's where I think you're really, really strong and here's where you're weak and skill set or hard skills, soft skills. Like, how do you approach those types of discussions with leaders? Uh, in a, you know, in a thoughtful and structured way?

Speaker A: Yeah. I mean, to be clear, it's not just me, right? It's the investors on the deal. In many cases, we'll bring in industry experts to either be on the board or not. But whether it's me, whether it's the managing partner on the deal, whether it's someone else, the key is getting credibility. I mentioned to you earlier before, I'm not here to be a burden to the CEO or the management team. I'm here to help them. So I demonstrate through doing tactical problem fixing, tactical issues that they don't like to deal with, that I am there for them. And I do have a conversation with them where, like, I don't. I care what my firm and fund think, but more importantly, I care about the performance of this company. I care that you as the CEO and I have the same beliefs of what can grow the company. And first and foremost, I fail and my firm and my fund fail if you don't succeed. So let's find a way to make sure you succeed. And if I've already won their trust, those, those conversations are, are, are, uh, easy. Where they're very hard is where I. It's three years into the investment, the investments in having challenges, and then the deal partner calls you up and says, hey, come on in and let's help them out. And they're like, who is this guy? I don't know him. You know, things already aren't going, uh, well. What does he know? He's never been a CEO in my industry. So, like, it's, it's so much harder if you have those situations. But if you're there from day one, it's so much easier because they know you have alignment, you know, they have the company's best interests at heart.

Speaker B: Can we shift over to focus with the portfolio Companies and you know, part of what makes founders uh, capable and great is that they just find a solution and they will keep the lights on come hell or high water. But you know, as, you know, as they evolve, I heard this one phrase that the, the hustler has to die for the, for the leader to be born.

Speaker A: I like that.

Speaker B: And I'm, I'm just kind of curious about how you have this trade off of being focused on a product or service or a strategy versus um, you know, going too broad and spreading yourself too thin. And maybe to provide some context, you know, are the thing that we're battling is our fundamental thesis is that private equity firms want a one stop shop. I don't want to go to this firm for website and brand, this firm for video, that firm for LinkedIn, that firm for PR. They just want the easy button for them. And then if you do a great job then you work across the portfolio. The difficult part about building that is that you have to get, you know, you have to market the service, sell the service, execute it, then go off and sell it. So it takes time to build. You have to hire the right people, the specialists like as well as the Swiss army knives. So it's slower and more painful to grow that. But our thesis has been that's what the market actually needs. I had a conver, I had lunch with a client yesterday. He's like, yeah, like you just, we went to you because, because you could do everything which validated the thesis.

Speaker A: Yeah.

Speaker B: Uh, now the downside of that is how do we double revenue? Our highest, our highest priced, our highest margin service that takes the least amount of management time and the team could run in our sleep and we have the, you know, tons, 500 reps in the gym.

Speaker A: Yeah.

Speaker B: And that's how you double revenue. But that means like we're not doing all the other stuff which is that uh, what the market actually needs. So I'm curious like with that context in the portfolio companies that you've worked with, you know, how they've navigated that challenge about, you know, what is the true thing to focus on.

Speaker A: That is a tough one. I um, think um, it's somewhat of a dual approach. Like you have the core products and services that everyone loves. Uh, maybe they're not the highest margin and you use that to get the other products in the door M. And that, you know, depending on your size and scale can be very hard. Depends on what market you're in. Uh, a great example of this is um, trying to think, uh, we in a Previous life we invested in a insurance platform. Um, it was many different lines of insurance. Property, casualty, exotic cars, you know, dno, all sorts of insurance. Um, and the one underlying uh, piece of that business that was going to allow us to scale was the infrastructure underneath it. And this was a system and a portal that uh, allowed the agents in the field across all these different uh, units or different uh, types of insurance to be able to bind and underwrite in that platform faster with less errors and more automation. So even though those were different products and in some cases being sold to either the same customer or different customers, the platform underlying it was all the same. And because we were able to reduce the friction of sale for the agent, regardless of which of those lines of service they were selling the most profitable to the least, the cost of the sale was the same across. And so once we concentrated on that common platform, we were able to not worry so much about trying to sell the highest price product or the highest margin product all the time. I don't know if that applies directly to your business, but that's kind of the way I think of it.

Speaker B: Maybe shifting gears over to. I'm interested about what have you learned from large organizations, you know, not just ge, but you know, larger portfolio companies. That does apply to the size and shape of companies that you're working with now. And also what doesn't work, uh, you know, like worked at GE with 300,000 employees in this particular unit that I ran. But this does not work for the bright star lower middle market portfolio that we're, we're supporting.

Speaker A: Well in a larger organization you have the ability to have resources and by that I mean money, people, processes, things that are highly specialized and focus on similar repeatable tasks. That does not translate to smaller companies. No matter how big you think you're getting, Whether it's a $5 million EBITDA company or 50 or $100 million EBITDA company, you are still going to have to do until you get to like a Fortune 10 company, you are still going to have to do things that functionally probably don't make exact sense within your job description. Things that need to get done that are either tactical or strategic, that it doesn't make sense to individualize and put into one person. So that's, that's things that are very common between the two, the things that are not. And these are going to be obvious but I'm going to state them. Decisions don't always need to be made with consensus. Large organizations, sometimes GE was, had a problem with this we were trying to fight for consensus on decisions and sometimes decision cycles for simple things would take six months. Fortunately, in smaller businesses, even, uh, overly aggressive consensus building operation doesn't, will take a lot less time. But that's not the point. The point is input from everyone's important, but they don't need to always have a say in the final decision. So I think that that's the same in kind of in both businesses. But in a smaller business, the speed at which you operate is that much more important. Um, so input from individuals, great. But you as the leader, whether you're the CEO, the cfo, or even just a business unit leader, the decision becomes is with you. Once you've got the input, you have to have the will, the confidence and decisiveness to make the decision. Yeah, so that's another thing.

Speaker B: Um, you've been around a fair amount of restructuring situations and I'm curious about how you approach that from a. Is there a framework that you use to approach these restructuring situations? And then how do you navigate, you know, these really tough decisions and tough conversations?

Speaker A: Yeah, I think the biggest thing, I think a lot of challenges, restructuring in most cases ultimately results in some form of cost cutting. What people tend to make mistakes with when it comes to these restructurings is they recognize that the PML demands that they make cost cuts to either extend the Runway of the, of the cash that they have or extend or make sure they don't bust covenants or whatever it is. But many cases they cut cost before they really understand what is causing the cost of the cut or more and more importantly what the implications of cost cutting are. So for instance, if you cut off a major part of your cost structure, that is also then going to cut off a major part of your revenue. You're cutting off your nose despite your face. So you have to understand the levers of what the costs, uh, actually are and what are driving them and attack the, attack the, attack the causes of those costs without just cutting the cost. Right. So great examples of that are mistake

Speaker B: is cutting, uh, before thinking.

Speaker A: Yeah, like if you cut a sales team because 25% of them are underperforming, you better understand exactly what that means. Are you cutting the sales rep? Are you cutting the sales engineer? And the sales engineer enables the sales rep. In many cases, uh, is the reason the person's not selling because they're not confident or is it because the product sucks? Right. Like they're costing you a lot of money and not bringing in revenue? Is it because they're not a competent sales rep or is it because the product is just falling apart? So maybe you should actually go back and think about how the product is delivered before you decide to cut the sales team. Uh, I've made that mistake. Uh, I will never make it again because I recognized after the fact that I wasn't gaining anything by making that cost cut. Uh, I was gonna just continue to bleed revenue. So things like that, that's like the most important thing if you're gonna restructure a company. Two, it's even more important in those scenarios to have alignment. That means at the investor level, at the fund level, and in the company, if you've decided that you're going to make major changes in the management team, you have to shore up, uh, the people around that management change that you're going to make prior to making the change. So if there are key people on the team that you are worried that after making a change at a leadership level, you may also lose those people. And they're in their key to the thing. You need to go and secure their, um, their future, whether, whether it's by giving them more responsibility, changing their compensation package, um, giving them more equity. In some cases, you have to shore them up before you make the move that may also want them to leave. You need to show them how important that you think they are so they don't think they're the next one.

Speaker B: Let's talk about, uh, you know, our, our shared interest in, you know, helping athletes with disabilities. And we're both part of the Kyle Peace foundation, and you do work with two, uh, nine zero two nine. So I, I want to start with just, you know, how did you get into this? Like, what's your why for. For. For helping out Kyle Peace Foundation.

Speaker A: You know, I'm a lifelong, um, lifelong amateur athlete. Uh, you know, high school. You know, I was soccer. It was tennis, swimming, soccer. But I was really mostly a soccer player. Didn't. Didn't make my college team, didn't get recruited. They were top 20 teams. So I wasn't surprised. I transitioned over to rugby. Played, uh, rugby for 18 years. When I got out of the army, I was still playing rugby. I moved to Atlanta and I saw this movie is. It's, uh, called Murder Ball, and it's about wheelchair rugby. And it just so happens that the shepherd center here in Atlanta had a wheelchair rugby team. So while I was still playing rugby, I reached out to them and I became a volunteer for them because I thought it was amazing. So I worked with them a couple of years. I did a Ton of work with them. But then it kind of became overwhelming with my job and everything and I kind of faded away from it. And flash forward to 2023. I had a good friend here in Atlanta that had uh, done a 29, 029 event the year prior and he wanted to do it again, but he wanted to fundraise for Kyle Peace. And two things happen at once. Oh, an endurance sport that I've never done. That sounds cool. And two, this reminds me of what I did almost 20 years ago at the shepherd center. Helping athletes who have different abilities than a lot of other people still continue to be hyper competitive and find fun enjoy through sport. So we did that and then um, I did it again the next year. And along the way I decided to start volunteering at some of their events in the logistics, helping them get the wheelchairs off the trucks, filling the tires, transferring people from one chair to the other and you know, back and forth. Um, so then that happened and uh, and then you know, now the next step, they have a mentorship program and I'm working uh, with one of their uh, employees and acting as a mentor, uh, for, for him. And it's probably the most fulfilling part of any of the work I've done for them so far.

Speaker B: What is the mentorship program? And also, you know, what is 29029? But let's do the mentorship program first.

Speaker A: Yeah, okay. Yeah, the mentorship program, you know, they have a number of employees at the firm, both fully ablely bodied and you know, some that are in shares, uh, that you know, have cerebral palsy or other, other ailments. And uh, this is about professional mentorship. They're looking for people that are, you know, have you know, long, uh, history of uh, career history, uh, that are looking to help uh, individuals. A lot of the folks that work there, it's their first professional job. Like uh, and. And you know, perhaps they don't have a professional resume or they've never bought a business casual attire. Let's help them figure out how to do that. Or you know, they, in some cases, some people don't have good time management skills. I historically did not have that. Uh, let's work on that. Uh, that that'll help them be better at their job but also better their everyday life. And then it kind of does, you know, it does cross over into personal things like time. Time management is both professional and personal. Financial management. How am I as, you know, as any individual needs help with financial management, how am I managing my finances? How am I managing the things around my life. So these are the things that me and my mentee are working on day in, day out. And um, it's been great. Uh, I hope he's getting a lot for it. I almost feel a little guilty right now. I feel like I'm getting more from it than he is. But, um, yeah, ah, it's truly inspiring to see what these guys are doing, guys and girls. And I just want to continue to be a part of it.

Speaker B: What is 29029?

Speaker A: Well, that is a, uh, it's an adventure challenge that was started in 2017 by um, Mark Hodelick, who's here in Atlanta. Jesse Itzler, who a lot of people know as a famous, uh, serial entrepreneur. And Colin o', Brady, who is a record holder ultra endurance athlete who's done all sorts of challenges over the world. So, so essentially what they did, they started in Stratton, Vermont. That was the first mountain in 2017. You hike to a top of a mountain and it's always a ski slope because they need a gondola. So you hike to the top of the mountain, you take the gondola down and you do it as many times as it takes to get 29,029ft of elevation gain, which is the height of Mount Everest. Now, depending on the mountain based on the slope and the distance, it's anywhere from eight laps up to 19 laps. Uh, in one, in one mountain's case, you have a 36 hour time cap. And there's two amazing elements that make this uh, such a great event other than just the, the shape of it. One, it's not a race, it's a challenge. Two, it's always you against you. Right? You're not racing anyone else. It's, it's to get on the mountain, empty the tank and do as well as you can. And three, success isn't just getting the red hat. Red hat is when you complete all the laps in 36 hours. Success. For some individuals who may not have a background or not in shape are we. They define success as emptying the tank. Do whatever you can never give up. Um, that's emptying the tank even if you don't make it to the top. So that's why it's such an amazing event. I've now done three of them. One in 23, one in 24. One this year just last week, and I'm doing two more this summer. So amazing, uh, group, uh, and amazing event. And because the head coach of that organization is a guy named Brent Peace. Uh, yeah, Kyle Peace has a direct association with it. So a lot of people that fundraise fundraise through these events.

Speaker B: That's awesome. Uh, it'd be cool to have. So I've had Brent Kyle on this, uh, podcast, and actually, um, my whole Iron man journey really took off because of them in November of 2021. So Chris Nickich, who became the first person. Person with down syndrome to do an Iron man, got me into this. We're a big supporter of them. Uh, and also Kyle piece. Kyle, uh, and Brent. I saw them in November of 2021 in Iron Man Florida, when I was on the course and they were lapping me. I'm like, who?

Speaker A: Who are these people?

Speaker B: And then I had them on the podcast, and then, uh, you see them all around Atlanta got involved. We've raised a ton of money for them, and I absolutely love their story. Well, we have covered a ton of ground in this, and I'm so glad that we had a chance to do this. And shout out to Chris Grillo for making the intro. And, uh, looking forward to getting this out there and also doing some races together. Yeah.

Speaker A: And certainly at the next, uh, Kyle Peace, uh, event, you'll probably be running it or pushing in it, and I'll be filling up tires and wheelchairs, so I'm sure we'll see each other there, too.

Speaker B: I will see you at the Peachtree Road Race. Awesome. Thanks.