This Is How He Turned Agency Ownership Into a Video Game

Speaker A: You have to buy companies, uh, you know, good companies at a fair price. Um, if you, one way to get in trouble is to just kind of overpay for businesses and, and then also just you know, careful use of leverage that can really get you in trouble. If you know, you get a little bit too aggressive and something happens that leads to decline in the company and then other things are, yeah, just making um, some um, long term, um, investments in improving the company. And this has always been consistent for me, like you know, I write for myself first and foremost and like, and I'll have it like for the future me, like if I'm kind of looking back and I want to be able to kind of see what's going on. And so with that in mind, you know, definitely, you know, I'm not going to sugarcoat it for myself. You, uh, know, I want to kind of know what went down and just try to be as honest with myself as possible. There.

Speaker B: Behind every value creation plan, there's a data problem nobody wants to talk about. Fragmented systems, metrics nobody trusts, and uh, decisions made on gut feel dressed up as analysis. Welcome to the PE Data Guy. Each week, host Graham Crawford talks to the operating partners, advisors and practitioners who are doing the work inside portfolio companies. If you care about what actually drives returns in the market, then you're in the right place. The PE Data Guy starts now. Peter Kang co founded his first agency, Barrel, in 2006 with his college friend Se Wook Kim. They were glorified freelancers for the first five years. Twenty years later, Barrel holdings is a whole portfolio of digital agencies spanning e Commerce, Amazon B2B marketing and home services. PETA Finances, deals with SBA loans, installs operators to run each agency independently, and has publicly documented wins and failures along the way, including shutting down businesses losing hundreds of thousands of dollars. All the things, uh, Peter has just published the Holco Guide and today we're talking about what happens when you apply the long game to a space that PE firms are trying to roll up and do at speed. So welcome to the show Peter, and thanks so much for coming, uh, on. It's great to have you.

Speaker A: Yeah, thank you for having me.

Speaker B: Now I want to start with your game if that's all right. Because that's kind of what uh, brought us together on the thing that uh, I saw online. So you've built this game, um, about running a holding company, which is kind of what you do, right. Uh, and it's gone viral. So you've gamified the Holco experience. I've played my own version of it, um, and had a wonderful time doing it. Just talk to me a bit more about the game and the thinking behind what, um, in all your experience, led you to want to build a game.

Speaker A: Yeah, um, I mean, a couple things came together for that. Um, number one, I published, uh, at the end of last year the, uh, Holdco Guide, which is just taken from my own research and experience of putting together, uh, Barrel holdings, our holding company. Um, um. And so, you know, with the publication of that book, um, and, you know, just trying to market the book, I was trying to get a bit creative on. Yeah, how can I take the lessons from this book and make it a bit more interactive for, uh, folks out there and maybe that'll encourage them to also pick up the book. Um, and yeah, this is around the time where, uh, Claude code became really good. And so, you know, I decided to, uh, try my hand, uh, you know, at uh, some of the, you know, vibe coding, um, opportunities that was, that were there. And so, uh, I dug in and um, you know, first just kind of fed it the transcript of the book, uh, and then I also the manuscript. And then also, uh, you know, just had some game, uh, mechanisms that I really wanted to, um, emulate. Um, so, you know, there was a game from, uh, the 1990s. I grew up, uh, you know, with like, graphing calculators, uh, in school.

Speaker B: Yeah, yeah, I remember.

Speaker A: Yeah. So there was a game called Drug wars that, like, you know, I just still remember being really addictive. And it was just like a fun game that my friends and I played on our graphing calculators at school. And so, you know, I kind of wanted to take some of the mechanics of that, uh, where, you know, you start with, uh, some amount of dollars and you know, you make different types of transactions and uh, you know, business, uh, kind of decisions. Uh, and then, uh, there are external forces that, you know, either kind of help you or hurt you. And then, you know, you kind of tally up how you do at the end. And so I was like, all right, I like that mechanic. But let's layer it on with a lot of the lessons from the book, which, you know, is essentially about, you know, um, capital allocation. So basically, you know, you have assets that are cash flowing, um, and what do you do with, uh, that cash flow? Um, and, you know, is it acquire other, um, businesses? Is it, you know, improve your businesses? Is it, you know, sell off businesses after you hold them for a while and then, you know, what combination of businesses should you buy, etcetera so, you know, all those things, um, I wanted to you know, uh, bake into like a game experience. Um, and yeah, that's where Holdco Tycoon, uh, became a thing.

Speaker B: I love it and I had a great time playing it and thoroughly recommend it to anyone who's not had a go. And it mirrors the way that you've built Barrel yourself and the lessons that you've learned while doing that. Now I spend a lot of time with private equity folks, including on this podcast. What would you say is the difference between the approach you're taking to building a Holdco and how a private equity firm um, operates? There are obviously many similarities. What are some of the biggest similarities and what are some of the biggest differences?

Speaker A: Yeah, I mean I say like number one, it starts with like, you know, the availability of capital at the start. Um, and so you know, we're very much kind of, you know, self funded, kind of bootstrapped. Um, so you know, I started with uh, my own agency, um, that uh, you know, started in 2006 and you know, that you know, when we got that to a state where it was cash flowing, um, and then we, we then launched a couple other agencies, um, off the back of that uh, original agency and um, you know, as they were cash flowing, that gave us kind of the flexibility to step out of the operator role and into kind of this investor capital allocator role. Um, but you know, that was like a long time coming. You know, it was like not until year, you know, 15 until we could like really, you know, experiment with stuff. And you know it's really year 18 where we uh, were able to go full time with it. And so I'd say it's been you know, a more patient, long term game, uh, as a result. Um, and you know even there like we're, you know, we're able to kind of, it almost feels closer to a funded search, uh, uh, kind of, you know, like a entrepreneurship through acquisition journey versus like a private equity type of setup where you know, it's no fund. Um, we're not, you know, taking management fees off that fund. Uh, you know, uh, and if anything we're just you know, taking some portion of our cash flows from our existing operating companies and then using that to fund our um, you know, activities. Uh, and so, and then the dry powder, there's, there's a lot less, you know, just, it's like yes, we have some, you know, we have enough to kind of, you know, maybe inject equity. But then you know, we're having to uh, lever uh, those up with an SBA loan, um, for now and then, you know, the, the goal is though in the long run as our cash flows continue to grow and there's excess cash flow that we can put to the deals, the, the amount of leverage we put on these deals should go down meaningfully. Um, and so uh, at that point, hopefully the flywheel will allow us the opportunity to buy, you know, uh, at terms like, more uh, like some of these private equity firms where they might be putting up a lot more equity, uh, for these deals.

Speaker B: Yeah, with one big advantage of course, as well, that you don't have investors to keep happy other than yourself and say wook. Right. Uh, you have the freedom, you don't have a preset hold period. You're not running against the gun. Um, and that must have some advantages to it as well.

Speaker A: Yeah, I mean, so no LPs, no fund. I mean for this latest deal that we did, we did bring on a handful of investors. Uh, uh, so, uh, for the, for the particular deal, um, and you know, yeah, it is, I mean they are LPs and you know, they have uh, some uh, certain rights and you know, um, but yeah, it's a lot different because they, they also understand that, you know, they're in it for the long run and you know, there's kind of no, um, time bound, uh, you know, kind of commitment. But yeah, we're gonna try our best to give them great returns.

Speaker B: Of course, uh, you have to, you've earned the freedom and flexibility to set your own rules if you like. And the lessons from the book that you're trying to teach with the game. Can you give me an example of a couple of those hard won, uh, lessons that you've collected over the last couple of decades?

Speaker A: Yeah, I mean, I'd say the game is probably more um, drawing lessons of stuff I learned the last couple of years because the first, I'd say 15 plus years was just being an operator in the business. Uh, and that's a very different view than some of the decisions you make as capital allocator. So, um, but you know, I'd say some of the lessons, um, that you know, I, I hope people take away from, um, the, the game are, you know, a, like, you know, you, you have to buy companies, uh, you know, good companies at a fair price, um, if you, you know, one way to get in trouble is to just kind of overpay for businesses, um, and then also just, you know, careful use of leverage, uh, that can really get you in trouble. If you know, you get a little bit too aggressive and something happens that you know, leads uh, to decline in the company. Um, and then other things are yeah, just making um, some uh, you know, long term um, investments in improving the company. So you know every, every business you buy you have an opportunity to improve different aspects of those uh, businesses and the more you can do earlier uh, the better it is for kind of uh, growing that business in the long run. So that's reflected also in the game. Um, and then yeah, the other thing I'd say is uh, uh is a huge lesson that we learned over the last few years is uh, is sourcing. Like you know, if you invest um, in kind of building out your uh, sourcing capabilities for uh, deals, uh, for M and A, um, you're going to, yeah, that's just going to improve your chances of doing better deals, uh, and ah, high quality businesses at better prices. And so that's also uh reflected in the game.

Speaker B: Yeah. What's the secret sauce with the sourcing? Is it working hard on growing your own network? Is it putting value back into the ecosystem? Some combination of that?

Speaker A: Yeah, I mean we like to think of it as like it's many uh, different um, channels and uh, efforts. Uh so one thing that we invest a lot in is just uh, on the content side. So we have a media property uh called Agency Habits which we publish a podcast, uh, articles, um, you know we host like a monthly knowledge share session with our community and you know it's really building this kind of, yeah, trusted name for agency leaders who um, you know are like, they're running um, these small agencies are trying to scale it to a certain uh, level and you know, kind of um, dealing with operation uh, or sales and marketing challenges and you know we're, we're there to kind of take learnings from our own portfolio and share that openly. Um, um and that way you know we're, we're building our credibility, we're, we're building trust. And so when some of these agency um, founders are looking to exit or looking to partner up, uh, you know we're kind of top of mind for them. Uh, so that's kind of one channel. Uh yeah, LinkedIn is a big one. Uh, just also content, you know, just been high leverage and driving inbound. Uh, and then beyond that, uh yeah, the network is important. You know, whether it's brokers, uh, you know, scouts, like finder types, uh, you know, different coaches and consultants who are working with agencies. Those are great sources of leads. Um, and then, and Then just, yeah, working with buy side advisors and you know, continue to do outbound campaigns and you know, target different types of agencies across all kinds of ecosystems.

Speaker B: Thanks for, thanks for that. And I think it's that that's more and more become the play, like across any industry. Like, the more value you can put into the ecosystem. It seems like counterintuitive based on the way business used to run, of like, oh, this is my secret sauce. Like, I'm sharing how to do things. And I think you and I have spoken before about Greg Eisenberg and the great job he does of like, here's the source. Like, this is how you do this and the incredible opportunities and the way that that kind of pays back and brings in. It's almost counterintuitive. But I think the more value you can put out into an ecosystem, um, the better you'll do out of it. So. Certainly a fan of, um, of that philosophy. You know, the way you've described building Barrel plays to uh, a theme that I've begun to hear more and more in private equity of like, this is actually the right way to build a PE fund. Like you, you perfect the value creation model first, then you buy the businesses rather than the old school of like, I have all the capital and the dry powder and I'm just going to show up with my bags of money, buy the business, and then I'm going to work out how, uh, to make this business more valuable. Right. So you've done the hard yards with the original Barrel yourself. Like, you know how to grow an agency, you know how to make it exceptional, you know how to make it profitable. And it then becomes more natural progression. If you like to go on to do the type of thing you've done with Barrel, because you've, you've been there and you've lived it and you've built the, you've built your own playbook, if you like.

Speaker A: Yeah, we're hoping that's a, that's a thesis that'll play out. Um, you know, one of the things that we, you know, uh, Sewook and I, like told ourselves was, hey, like just, you know, spending most of our kind of, you know, um, adult lives in this agency business, which wasn't easy. You know, you just kind of putting out fires every day, you know, dealing with all kinds of operational challenges and, you know, that emotional roller coaster. But like, you know, one of the things we said, we told ourselves was like, hey, like, if anything, like we have this, um, you know, this kind of, you know, catalog of all these mistakes we've made and all the things that we've kind of seen and lived through, uh, you know, like, let's distill that and turn that into something valuable. And I think, you know, if we can help some of our operators, um, you know, avoid certain kind of mistakes. And at the same time, like, we respect the autonomy. I mean we, we do, you know, emphasize that we, we, you know, lean very, uh, much into like a decentralized, um, you know, type of, um, uh, setup with our operators or you know, day to day. They have uh, a lot of leeway in the decisions they make. Um, and you know, we're more about, you know, bringing accountability, goal setting, um, uh, and then along with that, some kind of light support. Uh, but, you know, by no means are we like, um, you know, overly prescriptive in any way. And we're not like parachuting in like operating partners or anything like that. It's, it's more of a conversation and collaboration.

Speaker B: Yeah. And here are our best practices. It's almost like you're building a community of agencies to um, to some degree that um, can then learn from each other. Do you, do you bring the group together to help the different companies learn from each other as well as learning from you?

Speaker A: Yeah. So, uh, yeah, we have like a leadership summit, uh, every year. So you know, that's an opportunity for the agencies to learn from each other. And we'll also bring in some experts to, you know, give uh, some talks to the agencies to you know, just get their thoughts going and um, you know, inspire them to, you know, try different things. Um, and then, yeah, beyond that, like just organizing different kind of knowledge shares and you know, sharing resources. And then we always trying to cross pollinate across agencies because, you know, a lot of times, you know, they might not always be talking to each other, but you know, we meet with our agency leaders weekly so we kind of know what's going on and we'll be like, hey, like, you know, what you're working on. Actually, you know, uh, this other agency is kind of going through the same thing. Um, you guys should kind of talk through and share what you learned and that those kinds of moments really help them, uh, you know, arrive at, you know, better solutions together.

Speaker B: Cool. Yeah, it's um, yeah, it's there. Definitely. The community part is a really cool aspect. If you can bring it together and facilitate that the right way. It's just another layer of value add that you can put on and the rising tide lifts all boats. If um, you will um, one of the elements of that rising tide of course in the last couple of years has been AI. We talked about the huge advances in Claude code. This year alone you have a bunch of different types of agencies as I understand, so marketing, if you've got home services and other types in there as well. Two part question. Do you think certain types of agencies are ah, going to have to adapt more to AI versus others? And what ways have you been able to apply AI to sort of create value across the agency regardless of the vertical that it sits in?

Speaker A: Yeah, I think just to the latter part. Um, you know, I think every agency um, is right, just like with any business is right for you know, AI. Um, yeah, AI to have an impact on you know, day to day operations. And you know that kind, it starts with like simple things like you know there, there's easier ways now to make use of you know, all the data that the agency collects throughout the day, whether that's you know, messages in Slack, you know, all the calls that they're having with their clients and just you know, so much data that just kind of you know, had lived in siloed ways uh, in the past are now suddenly unlocked and can be used in you know, more interesting ways. So that, that's been very exciting and then taking that and then kind of creating different automation flows for different workflows across the business. Whether that's uh, on the sales and marketing side, you know, it's on, on the delivery side or it's even on the finance and legal side. So there's always some kind of new exciting kind of workflows developing almost uh, like on a weekly basis. And that's been really cool to see. Um, and then yeah, just I think for the types of agencies and how AIs impacted them, uh, I think it's all highly disruptive and it's just our job to kind of keep up and keep experimenting. Some of our agencies are very much like, have been in the web design and development space and you know, I think uh, yeah, there's definitely like different expectations on you know, uh, that we put on ourselves. And I'm sure the clients feel the same way of like you know, the speed of delivery, the you know, uh, what they're willing to pay and all those things. And so you know, we've had to think of like, you know, just with that understanding kind of continue to move uh, in ways to innovate on the service, uh, you know, offer different ways that are more valuable, uh, to what our clients need, uh, uh, to Navigate, you know, the, the marketing or E. Comm or whatever, landscapes. Um, and then yeah, on top of that, um, just, yeah, like just doing more, uh, with less people. I think that's just kind of true across the board. It's, you know, there, there's, there's just been this productivity leverage that's kind of uh, you know, happened. And you know, a lot of times, uh, you know you can see capacity really increasing just because of these uh, tools.

Speaker B: Yeah. And uh, the arbitrage on that is being negotiated and precedents are being set across many different industries. The productivity gains, like how much of that sits with the person with the skills to apply AI to provide the value and how much of that then gets passed through to the customers because there are less hours uh, being put through, uh, to do it. Lawyers is the one that sprang to mind in a conversation I had with um, a guy running tech, a legal firm. Um, one of the biggest things that's going to be tested in the legal world is that historically people have charged by the hour. And if there's a big piece of legal work going on, show the partners and whatever will be involved, but you're charged per hour of all these junior associates are going off and collecting things and doing AI replaceable things. Um, so when lawyers have for hundreds of years charged by the hour, um, how easy is it going to be for them to pivot to a value based pricing model where they retain margins? Tough when there's 200 years of it not being done like that, sitting behind it.

Speaker A: Yeah, Uh, I mean I think, I think that shift is going to be, you know, and it's not uncommon in our world where you know, a lot of our agencies and some of our agencies are still kind of navigating that as well. Like they're, they're still some that are very much, uh, you know, based on the hour, uh approach. And um, you know, I mean we'll, we'll push for you know, kind of more innovative ways of uh, pricing, um, and packaging these services. But uh, you know, sometimes you know, these things take a while to play out. So you know, we're not um, you know, we'll, we'll let them for some of these folks who are like not uh, so proactive in adopting these new things that the market will, you know, eventually kind of force their hand, uh, launch them along.

Speaker B: Yeah, yeah, yeah.

Speaker A: But uh, at the same time, like the hourly model, I think, like, you know, we've poo pooed on it for, you know, over a decade across our businesses and so, like, I don't know, there's a resiliency to it. And um, you know, even, even with AI, I think, um, like, I don't see it completely being eradicated.

Speaker B: Yeah, it incentivizes, in some settings, it incentivizes the wrong behavior. Right. Incentivize. You take longer to do the work right if, if the contract isn't set up right with the right success criteria. Yeah, Um, I have a, I have a data question for you. Now, obviously you're looking at potential acquisitions fairly, uh, regularly. There are some obvious data points. I'm sure you look at the revenue, the growth, the EBITDA operating costs, profitability. What are some non obvious data points that you look for when you're considering acquiring a company?

Speaker A: Yeah, I mean, I think, um, maybe this is pretty obvious for agencies, but yeah, we do look at like, um, you know, client retention is huge. Uh, you know, especially like just year to year. Like how, yeah. How much of the clients are they kind of retaining and growing? So, you know, net revenue retention is a, is a metric that we look at, uh, pretty closely. Um, and then, yeah, just average client tenure also. Um, and yeah, along with that, like, you know, I mean, client concentration is always a big one, but, you know, we, we tend to stay away from those that, ah, kind of have, uh, an issue there. So, um, yeah, kind of self select into ones that are likely to not have client concentration issues. Um, and then, I mean, this is more qualitative, but we do look for like, you know, teams that have, um, you know, some amount of leadership, uh, capability beyond the founder. Uh, because, you know, we're, we're, we're not looking for like a completely flat team with, uh, the founder as the only kind of driving force. But yeah, if there's a good, uh, you know, second in command who like, is really, um, you know, has, has a respect for the team and you know, uh, has a firm handle on the business. Uh, that's really helpful for us too. Just, you know, especially based on kind of, uh, the financing that we're using with sba. Like, we do have to buy out founders, uh, um, and kind of transition, uh, out of the business within a year. So, uh, that kind of leads to just looking for certain kind of businesses that have that characteristic.

Speaker B: Yeah, that makes sense. And I've, I've heard you talk about, uh, the importance of culture before. And this is a mistake that, you know, some PE firms have made, um, over the years of overpaying for the numbers on paper and underestimating how much the culture and the talent of that organization is driving those numbers. And then they come in, force a playbook, push out the talent and culture, and then wonder why the business got less valuable. How do you, you talked about leadership. Are there any other ways that you kind of look for that or um, assess that, um, when you're considering an acquisition?

Speaker A: Yeah, you know, I always think about like culture is one of those things that means a lot of different things to different people. And I think for us, um, when we think about culture, it's, you know, it really boils down to like, hey, like what, what are the kind of standards that are enforced, uh, in this company? And like, you know, the leadership, like, what are they, you know, how are they modeling that for their, uh, team members? Um, and then at the same time, you know, like what are the tough decisions they're making to, to ensure uh, that the culture is being enforced? Right. The, the standards that they expect. And so, and I think, you know, a lot of times when you have, um, you know, acquisitions, you know, mergers, like when you're bringing in different teams or you're like absorbing, you know, getting absorbed into the team that might have different standards and different ways, leadership models for their team, I think that's when it gets a bit challenging, uh, where yeah, like sometimes it's not compatible. Like sometimes you have two very different, you know, cultures, uh, that clash and you know, aren't, are, are kind of at odds with each other. Um, and then that's very confusing. Slash, you know, could be demoralizing for the team. Uh, and then, you know, those changes kind of have a way of, um. Yeah, like, uh, wearing down some folks and you know, you start to have some attrition of, of good people. And so I think those are all um, the reasons why, like, yeah, if, if you are not careful. Um, and you know, this is why, like, I think it's, you know, I mean it's not always. I mean there are definitely successful cases of roll ups and you know, yeah, uh, of course your acquisitions and stuff. But I think the risk there is always like, yeah, you, you, you risk kind of losing the secret sauce, the, the culture, those standards, the, the, the modeling of the leadership that uh, made the agency special and you know, um, kind of, you know, head over and rolling in the same direction. You know, you, you risk losing that sometimes, uh, when you're not, uh, thoughtful and um, careful about preserving it. And so, yeah, it's kind of like when you have folks, uh, kind of operating at the spreadsheet Level and trying to just smash together ebitda, uh, and revenues and headcount and then thinking that it'll materialize uh, into something um, uh, linearly kind of valuable or maybe even exponentially valuable however they modeled it like I think that's when yeah you, you kind of overlook that. Hey, like this. Yeah. This real difference in kind of culture and values and you know, the kind of things that align, uh, that align previously that don't align now, uh, could be a real risk.

Speaker B: Yeah, I know, it makes sense. It's a bit of a tightrope. Right. And I think you mentioned before the other tightrope that's, that's, that's common in these situations. Like you try not to be too prescriptive or you don't try and stamp a playbook on people. But uh, at a certain point, depending on how the agency or the company's been run, you must have some non negotiables. For example, if the company's not collecting data in a well governed, well structured way that will allow you to monitor the performance against the KPIs that you would like to measure it by. Then at some point I think you have to as an investor you have to insist and say here are some must haves if you find yourself in that situation.

Speaker A: Yeah, actually that's part of the integration process for us is like you know, part uh, of we think it's, it's our you uh, know, value add as, as uh a whole co parent is like to um really you know, help them streamline and standardize how they run finances. Um and so you know there's a degree of like centralizing some of those functions where it's like hey, like this is, this is how we like to see financial data. This is the reporting cadence. This is how we help manage uh, cash flow. This is how, how we do taxes and you know just like you plug, plug into that. And so from day, day one like you know we're, we're quickly you know getting the agency uh compatible with how we do that. And so by the time they're fully integrated like it's, you know it's pretty streamlined and it kind of rolls up nicely. And so that gives us the insight into you know, the performance that uh, in the way that we need to

Speaker B: see it and it maintains the integrity of your portfolio level reporting that you've got as well. I'm sure you need to track. I'm sure there must be some ups and some downs in every month or. Right. Um, such as, such is the nature. Um, you just. I, I think I caught on LinkedIn this week. You just made an acquisition recently or just announced an acquisition recently. Like um. Can you share any more about that? Why, what sort of business it was? Why it was the right time, what you're excited about?

Speaker A: Yeah, it's the business uh, that or deal that we've been working on for a while. And um. Yeah we just, you know one of the things that we'd been looking for um, was to you know, diversify away from just you know being so um, heavily anchored on like web design development. Just knowing that hey, like we love um because you know a lot of that was like project based revenue and so we wanted uh, to diversify portfolio with more kind of recurring revenue, um, uh, type uh, services. Uh, and you know we came upon this uh, you know, digital marketing agency that's got a really good footprint in uh, the water treatment services space. So you know it's kind of a subset of home services and yeah, like just a great business, um, you know, fantastic people. Um, and yeah they, yeah the, the founder was kind of ready to transition out and so you know we um, yeah felt uh, like this was a great opportunity to bring it into portfolio. Um, and yeah, I couldn't be more excited for this because like there's, there's still like a big opportunity to continue to grow into that space and then yeah at some point maybe uh, and expand out to adjacent home services, uh, you know, subsectors, uh, or um. Yeah, like maybe even take on a different category altogether.

Speaker B: Tell me more about water treatment. It's not an industry I've spent a long time in. Like what, what, what, what service do they provide?

Speaker A: Yeah, a lot of it is like um, you know, installing like water filtration systems for the home.

Speaker B: Uh, that's what I thought.

Speaker A: Testing, you know, just kind of. Yeah, like your, your carbon tanks and stuff like that and just making sure the quality of water uh, in your home, um, or you know in a commercial setting are, are good. Um, and yeah, this is like a great industry with uh, uh a lot of tailwinds because you know, especially you know in the US there's like, you know definitely concern about kind of you know, the water quality, uh, contaminants in the water and things like that. And so you know there's legislation that's kind of pushing for more testing and such and so there's.

Speaker B: Oh yeah, I've heard about Flint, Michigan for sure.

Speaker A: Yeah, yeah. Um, so yeah, definitely. Um, yeah, it's a growing industry that we're very excited to continue serving.

Speaker B: Yeah, um, I figured it was that and it brought to mind it's a good friend of mine who, um, historically doesn't have them anymore, had kept a variety of amazing fish and coral, uh, in his house and his water treatment was a major operation. There were pipes running everywhere. There was deionization and all sorts of, um, fun things going on there as well. So there's. I'm sure there's probably a market with fish. Fish enthusiasts in there for you as well somewhere. Well, I. Congrats on, uh. Congrats on the. On the new acquisition and ah. Um, I'm sure it'll go very well along, along with all the, um. Along with all the other ones. I want to go back to putting value out into the ecosystem. And one of the things you've done, again, one would think traditionally in a counterintuitive way is very publicly document some failures, um, things that you shut down, places where you've lost a bunch of money, um, what inspired you to do that, uh, how did it feel in the process and what benefits do you think you got from it afterwards?

Speaker A: Yeah, um. Well, so, you know, just to, you know, talk about like, writing and publishing in general, uh, just who it's for, uh, first and foremost. So like, you know, I always, um. And this has always been consistent for me, like, you know, for. I write for myself first and foremost, uh, and, you know, like. And I'll have, like, for. For the future me, like, if I'm kind of looking back and I want to be able to kind of see what was going on. And so, you know, with that in mind, you know, definitely, like, you know, I'm not gonna sugarcoat it for myself, you know, I want to kind of know what went down and just try to be as honest, uh, with myself as possible there. Um, so. So there's that and, and you know, in that spirit, I'm like, hey, if it's going to be useful for, for me, um, and you know, the lessons that, you know, I can kind of write down because, you know, a lot of these failures or things that don't quite work out, there's definitely lessons to be learned and you know, kind of, you know, uh, things that I can reflect on and jot down so that the next time, you know, a similar situation comes up, I. I can kind of avoid it. Um, you know, and I think that, you know, as. As. As somebody who, you know, who's writing it, but also, you know, when I've found value in the writings of other people. It's, it's the same thing, like learn from their mistakes, you know, and kind of uh, those that are transparent with those things. It's always been helpful. So you know, it's in that spirit that I'm like, all right, like this. If it's useful for me, it's probably, you know, uh, going to be useful to somebody else. And so that. That's part of it. I just think it just makes the quality of the content, uh, just more useful, uh, for folks. Uh. So, yeah, it's, it's just really in that spirit that I write that I'm happy to disclose some of the things that don't work out.

Speaker B: I've been drawing similarities and differences between what you're doing and private equity all along. Publicly talking about failures would be the jeopardy. Answer to things that PE firm would never do for 1600. Right. Um, for obvious reasons. Right. They have investors, they're trying to continue to attract investment and funds. And so you know, things get, things get buried in reports and footnotes and, and uh, and whatever else. Can. That's what again, one of the unique advantages you have. Can, can you share a bit more details about one of the ones that you, that you wrote about and what happened?

Speaker A: Yeah, there are a few different ones. I mean, I'd say like, you know, one. One I can like, you know, that'd be good to talk about. It was actually like not quite an acquisition, but um, definitely, um, like you know, a business that I, I really, I really loved in different, you know, for. For kind of sentimental reasons because, uh. So you know, I'd always, uh. I always love like the um, the output of like a design branding agency. Right. Like, because it's fun. It's like, you know, the opportunity to like help other uh, businesses, you know, really re. Redefine kind of their visual system and their design, uh, you know, web design, logo, whatever it is. Um, like it's just such a fun and like, you know, just when you, when you, you have something to show that's like, oh, cool now you know, like look like all their kind of retail, uh, you know, locations are, are kind of, you know, drape with all the designs that you put out or oh, look like all their fleet of uh, trucks and vans now like sport the design.

Speaker B: You can create an identity where one didn't exist before.

Speaker A: Right.

Speaker B: Yeah.

Speaker A: And it's, it's great. Like it just kind of. Yeah. And it leads to like, oh, wow, like they're perceived differently. And you know, there's this whole Kind of element of, um, you know, helping their business in that way. Um, and so, you know, so with Bolster, you know, it's a business that we, uh, incubated, you know, um, launched, uh, ourselves with, uh, with a co founder. And, yeah, that was, um, you know, like, with that, just organically, I just. I realized, like, I became kind of the main BD person for that business. Um, and, you know, even as we try to, you know, continue to push that responsibility to the, uh, the, you know, um, portfolio company level, uh, you know, it just. They just became too reliant on my network and just like my, uh, you know, leads and, you know, just could never operationally get to a point where, you know, they could, uh, generate their own, um, deal flow. Um, and, you know, like, this was so, you know, after a couple years, you know, and I had other stuff going on, I was like, hey, this is kind of. And it's not like I was like, doing like, you know, incredibly proactive business development for them, but just to see that, like, they kind of, you know, um, Ebne flowed based on, like, the, uh, introductions I could make. I was like, hey, this is not a real business, uh, at this point. Um, and so, you know, just, uh, I had to weigh the opportunity cost. And uh, you know, really, it was about like, hey, you know, they're. They're pretty subscale at this point, and, you know, they're just kind of, you know, a small design team that's kind of, you know, doing stuff based on, you know, my, um, relationships. Like, it just. How much more do we want to invest in trying to get this, uh, fixed? Uh, or like, at that point we have been, you know, we were kind of closing in on acquisition of a. Of our Amazon agency, um, AO2. And where they're much bigger team and just focusing on that is going to move the needle more and there's a lot of work to do there. So I just had to make the tough call of there's only so much time in the day and resources that we could deploy. So we just had to be judicious in kind of making that hard call. And, um, yeah, it was a tough convo, but the co founder and then at that point, uh, they also had a managing, uh, director who, like, they were happy to, uh. I mean, you know, it was not an easy combo, but they were willing to take the business, uh, you know, um, off our hands and then, you know, kind of run it themselves independently.

Speaker B: Okay, so it continued.

Speaker A: Yeah, it continued. And, you know, like, we continue to, you know, send them some deals and, you know, but. But it's great because, like, they've had to kind of build up the muscle of, like, doing Legion, building relationships. And, you know, I think, you know, they continue to do that, and to see them continue to, uh, live on, you know, it feels good. And, you know, they're. They're continuing to exist. So, you know, it wasn't a complete zero, but, yeah, definitely something, uh, that, yeah, like, in hindsight, it's like, you know, probably could have nipped it in the buds much sooner, but just, uh. Yeah, I just love the output too much for a while.

Speaker B: Yeah, it's your, uh. It's your favorite baby bird that just flew the nest a little later. I think the. And it's. It's nice that it's still, uh. Nice that it's still flying around, but, yeah, that's, yeah. Ultimately, the thing with hard conversations, I think the more you delay them, the more they cost. Um, and I think that's true in business and personal life. And any aspect that you can think, uh, of, uh, the quote that I've begun to hear more and more, like, the progress you're looking for is in the work you're avoiding. I go to the gym and I'm like, oh, no, not burpees again. But that's because I need to do more burpees. Uh, there we go. Um, that's always the case. Uh, SBA has been, uh, mentioned a couple of times, and I think you said, well, you plan to reduce the amount of leverage you're currently financing acquisitions with, uh, the sba, um, with the SBA loans, um, so you have a longer time period to work on. And I think we're seeing private equity work with ideally five, but actually sneaking towards seven year, um, whole periods, um, with that pressure. And you're not, um, you're not dealing with that pressure does that. Is there an argument to be made for the five to seven year that that pressure actually creates better returns more quickly?

Speaker A: Yeah, sure. I mean, yeah, I think. I think there's a sense of urgency. I mean, and, you know, just because we don't have a time. A fixed time horizon, you know, we're all, I think, you know, ambitious in different, uh, you know, in our own ways as well. And so are agency leaders. And so it's not like, hey, we got unlimited time. Let's take it easy. No one's saying that. It's. It's more like, you know, there's. There's no. I think there's no pressure to get to a certain size in order to exit. But it's more about, hey, what's the best business we can build? And you know, like, what is the uh, what is the growth rate that we can be aggressive on but also, you know, think it's, you know, realistic for us, uh, within kind of, um, you know, how we're thinking about, um, you know, some of the levers we can pull. Um, and so yeah, like I, I don't know, like five, seven years, you know, and, and depending on when a um, a business is acquired within, you know, a fund's life cycle, like it could be less. I don't know, it just depends. Right. Um. And um, yeah, like I, I'd say it's hard to make the generalizations because like, you know, I, I'd say like there, there's um. Yeah, these days, you know, there's like continuation funds and there's ways to kind of prolong kind of the ways.

Speaker B: Those are the foot, those are the footnotes on the reports that we were talking about earlier. The, the um, you know, in fairness, I want to ask the flip side of the question as well. Right. Because sometimes the, the a five year or even shorter timeline might drive some bad decision making that actually ends up destroying value rather than creating it. What are the sort of things that you, that might happen, you think, under that pressure to destroy rather than create value because of the time pressure so that it becomes a disadvantage?

Speaker A: Yeah, I mean the thing that comes to my mind is like, you know, if you're so eager to, you know, um, grow, let's say top line through, you know, uh, M and A, like inorganic, uh, growth. Right. Uh, like you know, is there, you know, do you end up kind of, you know, talking yourself into doing deals that, you know, might not otherwise, uh, you know, kind of make sense or just kind of overpay for companies. Uh, um. And so yeah, that comes to mind of like, yeah, uh, you kind of maybe get a little looser on um, you know, the buying discipline, uh, perhaps. Uh. So yeah, like I think, you know, for us, I think just uh, the constraint of capital plus like no pressure on the time side makes us like, we'll look at a lot of deals but like a lot of things have to line up for it to make sense for us. And you know, in the short term it's kind of. Yeah, like a lot of this growth is slow going, uh, compared to, let's say, uh, you know, a kind of, you know, um, turbocharged kind of roll up situation. Uh, with, with the, uh, with the dry powder. Uh. But yeah, maybe in the long run, you know, we can kind of emerge with some really good, uh. Uh, yeah, like, businesses that, you know, we've paid great prices for that, um, are performing well. So I'd say, like, it's probably along those lines of like, you know, some of the, uh, yeah, capital allocation decisions that folks make, uh, that. That time's gonna pressure them into making. Um.

Speaker B: Yeah, yeah, yeah. And then, you know, I think we're all familiar with the pattern of you push too hard on revenue, either organically or inorganically, through M and A. Um, you can end up killing the silent metric, the one that you talked about before. Customer churn. Like if you increase revenue, but at the cost of customer churn and at the cost of the quality of work, actually you've created a desk file rather than, uh, value creation. Right. Um, and that's the way it goes. The um. So you've said that you're you intending to continue to grow, um, barrel, having previously done venture investing and angel investing yourself, and this feels like a better bet for you for, uh, um, for longer term returns. Like, what was it just the continued failure or the lack of the hit rate on the VC angel money that made you think that, or is it genuinely. You enjoy and love this a lot more?

Speaker A: Um, I mean, it's more, um. Hey, look, we still have some, uh, we're LPs in some funds and uh, you know, we have some angel investments that hopefully will help materialize in positive ways. So it's not all a zero, but, um, I think it's less about kind of the. Yeah, um, you know, whether those have been successful or not. And it's probably more along the lines of like, um, yeah, the control, the visibility, you know, and the opportunity itself. Because it's kind of like, you know, in the past, like when we were just operating a single business, you know, it was kind of like our universe of like, all right, like reinvesting into that business, uh, just felt very limited. Like, we just were like, okay, like, what do we, you know, do we just put more into sales and marketing or, you know, do we hire somebody or whatever? But like now, you know, that's. That aperture is kind of, uh, opened a bit more where it's like, hey, we could buy a business. Uh, you know, we can kind of, you know, um, do, you know, we can maybe recapitalize something or, you know, we can, uh, uh, yeah, we, we can kind of turbocharge a company that's growing really Fast and kind of help them in different ways. And so I think just having that capital allocator mindset, uh, is what really made me realize, okay, like, all this excess capital that we had that was going to kind of random stuff, uh, you know, that looked fun, uh, we can be disciplined about it and deployed and kind of, you know, uh, have more control over those returns.

Speaker B: Yeah. In a way that grows cash flow as well. So. Yeah, that's. That's great. Um, last question for you about talent. You mentioned the SBA terms usually result in the founder rolling off at, uh, some point. And we've talked about you installing operators, um, at some of these. These, um, companies are placing people into the companies. Um, again, I'm looking for a difference from PE funding here. Like, presume you don't just find your favorite golf buddy who, um, you know, used to work at McKinsey, and put them in. Like, how do you source talent when you're looking for talent for people to come in and run these businesses in your portfolio?

Speaker A: Yeah, I mean, just with the acquisitions, I think we lean more towards, like, how do we promote from within, at least, you know, into that leadership role, the CEO role. Um, and then. And then, you know, really identify, like, what the strengths, uh, and kind of the gaps are for that, um, individual and then surround them with other outside talent that, you know, can kind of come in and complement. So that's kind of because, you know, I think we learned early on from, you know, from another deal that, like, yeah, just replacing the founder with somebody, um, you know, from the outside, outright, without, you know, and then just kind of springing that on the existing team kind of, you know, um, it was really hard to win trust with that approach. Uh, so, yeah, we've been a bit more cautious. I mean, I don't think it's always going to be that way. You know, I can see a world in which, like, yeah, like, as we kind of move away from, you know, SBA as the, uh, you know, primary source of, uh, financing. You know, this kind of give us some flexibility to keep the founder on for longer, maybe have them roll some equity and. And be more engaged, uh, for a longer period, and then we could maybe develop a successor in that period or, you know, hire an executive who can then, you know, kind of, um, earn that trust, uh, you know, under the founder, and then eventually take over. So, you know, there's going to be different. Yeah, there's going to be different approaches. I don't think there's a, you know, right or wrong way it's just kind of, you know, right now, uh, you know, we've just kind of been lucky in promoting from within, uh, uh, you know, for the time being.

Speaker B: And I think you downplay what is actually a pretty nuanced and sophisticated talent management, um, strategy that you've got there. And I think, like, if I recall during a conversation you talked about a strong number two being one of the things that you look for a company, which obviously then underpins your, your talent management, um, strategy and the, the thoughtfulness to, you know, set people up for success. Right. Rather than like, pin a CEU badge on someone and wish them luck. Right. You're assessing their weaknesses and seeking to scaffold in the right places and compliment them in the right places. I think that's, um, you know, one of the more kind of thoughtful, nuanced and involved talent strategies I've, I've heard so much, um, much admiration for that. And I, I definitely wouldn't underrate it if I was you because I don't think there's too many people out there putting that level of thought, um, and control into it. So. Yeah, sounds. It sounds great to me. I, um. A time always slice when you're having fun. I. We've got a bunch of things that I want to direct people to. You've got your, your newsletter, your game. Where would people go to to find these things and to stay connected with you?

Speaker A: Yeah, probably, uh, best places. You know, I have a personal site, PeterKang.com um, and, uh, yeah, just. And then also our, um, Holdco, uh, site, uh, barrel, uh- Holdings.com uh, is the other site. So those are two places. I'm pretty active on LinkedIn, so you

Speaker B: can find me all the links to all the good stuff from there. And um, Peter, it was a pleasure having you on and really enjoyed, uh, another conversation with you. Thanks so much for, for coming on. It was great to have you. Yeah.

Speaker A: Thank you so much.

Speaker B: All right, take care. Thanks for listening to the PE Data guy. The place where private equity meets data. Please forward this episode to your favorite private equity friend. Thanks for listening. See you next time.