4 November 2021

In today’s episode, Trey Lockerbie explores capital allocation in private markets with the CEO of Permanent Equity, Brent Beshore. Brent started out as an entrepreneur and through his own M&A strategies has now found himself purchasing small to midsize companies with the intention of holding forever. Brent is an empathetic leader whose style is a great reminder that a simple approach, although not easy, is most often the best approach.

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  • What Brent has learned from breaking bread with the likes of Warren Buffett and Charlie Munger.
  • Key lessons in approaching acquisitions.
  • Managing styles and the importance of autonomy.
  • Learnings from the private market that translate to the public markets.
  • And a whole lot more!


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Trey Lockerbie (00:03):
Today, we are exploring capital allocation in private markets with the CEO of Permanent Equity, Brent Beshore. Brent started out as an entrepreneur, and through his own M&A strategies, has now found himself purchasing small to mid-sized companies with the intention of holding forever. In this episode, we discuss what he has learned from breaking bread with the likes of Warren Buffett and Charlie Munger, key lessons in approaching acquisitions, managing styles, and the importance of autonomy, learnings from the private market that translate to public markets, and a whole lot more.

Trey Lockerbie (00:32):
Brent is an empathetic leader whose style is a great reminder that a simple approach, although not easy, is most often the best approach. This was a really fun discussion. So sit back and enjoy learning about private acquisitions with Brent Beshore.

Intro (00:43):
You are listening to The Investor’s Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected.

Trey Lockerbie (01:08):
Welcome to The Investor’s Podcast. I’m your host, Trey Lockerbie. And today, I have a very special guest with me, Mr. Brent Beshore. Welcome to the show.

Brent Beshore (01:16):
Hey, thank you so much for having me on.

Trey Lockerbie (01:18):
Really excited to have you on. We’re going to be talking a lot about investing in private companies today. And before we get into all that, it stood out to me that you were an entrepreneur yourself before finding yourself as now a capital allocator of sorts. I’m curious, what led you to now have Permanent Equity? What was the roadmap that got you after being involved in marketing?

Brent Beshore (01:43):
I often joke that I’m the Forrest Gump of private equity because I’ve never taken a finance class in my life, I can barely open up Excel, and I never worked for another firm. So I was an entrepreneur, an operator, I started a couple of businesses, and that led to accidentally buying a business, as close to accidental as you possibly can, and did well with that. Honestly, today, I still feel like I’m more of an entrepreneur and operator. Yes, we make investments, but really what we’re doing is expressing a skillset, an operating skillset through the companies that we are able to partner with.

Brent Beshore (02:09):
And so we very much look at it, and we can get into this a little bit later, but we’re very much the opposite of private equity in the sense that we’re not financially engineering these companies. So the only way that we create value is to create good long-term win-win relationships for everybody involved and try to make these companies better.

Trey Lockerbie (02:25):
Now, it’s pretty easy to gloss over the background a little bit. As an entrepreneur myself, I have to double click on this a little bit because look, it’s not an easy feat to say, “Hey, we started this business that led to this, and we did this, and here we are.” Great, but I know there’s way more to it than that. So talk to us a little bit about at least what you loved about marketing, to begin with, what got you into that service-based industry, to begin with. And do you find that you’re applying those skill sets even today?

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Brent Beshore (02:54):
Well, to answer your last question first, for sure, I would say that marketing, advertising, lead generation, sales development, all those things are things that every company needs. We’ve got companies across the country, across manufacturing, construction, military recruitment, we even have a matchmaking firm. All those companies need the same thing, which is to find more customers and then to service them better. So for sure, marketing is always a key component of that. To be honest, I fell back into that as well. This is the story of my life and my career in many ways.

Brent Beshore (03:21):
I was getting my law degree and my MBA [inaudible 00:03:23] and met my wife, who was getting her Ph.D. And I was out having some drinks with friends, maybe a few too many drinks, to be completely honest, and maybe it was late at night, and had a friend’s wife say, “Hey, I want to start this event marketing company.” And at that time, I decided that I wasn’t going to be a lawyer, and I can go into that if you want, and so I said, “Hey, I’d love to start it with you.” A terrible business. I learned a lot, made every mistake in the book. And I think that’s a large portion of what we bring to the table, is that we’ve made a lot of the mistakes that hopefully we’re trying to help other people avoid.

Brent Beshore (03:49):
But then that led to working with agencies. And the more we start working with agencies, we said, “Gosh, they get paid a lot more to do seem a lot easier job.” And so we said, “Well, I think we could get into that.” And so started doing more agency work. That agency work led to doing some software development, more online marketing. Again, this is back in 2009, 2008. So you’ve got to remember, online marketing back then was still nascent. There’s a lot of people who, honestly, still even back then didn’t even have a website. So I started getting into that. And then, as I said, had a mutual acquaintance say, “Hey, you should meet this guy. He just got left at the altar for the second time.”

Brent Beshore (04:22):
And I took that to mean I should try to go buy his business. Why else would you tell me he’d been left at the altar for the second time? The friend had no idea, he was as shocked as anybody. I don’t know, I look about 25 now, I looked about 14 then, and I sat across the table from this guy and said, “Hey, I want to try to buy your business.” And he laughed at me, as anyone would.

Trey Lockerbie (04:41):
Well, this is an interesting turn of events because if someone’s telling me, “Hey, check this guy out, he just got left at the altar twice,” wouldn’t your first thought be, “Well, why? Why is he getting left at the altar? There’s got to be something wrong with this.” Instead, you went, “Hey, I was attracted to this.” So talk to us about that attraction there.

Brent Beshore (04:59):
Yeah. It was in an industry, so they were doing military recruitment marketing, working with some universities as well. And by the way, we still own this company today. It’s called MediaCross. A great partnership. Our CEO, Jenny Umali is a phenomenal woman, I’m really proud to be in a partnership with her. I looked at the business and I said, “This is really beautiful, complementary to our current business.” Our current business was, we had a lot of talent on it, but it was of the fluctuations and cashflow, versus MediaCross had long-term government contracts. So it was sort of the yin and yang thing going on. A lot of the things that they lacked in terms of skillsets and talents, we had on our staff, and a lot of things we were lacking, they had.

Brent Beshore (05:34):
So it was just a really nice marriage from the outside looking in. Now, like everything it’s hard, it’s difficult. All the things that can happen, we experience a lot. But I would say is, I told him that the price that he was asking for the business was too high, and I said, “I think that’s the large part of the reason why the two previous buyers couldn’t get the deal done.” And so we were able to negotiate a lower price and make it good for everyone.

Trey Lockerbie (05:57):
Just out of curiosity, was the arrangement a cash deal as you do often now?

Brent Beshore (06:01):
All cash. All cash. I went out and got an SBA loan. So I leveraged the accounts receivable for my existing business. And thank God for the SBA. Honestly, I love the program. It’s not right for everyone, but it was certainly the only way I could have gotten into a business. I put far more than 100% of my net worth on the line list, let’s put it that way. And my wife, we had just gotten married, and she said, “What happens if this goes poorly?” And I was like, “It’d be bad. It’d be bad for us. Let’s just hope that that doesn’t happen.” And of course, there’s ups and downs, like everything else.

Trey Lockerbie (06:26):
Certainly. And interestingly enough, what you have now has been referred to as like the baby Berkshire a little bit. You’ve got this holding company you’ve got going in-

Brent Beshore (06:35):
Don’t give us the curse. Don’t give us the curse.

Trey Lockerbie (06:37):
Well, what I’m curious, I guess about, first and foremost is, going from this, as you put it, never opening Excel, not having a financial class, that’s not your wheelhouse, to becoming a capital allocator. When you compare to someone like Buffett, which I think we’ll do a lot on the show, because we do study him quite a bit, it’s just interesting because he was wired to do that. And he talks a lot about being wired to do it and how that sets them apart. But you have come at this, I think from the total opposite end of the spectrum, and had a lot of success. So how would you define your skillset that you’re bringing to the table as opposed to someone like Buffett who’s very more quantitative?

Brent Beshore (07:11):
So it’s actually interesting, I got to have dinner with Mr. Buffet in his country club in Omaha. And it was three and a half hours, and I got to ask him these… I came prepared, the people I was with laughed at me because I came prepared with like 50 questions I wanted to ask him, and I think I got like 31 in during the dinner, but a lot of them were all about the early days and about how he thought about Dempster Mill and Sanborn Maps. And honestly, the answers, I remember I was able to ask him questions about how did he feel leadership? How did he think about concentration risk and all those things? It was very similar to how we thought about it.

Brent Beshore (07:37):
Now, obviously, he’s far more talented than I am, and he’s been at it for a while, and there’s never going to be another Warren Buffett. We’re not trying to be Berkshire, I’m not trying to be Warren Buffett, but I think that the way he thought through deals and the way that we think through them is very similar, which is, what is the downside risk? And then, what’s the upside? And we want to get into asymmetric bets. We want to get into things that if things go poorly, we lose a little bit of money, and if things go well, we can hold them for a very long time and make a lot. And I think it’s the exact same way he thought about it early on, especially in the days where you’re…

Brent Beshore (08:06):
It’s like Wild, Wild West, when you get down in the lowest end of the market, where he was early in his career, it’s just wild. You get to strike deals and it’s all about relationships. And I think that’s where over time, it’s almost like he had, I think nostalgia for the early days because it doesn’t work like that when you’ve got $140 billion on your balance sheet to try to invest. So I think it’s many of the same traits. I think God just blessed me with an ability to see how deals come together and try to see, when you think about the stakeholders in a deal, most people just think about the buyer and the seller, really, there’s far more complicated than that.

Brent Beshore (08:36):
If you only think about the buyer and you only think about the seller, you’re going to come up often in how you structure deals. And so the way we try to think about it is, what do the families of the seller think about this? What’s the leadership teams, the employees, the vendors, the customers, the communities, maybe even the regulators, depending on the industry you’re in? You really got to look at it from everyone’s point of view and you’ve got to try to create a deal that’s sustainable long term. And the only way you create a sustainable partnership long-term is if it’s a win for everyone.

Brent Beshore (09:02):
And I think that’s what a lot of people miss. A lot of people just try to strike the “best deal” at closing. Let me tell you if you strike a great deal with somebody, they’re not going to be too happy with you very, very shortly after the close. We always talk about, we want to strike a fair deal, maybe a good deal for everyone, but oftentimes, you’ve got to see where your interests are not overlapping to make sure you can satisfy theirs and satisfy yours at the same time.

Trey Lockerbie (09:23):
Well, I do see those comparisons now, especially Buffett doesn’t open Excel either, it sounds like, and has done deals over a handshake. But referring back to Dempster Mills and some of these others, these were turnaround events. And as I understand it, this is the same pool you’re fishing in, so to speak, you’re looking for already successful businesses, which I think is much harder to find a deal.

Brent Beshore (09:42):
Yeah. I would say, look in the smaller end of the market. So depending on how you look at us, we’re either on the very low end of the lower middle market or we’re on the higher end of the micro private equity space. If a business has been around for a long time and they’re at the size they are, there’s something lacking from the company, there’s something that’s holding the company back. So I would say, we’re certainly buying companies that are successful and would be successful without us, but there’s definitely a component of something lacking. And I think that’s when a turnaround’s very similar.

Brent Beshore (10:10):
By definition, by the way, that we’re able to go down in the lower end of the market, we’re able to get better pricing on a cash flow basis, and then there’s also more opportunity to improve the company. So we think it’s like a double whammy of goodness to experience a higher cash yield at the close, as well as the opportunity to increase the quality of the company over time. And we think about both quantity and quality of earnings, certainly. Look, I often say this, all businesses of this size are loosely functioning disasters that happen to make money. Every small business is hectic, it’s stressful. I equate it to a knife fight often.

Brent Beshore (10:43):
It’s very difficult to operate these companies. And so it takes a special type of leadership in the companies, a special type of mindset, that when you kick over rocks and you ski the squiggly things, you don’t run and hide, you pick up the rock and you say, “Okay, let’s deal with what’s underneath it.” And I think that’s the mentality that we bring to it. We don’t think of ourselves, again, as investors. When we show up to meet the sellers and their leadership teams, we never talk about our investing prowess and we never talk about degrees we have or where we’ve been, mostly, because it’s, frankly, not that impressive. But often, it’s also because we relate to them as operators.

Brent Beshore (11:14):
Everyone in the company that is working with our companies has been an operator to themselves. That’s actually a requirement for when we bring people on staff. And we want them to know that because oftentimes if you don’t have that operating experience if you’ve been flying at 40,000, 50,000 feet and you’re viewing spreadsheets and you’re thinking about the numbers, it’s really difficult to get the humanity to pop up. And so if you look at all companies, really all organizations in general, are just collections of people. And so if you want to understand how people work and you don’t understand how operators interact with the companies, it’s going to make your life very, very difficult if you want to move beyond just what I would call road capital allocation.

Brent Beshore (11:48):
And for us, it just wouldn’t be helpful if all we did was, “Hey, we’re going to give you a check. We’re going to financially engineer the company. Call us if there’s a problem.” Well, first of all, Buffett didn’t do that in the early days. In fact, he didn’t do that for most of his career. He certainly has done that as the companies have gotten bigger, and frankly, as the companies have outstripped his operating prowess. But I think early on, he and Munger, and I got to have lunch with Munger and had conversations on the same topic, they looked at this beautiful tropical island of food everywhere, and it was just a matter of them going and picking it.

Brent Beshore (12:16):
Ultimately, the island shrunk and they got too big for the island. And so I think that’s where strategies have to adjust and change over time. Thankfully, we think we’ve got a long runway to be able to do what we do for hopefully a very long time.

Trey Lockerbie (12:27):
These meals with people like Buffett and Munger are precious, they really are. There’s so much value in you in those conversations. I’m curious, with the 31 answers you got from Buffett, was there one that surprised you the most? One from a question you asked and you said, “Oh wow, I’ve never thought about it that way.”

Brent Beshore (12:44):
I don’t think I surprised him with, to be honest, any of my questions. He’s been answering very, very thoughtful questions from people far more thoughtful than me for a very long time. I would say the one sound bite that came out of that dinner, of course, there’s a lot of it that was off the record that I can’t talk about, but the one that was interesting was I pushed him a lot on due diligence. And I said, “You give in this air that you meet the guy, and you ham it up, and then you give him a price.” And he says, “Yes, and you shake hands and you write him a check, easy peasy.”

Brent Beshore (13:11):
I said, “Come on, you’ve got to diligence these companies. You’ve got to understand what’s going on, and you’ve got to get comfortable with what you’re actually buying.” And he kind of hemmed and hawed in his Buffett way, worked around the edges. And I kept pushing him, kept pushing him, and kept pushing him. And I think he got a little annoyed with me, which by the way, the best sound bites apparently come from getting annoyed with me, because he said, “Price is my due diligence.” That was the hammer that fell on that line of question. And I just sat back and I said, “Well, it makes a lot of sense.” Everyone at the table was like, “Now, what does price mean? How low can you go? And what’s the margin of safety in that?” That’s the art of it.

Brent Beshore (13:45):
But it’s true. And it’s something that that quote and that line of thinking have really impacted what we do as well because you can diligence to deal with death. It’s super easy to try to kick over every rock, and that’s not helpful. And I think that depending on the price you buy at and the situation you’re buying into, I think there is a lot of safety in price. And so we try to be thoughtful about that. Of course, in these markets and with the competition that’s out there, price is often a pretty charged issue. So we try to stay disciplined.

Trey Lockerbie (14:10):
Buffett and Munger, they’re at this certain echelon that’s almost untouchable nowadays. And there’s that old saying, never meet your heroes. I’m not saying that was the case, I’m only questioning, was there anything, not bad, but surprising about their personality. Was there something that stood out to you that made you understand, “Okay, this is how they’ve gotten to where they are? I can see it very clearly.”

Brent Beshore (14:31):
I would just say that logic of both of them was crystal clear. It was easy to see where they were going, and it was amazing to see how quickly they got there. I would say one thing that stood out to me because I had to have the lunch and the dinner almost back to back with both of them. Munger struck me as far more of a nerd than Buffett. It’s funny, it sounds like I always thought it was maybe the opposite way, but man, Munger was just nerding out about climate science, like battery technology. Buffett really just liked to talk about investing and sports. He loves sports. And we talked about that quite a bit too.

Brent Beshore (15:01):
But yeah, I would say just both of them, it was clear that both of them had developed a magnetism. The personalities matter and they were good at forming relationships. At the end of the day, if you can use good logic and you have the basic principles down and you know how to form relationships, good things usually happen as long as you stay in the game.

Trey Lockerbie (15:18):
Did Munger answer any of your questions with, nothing to add?

Brent Beshore (15:23):
Let’s see here. At one point, I was asked to stand up and talk about what we were doing. I rambled for about 30 seconds and the person who’d asked me to stand up, said, “Well, Brent did a crap job of explaining what he did.” And I was like, “Oh my gosh, this is a nightmare for me.” He asked me a few other questions, I went on. And five, six minutes later, Munger just sat back and said, “Makes sense. Very good.” And I was like, “Well, I guess I could hang up. Blessed by the Pope.” It’s kind of like he just, “Yep, that’s going to work. Good.” And I was like, “Well, I’m glad to hear it. Got that going for me.”

Trey Lockerbie (15:54):
One of the things I’ve most respected about Buffet’s early days was the fee structure of his partnerships. And you have a very interesting fee structure as well at private equity. I want to talk a little bit about how you’ve developed that fee structure and how it works.

Brent Beshore (16:08):
Yeah. Our fee structure, I think I can say is unique. There are actually a few other people that are now, I think going to either employ it or trying to employ it, which I’m highly encouraging people to rip off anything. In fact, I actually talked to our lawyers about open-sourcing our fund docs and just helping other people too, I think, align interests better. How our fee structure and how really my career took a sharp left turn was, we had started experiencing some success, I’d compounded my own capital out of that first deal, did well with it, and paid back the SBA quickly, started compounding capital in some other opportunities.

Brent Beshore (16:39):
And so you fast forward seven, eight years later, and life was good, life was going great. There are always hiccups and bumps in the road, but business-wise, we were on a really good trajectory. And we’ve been approached by a couple of family offices, one foundation, and they said, “Hey, will you start taking outside capital?” And I said, “No, we’ve got a great thing going, we’re doing great. Everything’s fine. Why would we rock the boat?” And they always came and said, “Here’s the box you got to fit into. You got to go “2 and 20” or your other option is you could do a Holdco and we value all your current assets and you contribute them into the Holdco.

Brent Beshore (17:07):
And when it got down to it, almost everyone wanted a big discount on the current assets. And I was like, “Look, this is what I have. This is really important to me. I know what they’re worth, and they’re worth a lot more than I think, objectively from the outside, you would want them to be worth.” And so it always just felt like there was tension right in the Holdco model, how further capital calls would work, how the governance would work. It just never felt natural, let’s put it that way. It felt like a forced thing. And then “2 and 20” would’ve completely wrecked our model.

Brent Beshore (17:33):
I think it would’ve incentivized me, and look, I’m a creature of incentives as well, to get bigger and to go after larger and larger deals and not in the good opportunistic way. I just don’t need that hole in my life. I think I’m too weak. I’d be worried about where that would send us. Anyway, I’d put it to bed. I wasn’t going to take outside capital and I was comfortable with it. And then I met this guy, Patrick O’Shaughnessy, who I think you might know, also runs a podcast. It’s funny because I knew him before the podcast and I knew him before he was CEO of OSAM and all the stuff he’s done.

Brent Beshore (18:05):
We met on Twitter and we were needing out about capital allocation. He was like, “Oh, what do you guys do?” So I told him, and he goes, “Okay, I don’t want to talk about capital allocation, I want to talk about that.” And he’s like, “Are these liquidating businesses for what you’re buying them for?” I’m like, “No, these are good, solid… ” He just couldn’t believe it. So he said, “Hey, can I come in and see you?” So we spent the day together and literally talked for, oh gosh, I don’t know, 10 hours. From very early on, I knew we were going to be good friends.

Brent Beshore (18:27):
He and I think I don’t know, we think a lot alike in many ways and differently enough about some things that just always keep it interesting. And so we talked for a long time. And at the end of it, he said, “Okay, well look, my family wants to invest.” I said, “That’s flattering, thank you. But we’re not taking outside capital.” He said, “Why?” I said, “Well because we got these structures and it just doesn’t feel right to me.” And he goes, “Well, why don’t you create your own structure and tell me what it would take for us to invest with you?”

Brent Beshore (18:49):
I sat back in my seat, “Okay.” It was a challenge. It was a challenge of creativity. So I went back and sat in front of a whiteboard for days on end. Literally, I would come into the office and I’d whiteboard a little bit and I’d go sit down and do some other things and I’d go to the whiteboard again. And over the course of a couple of days, I settled on the structure that we have now. We originally asked for a 50-year lockup, we got a three-decade lockup on our capital, which makes it highly unusual. And then, the way our fees work is we take no fees of any kind, no reimbursements of any kind, there’s no cash flow that goes from the LPs to the GP outside of when we call capital into the…

Brent Beshore (19:23):
We have a fund, the committed fund, but we call capital on a deal-by-deal basis. And then we time weigh that capital and it generates a rate of return. The investors get the first chunk of the rate of return. And then we get a catch-up, and then we have a split on free cash flow. So the better the companies do in free cash flow, the more that we enjoy it, the more that they enjoy it. The way it all shakes out is if we do about what traditional private equity does in returns, we get paid about what traditional private equity gets paid. If we do more poorly, then we get paid a lot less. And if we do a lot better then we get paid more.

Brent Beshore (19:50):
And so it’s a very entrepreneurial structure, and I think that it aligns interest. So what we can do now with that structure is, our CEOs and leadership teams are incentivized to generate high rates of return on cash flow that they keep, and if not, they send it up, and then we send it out. And so our investors get a biannual distribution of free cash flow that’s quite meaty, but we’re always looking for the best places to reinvest in these businesses. So everyone’s interests are aligned. If there’s a high rate of return, high probability project that we can invest in across the portfolio, by all means, we want them to keep the cash and reinvest in it. And if there are not those opportunities, then let’s not murder money.

Trey Lockerbie (20:25):
So there’s no limit on this return on capital for your individual companies? Is it their discretion to say, “Hey, we want to invest 100% of this free cash flow back into the business,” and you guys say, “Okay,” or do you guys have any voting rights on that?

Brent Beshore (20:38):
Well, ultimately, we have control of businesses. So yes, we’re ultimately checking off on it, but we’ve never seen an investment that’s the high rate of return, the high probability that we’ve said no to. It’s against our interest to say no to it, in the same way, it’s against our interest to say yes to something that would be an inferior return. So we just try to set a high benchmark, a high opportunity cost in the portfolio, and, hey, if you can meet it or exceed it, by all means, keep the cash. If you can’t, then, by all means, don’t. So it tries to make it pretty clear.

Brent Beshore (21:05):
There are always calls that are going to have to be made. We certainly like to have conversations around probabilities of success, and have we done this in the past? What would indicate that we think that things are going to go a certain way in the future? But beyond that, we try to be thoughtful and kind and generous and long-term oriented. We’re not looking to generate the highest return the quickest we can because we intend on holding these companies for a very long time and compounding them both financially and relationally.

Trey Lockerbie (21:29):
That long-term mindset is hard to find these days. And you mentioned locking up capital for three decades. I heard it was something like 27 years, which more specifically only stood out to me because it’s such an odd number. That was one of my questions, was, why 27 years? And how do you sell that to somebody, most of all?

Brent Beshore (21:46):
Yeah. So 27 years. So yeah, we have 27 years with three, one-year extensions, three decades. I asked for 50 years and I originally got 50 years, and then the lawyer for our lead investor, our anchor investor on the first fund came back and said, “Son, I’ve been at this for a long time, there is absolutely no way I’m letting this family lock up their capital with you for five decades. He wasn’t going to budge, let’s just be honest. The guy was pretty locked in. I said, “Well, what’s the longest you’ve ever seen? “And he said, “Ah, I don’t know.” And I said, “No, really, tell me literally, what was the longest you’ve ever seen?” He said, “I, one time saw a real estate deal that was, I think, it was 27 years with three one-year extensions.” And I said, “Okay, we’ll take that.” That was it.

Trey Lockerbie (22:24):
Market rate.

Brent Beshore (22:25):
Exactly. The question was, is that the hill we to die on. If we don’t get them as an anchor investor, I think like anything, so much of fundraising is momentum, and it felt like we barely got to 10 on the first fund, we ended up raising 15 in our first fund, we barely got to 10, we got from 10 to 30 within weeks. And then we closed in the 30s and then we had people just pile in after and demand that they invest with us. It was shocking considering how hard it was to get to 10. Anyway, it’s like anything else, it takes momentum. How did we convince somebody to give us their capital for three decades? I don’t know. To be honest, I think part of it is, I just didn’t even know what I was asking for because I don’t come from a private equity background, I don’t come from an investing background.

Brent Beshore (23:07):
My argument was, it’s better for you if we have your capital locked up for three decades than not because we’re going to be able to generate better returns, we’re going to get access to better companies, we’re going to be able to set up things relationally to generate higher quality and quantity of earnings. So I think that the investors, there’s plenty of people who laughed at us, literally laughed at us, including top endowments, foundations. I had one foundation CIO say, “Three decades? Three decades from now, you’re going to be on your fourth wife. You’re going to have step kids all over the place. You’re going to be vacationing in your fifth vacation home.”

Brent Beshore (23:38):
And he just rocked back and was like, “Hell no, we’re not going to invest with you.” And I said, “Sir, that seems oddly specific but okay, glad we had the meeting.” Some might call that a projection. I think in all seriousness, the logic makes sense but the issue is trust. And I think that we’ve tried to be as trustworthy as possible. Do we make mistakes? Absolutely. Do we rub our noses at our mistakes? Absolutely. One of our investors recently said to me, he goes, “Gosh, every time I get your letter, you have two paragraphs and all the things that are going, and overall things are going great. And then I’ve got five pages of all the things that are going wrong.”

Brent Beshore (24:13):
And he said, “Make sure you balance out a little bit.” And I said, “Well, Tim, look, you don’t need to know about all the good things we’re doing, we want to show you and we want to bring you in underneath the covers to show you what’s really like to be in these businesses. It’s restful, it’s messy, and we want to be thoughtful about how we do that.” And so I think that’s where we’ve developed a high level of trust with our investors, where they believe we have their best long-term interest at heart, and we do. It’s a beautiful thing when you can get those things to line up.

Trey Lockerbie (24:38):
It’s interesting that you invest in family businesses and you had your own family business. So I understand it didn’t have outside capital, you took on SBA money, etc. And I’m curious, getting to that 10 million mark, that initial, was that just pool of people you knew personally, because they weren’t invested in your business, so you didn’t have a proven track record necessarily with them. So that momentum, I can totally respect it, it’s hard to get going. But for a lot of our listeners out there that are in a similar position right now, what was the playbook that helped you start getting momentum finally?

Brent Beshore (25:08):
Yeah. I got to be honest, it felt very serendipitous. We were somewhat well known. I think people looked at us as this odd experiment going on in Missouri in the private equity world. And so I think we had some name ID from that. But frankly, if it wasn’t for Patrick and his family, they brought a lot of relationships to the table. Patrick went and traveled with me and helped open doors. I presented back to him and his family what the structure was going to be and everything and he said, “Okay, that sounds great. We’ll do that.” And I said, “That’s fantastic. Where does the rest of the money come from? And he goes, “We know people, come on, we’ll introduce you.”

Brent Beshore (25:43):
And literally, he and his father, Jim, it’s hard to describe how kind and generous they were to me. They threw me a party in New York, threw me a party in Greenwich, Connecticut, and invited all the people who write checks. And it was a whole new world to me. I remember even asking him, I was like, “Can I wear jeans to dinner?” He was like, “No, you can’t wear jeans to dinner. You’ve got to put slacks on for this one.” That type of thing. I didn’t have connections to those types of resources. Like anything else, I think that once you get one person to believe in you in an inner ring, the world works the same everywhere. You’ve got to find a trusted person that’s going to share the trust, that’s going to do the trust transfer.

Brent Beshore (26:18):
And I think that’s just how it worked for us. And it was a lot of people saying no, and then a few people said yes, and they invited their friends to say yes, and even more of them said yes. And before you know it, we were off to the races. I wish I had some advice for them other than finding yourself a Patrick and Jim.

Trey Lockerbie (26:34):
Clarifying some things. With your current structure, is there operational leverage in that? If there is money that’s flowing to the top, as you put it, are you then relocating it to another business potentially and saying, “Okay, you don’t need money over here, you’re good. But we need to supplement over here?” And those decisions are being made before obviously, there’s the payout to investors. That takes priority, I would imagine.

Brent Beshore (26:55):
We’ve actually never had to do that. A lot of the companies that we’re getting involved in are very asset-light and they throw off far more cash than they can assume reasonably. We never had to do that, but we can, and we would be all in favor of it.

Trey Lockerbie (27:07):
Even through a pandemic?

Brent Beshore (27:09):
Yeah. Well, it’s helpful not to use debt. I will tell you, that’s one of the things that people laughed at us, and I think still some do laugh at us. We’ve closed our last six transactions, five, six transactions with no debt, no outside lender at all. We’ll use some leverage and operations in terms of working capital lines and things like that, but no transaction debt. And we feel very strongly about it that actually it produces better long-term results because it gives you a much better discretion over your cash flow. So instead of having to pay a lender every month, you can take that cash, I’m sure you can distribute it out, but oftentimes, you can find really interesting things to do with it. That’s how we think is the right long-term way to do it.

Brent Beshore (27:44):
But certainly, in a pandemic, it helps if you’re the only one not having debt on your balance sheet. For a lot of our businesses, our aerospace business is a great example of this. The aerospace business went down a ton, frantic like everyone else, trying to make sure we knew where the bottom was, but the business produced cash every single month and we were able to hire people we never would’ve gotten access to any other way. When we came out of it, March was tough, April was tough, May we were starting to see a little light. Actually, things were still continuing to go down, but we felt like we could see some trajectory. And then really come June of 2020, we were in full offense mode, we were, how do we buy parts packages for cheap? How do we hire people?

Brent Beshore (28:21):
And the CEO out there, Jason Harp, has just done an absolutely marvelous job of transforming the business, implementing the new ERP system. Heck, if you’ve got a lot fewer orders coming through, reorganize your warehouse, implement an ERP system, implement a new quoting system. Do all the things that you always wanted to do, don’t miss the opportunity of the crisis. Obviously, on a personal level, COVID has been horrible, had people die that I know, family, friends have issues, but from a business perspective, not having debt allowed us to really do things that no one else could do. And I think that for us, it’s really solidified our view that we’re in the right on this topic.

Trey Lockerbie (28:55):
Talking about the aerospace industry and a couple of others you’ve touched on really raises the question for me around industries. You seem to be industry agnostic. Is that the case, or do you feel like you have a competitive advantage in any one particular or like say a circle of competence even that you don’t stray out of? How do you approach that?

Brent Beshore (29:10):
Yeah. So the way we think about it is our circle of competence is in the style and size and stage of the company that we get involved in. Look, we’ve never operated a company that’s doing $100 million of free cash. I’m sure they’re amazing, I’m sure you’ll recruit incredible talent, I’m sure you’ve got the IT guy you can call whenever the IT system breaks, like when your computer needs to get fixed. You got the CFO and the assistant CFO and all that.

Brent Beshore (29:34):
The types of companies we’re getting involved in are in this very odd adolescent phase, and they’re all going through the exact same stuff. So we call it the table stakes of business hygiene across every area, whether it’s marketing, advertising, sales, technology, operations, HR, any of that stuff depending on the type of business it is. There are best practices in all of these and the businesses for sure, and there isn’t anything new, none of the CEOs or the sellers would say this is the prize to them, they’re not doing the best across all those. If they were, they’d be a lot bigger business.

Brent Beshore (30:04):
And so in terms of the circle of competence, the businesses that are the size, and when I say size, we’re typically going to be between three and eight million of cash flow, that’s the sweet spot for us in the size of business. We’ll go up from there, we probably won’t go typically below three these days just because we feel like the best risk-reward in the marketplace is in that tight band. Prices are still low enough, and we feel like there’s still a lot of work that we can do. We don’t want a business that’s all ship-shape, it’s all tied up with a bow.

Brent Beshore (30:31):
We like to have a little hair on these things, and we like to be able to see opportunities for improvement. And so the businesses though are not complicated themselves, it’s not like we’re taking apart a conglomerate or some really complicated operating system, and these businesses are straightforward. Our airplane parts, we buy them, we buy parts packages, we split apart those that packages, and then we sell them, we sell the individual parts. So it’s not hard to understand, where do the parts come from? Where do they go? How quickly do we do get them there? What’s the pricing on the parts?

Brent Beshore (30:58):
So it’s not like we needed to know the aerospace business inside and out, it’s not like we need to have aeronautical engineers on stuff. We have a repair station also that helps certify the parts. That was a little bit more difficult to get comfortable with, but they’re darn good at what they do and we were able to. So if you look across all of the things we’re involved in, whether it’s construction, manufacturing, the organizations themselves from a business model perspective are fairly straightforward. We can understand what the risks are, your input costs.

Brent Beshore (31:23):
If we’re molding plastic, what are plastic costs? What are shipping costs? Where can competitors come in? What IP protection do we have? You can see across all these businesses the simplicity of them, the complexities in the people, and in bringing the skill set to bear. And oftentimes, it’s not hard to know what needs to be done with these businesses. I’ve said this before, but investors always have this pompous attitude towards businesses where it’s like, “Well, let me show you my 147-page deck on everything you could be doing better.

Brent Beshore (31:47):
Oftentimes when we say to somebody, “Have you ever thought about blank?” They’ll say, “Yeah, of course, who’s going to do the work?” Great question. So oftentimes, it’s more getting involved and just trying to help them grow, trying to get the right people in the seats on the bus, I think that’s the biggest issue. Finding talent, discerning talent is really, really difficult. Oftentimes these businesses get in a situation where they can’t pay to attract top talent and so they settle for inferior talent that they can’t do much with. And so oftentimes we’re coming in again and just trying to help solve a lot of these issues.

Brent Beshore (32:16):
We’ve got a talent network called the Orbit, which has been fantastic. We recruit out of it all the time. And these are just people up and down, the seniority law levels, all around the country, and even beyond the United States that are just raising their hand saying, “Hey, would love to come work with you someday. Let me know when something fits my skillset.” And so we’re often calling people sort of the bench, often calling people out of the bench, and works out great for them, works out great for us.

Trey Lockerbie (32:39):
Something I don’t hear talked about enough or very often around family businesses is sometimes you find that the family starts leaching off that business, people who don’t even work at the company. If you start growing this business, all of a sudden, you’ve got a lot of obligations, responsibilities to some people in the family. I’ve seen this happen in other companies. I’m just from your vantage point, having looked at so many, is that a common occurrence where you as the investor are taking control or are saying, “Well, that’s easy to clean up and take out, we pay off those folks, and then all of a sudden our margin just doubled or whatever.” Do you ever see something like that?

Brent Beshore (33:11):
Yeah. Here’s what I would say is, oftentimes these families, there’s no difference between their personal income statement, personal balance sheet, and the income saving balance sheet to the company, so they operate it that way. If you’ve got kids and they need health insurance, they can sometimes go on the business. How much work are they actually doing? You can fudge a little bit. I would say we’re not often coming in and just finding massive areas of waste that they’re taking hard-earned money and they’re just flushing them down the toilet.

Brent Beshore (33:37):
If anything, I would argue, actually the opposite is far more common, which is, look as you get older, your risk tolerance decreases. It’s just natural. Your time horizon is decreasing, obligations typically financial and otherwise are increasing. It’s a perfect storm to take more and more cash out of the business. And so we often see businesses where they’re just run for maximum cash flow on annual basis out to the investor, out to the family that owns them. We will oftentimes, not always, but oftentimes, then come in and say, “Okay, look the leadership team, what are things that we should be investing in that we’re not, what are things that will have a great rate of return, not just a good rate of return, a great rate of return, but that you just didn’t have the stomach for or the seller said no?”

Brent Beshore (34:17):
And we oftentimes get just a big list of projects that are high return, high probability, and that really forms the basis for our opportunity costs. And it’s a beautiful thing. We love that. In fact, we love asking, what are the things that we can invest in that probably won’t show up for five years but we know are great investments? We love investing in things like that. That’s how you build a long-term durable business that moves from being a small business to a bigger business. And we’ve seen that happen in our portfolio, it’s such a beautiful thing.

Trey Lockerbie (34:42):
It sounds like you had a successful merger early on with that first acquisition you made, and I’m wondering what you learned from that as far as merging cultures together because that can also be a really tough thing. So getting the right incentives in place, but not only that, actual culture fit, how important is that with what you’re looking? How does that compare or how does that rank on the list of diligence?

Brent Beshore (35:04):
I would say, the people’s always going to be the hardest part and the area of the most opportunity, always. So every time we get involved with the company, we are very attentive to what is cultural, what are the cultural norms? Every company has norms that are unwritten, unsaid. What are the things that we don’t touch? What is the culture towards creativity and change? How do we think about compensation? How do we think about bringing on talent to the organization?

Brent Beshore (35:30):
Are we an organization that we’re okay with smart people coming on board and outshining other people? Are we want everyone to be mediocre? There are a lot of different ways. Are we hierarchical or are we very flat from a power perspective? These things are not obviously looking in, and when you get into them, you have to treat each culture uniquely. And so that’s what we try to do. We try not to standardize, we try to treat everyone obviously in a favorable way, long-term way, a kind way, but we try to honor the culture that’s in place. Then of course there are certain things that we want to move on a spectrum over time.

Brent Beshore (36:02):
So we would like them to push down decision-making more over time. Well, how do we model that behavior for the leadership team that’s in place? Oftentimes right after closing, we’ll have somebody say, “Okay, yeah, yeah, you told us that we’re autonomous and all that garbage, for real, what do you want us to do now? Say no for real, do what you were going to do next Wednesday anyway.” Then next Wednesday comes and they say, “Okay, all right, here’s the deal, Brent,” or whoever’s leading that organization, “We want to hire a $40,000 a year front office person. What do you think?” “I don’t have any opinion. You should do it if you think you should do it, and you shouldn’t if you shouldn’t.”

Brent Beshore (36:34):
We’re not going to get involved in that level of decision-making. And so what we’re trying to do is to model them the way we want them to model behavior to their staff. And so over time, what we’ll find is that people are using more diffuse decision-making. And what really what it does is strengthen the health of leadership and really provides a nice firm system for bringing up new talent. So that’s just one example of things that we try to move over time, but all of it is very gradual, we’re not trying to hit these with the steroid needle and sell them in other two or three years, we’re trying to partner with them and develop trust for the long term.

Brent Beshore (37:04):
I keep saying that over and over again, but it’s just such a different framework and different incentive structure that we think it works out great over time.

Trey Lockerbie (37:11):
I’m curious how you approach it as CEO of Permanent Equity, and not to make another Buffett comparison, but I’ve heard his method referred to as nose in, body out. So he lets people be autonomous, but he knows what’s going on. He’s very in the weeds actually to some degree, it seems like, with his companies, and he knows he might even ask questions that he knows the answer to, just to test people a little bit here and there. Do you see that in your own style at all as far as how you balance an economy versus being actually in the weeds with your generals that are in place in your companies?

Brent Beshore (37:44):
Yeah. I would say, I really think a lot of it comes down to making good decisions around what you get involved in and don’t, and that’s really where I try to take much more of a lead. If you think about two sides of the business, there’s the acquisition side then there’s the operating side. I’m certainly far more involved, not always, but far more involved on the acquisition side than I am on the operating side. Just because if I know the companies inside and out when we’re acquiring them, I’ve got a pretty good idea of what we’re coming down with. And look, we have an amazing team of Permanent Equity.

Brent Beshore (38:10):
And I say this, I’m not trying to be falsely humble, I’m not trying to say this just to blow smoke. Our team is incredibly talented, far more talented at what they do than I am now. And so when it comes to team members, I defer to them because they actually know better, they make better decisions than I do. I would say, nose in, rest of the body out, I would say my heart is in, I’m in touch often with our CEOs, I enjoy spending time with them, I enjoy it. And I always say, “Hey, you got my cell phone number. If anybody ever does something they shouldn’t, call me immediately, I want to hear about any ways that we can get better.”

Brent Beshore (38:44):
I try to maintain those relationships. It’s difficult, it ebbs and flows over time, but I care. And so I care enough though, not to know, not to butt my nose into things that shouldn’t. And if there’s a decision that’s really big existential, something major going on, of course, as a leadership team, we’re always talking about that, we’re trying to all help each other, and I participate in that. I’ve got a different skillset than everyone else on the staff. And so I would say, we’re very collaborative in that way, but I don’t try to play got you, I don’t stick my nose into things and try to make sure that things are going the way they should. I feel like you got to trust the people you have and treat them really, really well and develop enough trust where they’ll bring you stuff if things are not going well.

Brent Beshore (39:24):
And that’s often what happens. Oftentimes the conversation’s not around the 30 things that are going great, it’s around the one or two things that aren’t, and what do we need to do and to be helpful.

Trey Lockerbie (39:33):
What are some of the items of diligence that are applicable either in private markets or public markets? For example, comparing a company’s competitive moat or NPS scores, or what other metrics do you look at maybe on the private side that could be applied to public companies?

Brent Beshore (39:51):
Maybe we can zoom out a little bit. Our diligence checklist is I think 23 pages, single based. It’s a lot of questions. And to be honest, most of them are inconsequential. What we’re trying to do with most questions and diligence is just to make sure we’re not missing anything major. Oftentimes we’ll ask the same question two or three different ways just to make sure we’re not missing anything. Really the best way you can do due diligence is to decide on the three to five things that really matter and really go deep on those things. And I think this is the same way in the public markets, it’s the force and the trees issue.

Brent Beshore (40:19):
You can set up an incredibly elaborate spreadsheet and tinker with your opportunity costs and rate of capital and rate of return and all those things, look, you can make this spreadsheets anything you want. At the end of the day what it’s about is, there’s probably a handful of things that go well, it’s going to be really hard, you could screw up a lot of other stuff and the investment’s probably going to go pretty well. And there’s a handful of things, the same handful of things that if they don’t go well, probably doesn’t matter what else happens with things.

Brent Beshore (40:42):
One of the things that I battled over the years is with outside legal counsel on this. They’ll say, “Hey, we don’t want you to close on this deal for another two weeks because we need to get an appraisal to come back on the property that you’re going to lease because you have an option to purchase.” Guys, what are we talking about? In six years, we may buy this property, and at that point, we need an appraisal to make sure there are options correct? Who cares? What’s our exposure to this? We know we’re paying in our lease, who cares? And they’ll say, “Well, I’m just saying, I’m just warning you.”

Brent Beshore (41:06):
So I think it’s a lot of making sure, I think in the deal-making process, it’s always knowing where your margin of safety is. I think that’s the concept that is the most important, knowing how much margin of safety you went into on the deal, and no deal gets better during due diligence. I’ve never seen that, I’ve never even heard of it. So it’s always going to get worse, the issue is, how much worse? And over time, as that margin safety erode, you have to be really careful with not falling in love with the deal. And that’s something we talk about a lot in our office, we have to be very spark-like about how we approach this.

Brent Beshore (41:36):
We fall in love, but after you’re married. And so I think it applies in the public markets is the same. I hear a lot of people getting caught up with minutia and stuff that doesn’t matter. And I think as long as you keep your head about you and just try to look at the major factors that will influence the outcome, get those right, make sure you’re diligencing those.

Trey Lockerbie (41:54):
Talking about deal flow a little bit, I’m curious, it seems like your firm tends to play more defense than offense, but I’m curious, I’ve also heard that the best businesses are those that don’t want to be sold or are not trying to be sold. So how do you typically find deals and how do you know, do you know in five minutes, do you know in a day? When do you know really know it and have you tested your gut feeling towards the end of the diligence process and said, “This correlates pretty closely”?

Brent Beshore (42:19):
Yeah. Everything typically comes inbound to us. So we try to be thoughtful about what we put out in the world. We think about using marketing like content marketing, as being a great way to repel the wrong people and attract the right people. So the more things we can put out there and say, “Hey, this is our stance on this or that, this is how we operate,’ it’s equally important or even maybe sometimes more important to not waste our time and not waste their time on things that never would work. So we try to be very thoughtful about how we set criteria, what does our website look like? How’s it organized? How easy it’s to find any information? And then just the volume of things that you can read about us.

Brent Beshore (42:52):
It often takes people quite a bit of time to get familiar with us, but then the beautiful thing is when they come, they’re familiar and we can start on second base. We’re sorting a lot out quickly, and I’m sure there are some false negatives in there. We’ve been at this for a while, I think at this point we’ve probably seen, I don’t know, 12, 13, 15,000 deals. When you look at that many companies, you start to develop a taste for the types of things you like and don’t like, and you start seeing the movies over and over and over again.

Brent Beshore (43:17):
And so pretty quickly, I would say within 10 minutes of getting information, whether it’s a deal book or information, we request and help them put together, we can get, it’s a mosaic, No one piece of information’s going to tell you everything, but it’s kind of you’re painting a picture with it, you’re trying to make sure that the pieces fit together. And oftentimes within 10 minutes, 15 minutes, we can directionally know if there’s an opportunity to do something or not. I would say from there it’s probably another, oh, I don’t know, four to six hours of work to really dig down on the major controlling issues.

Brent Beshore (43:48):
These are the things the same things we probably dig into during due diligence and verify. And that process is really more of, “Okay, this is worth getting involved in.” And then it comes down to price, at what price? So there are often things that we will say, look, almost at no price, is it worth it? Because we think there’s just too much latent risk. And at some pricing, somebody’s going to sell you a five million free cash flow business for $10. Yeah, you should probably buy it no matter what does it come with, assume is not the big pile of liabilities with it as well. But reasonably, somebody’s not going to sell the business for oftentimes less than three times free cash flow. That’s your just baseline starter.

Brent Beshore (44:27):
And so the question is if we’d offer three times, would that be insulting, four times? And then it’s like, how much work are we really going to have to put in? And oftentimes I think sellers don’t appreciate the amount of work post closed to help transition these organizations because they know it and they do it so well themselves, but oftentimes they’re not creating the redundancies and the systems necessary to transition them properly. And so it’s a real challenge.

Trey Lockerbie (44:50):
I’m glad you brought up the multiples there because I was curious about that myself, three times, free cash being the minimum. Do you see the multiples on the private market correlate or go parallel with the private market in any way? Are they pretty different?

Brent Beshore (45:04):
They’re really different. In our segment of the market, prices really haven’t moved for the most part in a decade, probably, really, since we’ve been getting involved. Maybe a tiny bit over the last five years, but not much. It’s really hard. I don’t know anything else to say. There’s a skillset gap that keeps people out of our area of the market. And frankly, it’s just for the amount of work and the amount of risk that you have to assume. There’s just a natural equilibrium I would say. There are certainly exceptions to that. What I would say is anything that is standardized, right now, if you went and sold one-off home services, design businesses, I’m just making this up.

Brent Beshore (45:45):
Let’s say it’s doing two or three or four million of free cash flow, you’re probably going to get, I don’t know, four-ish times, depending on the quality of leadership, maybe you get five times, something like that. If that same business is an HVAC service company, you’re probably getting eight to 12 times. The question is why? And fundamentally, there are not that different of a business. Well, because one can be standardized and one can’t. And if you’ve got private equity coming in, typically the private equity roll-up strategy is you buy one platform, you pay up for it, and then you bolt a lot of stuff on this cheaper.

Brent Beshore (46:13):
So for a good quality company that they can bolt stuff onto, there’s a lot of people out there looking for that, and that’s where they’re willing to pay up. And so I would say with the exception of if private equity is rolling up that industry, the answer is pricing really hasn’t changed. If private equity is rolling up the industry, it’s going to be elevated, it’s going to be quite expensive.

Trey Lockerbie (46:31):
Interesting. Going back to price, how early on are you floating prices at these companies? Is it an ROI offer? Is it actually on the paperwork? Is there a business agreement before paperwork? How early does that get floated?

Brent Beshore (46:43):
Very early. What we try to do is we try to give them ballparks. What oftentimes we’ll say is, “We’re not sure exactly where we’ll be, but we’d be somewhere between this and this with kind of these types of terms. How does that sound?” And if they say, “That’s crazy,” we say, “No problem at all, completely get it, we hope you get what you’re looking for.” And then we’re done. And we often have those types of people, we always try to be kind and generous and leave it in a good spot. We often have these people, they just don’t know. And so look, if I was my head down for 30 years and everyone values what they have more than other people, everyone thinks their house is worth more than it actually is, well, maybe not in the pandemic, but I think maybe some people were surprised, but normally, that’s the case.

Brent Beshore (47:21):
I think if you’ve had your head down for 30 years and you’ve been toiling away in your business, and you hear at the golf course, you hear at the restaurant, somebody whispers in-ear that they got 12 times or 15 times, and it’s like, my only thing is 15 times what? The multiple doesn’t matter, what matters is the price that’s paid. And so, I would say we float price, we try to help educate them on that we’re right in the ballpark. We’re typical never offering something that should be insulting to them. If you’re insulted, it means you probably don’t understand the market. And that’s no problem, go out and find some other else.

Brent Beshore (47:52):
And look, there’s always maybe a billionaire’s grandson or granddaughter that thinks this is a great way to get involved and will write a huge check. We’ve seen that before, we’ve gotten outbid on a couple of things over the years by 100 to 300% because somebody came out of nowhere and never bought a small business before and said, “Boy, this looks a lot better than buying whatever, the Tesla stock.” And look, if that’s your opportunity cost, then yes, almost anything in the private markets is going to look more attractive with a slight difference that it’s maybe a little easier to hold Tesla stock than it is to buy and operate a small business.

Trey Lockerbie (48:23):
Looking at tens of thousands of companies, I imagine there have been, where Buffett always refers to as his mistakes of omission. Do you have any examples of mistakes of omission or anything you’ve learned from maybe misses?

Brent Beshore (48:34):
Oh gosh, yeah. This is like every year we miss out on all kinds of things that do great. That’s just part of life. Yeah, I missed out on a business early on that, gosh, we would’ve turned two and a 30 million within about 18 months, at least somebody else did. And honestly, it’s hard to play that game because maybe they brought an unusual skill set that we didn’t have, maybe it wouldn’t have worked out the same way for us. So I’m pretty comfortable in not going back and trying to play what-ifs on that side. It’s just so hard, the feedback loops are not consistent.

Brent Beshore (49:06):
Look, if we could get perfect information and know exactly what somebody else paid, under what circumstances, what do they do with the business, would we’ve done that, and then compare it to an exit sale price, sure. It just feels like the information feedback loops are so unhealthy, let’s move it that way, that I think it’s better for us just to focus on, did we make a good swing or did we not, not the outcome itself.

Trey Lockerbie (49:28):
Yeah. It’s hard to go back and learn from mission mistakes. I can respect that. Are there any other mistakes that you would say we’re a big turning point for you in your own personal learning, perhaps around incentives or perhaps around structure or price or anything like that?

Brent Beshore (49:40):
Yes. I would say going back to it, it’s all about people. People have been where we’ve made all our mistakes, who we get involved with, under what circumstances really matters. And when you’re going to own something that’s highly a liquid asset for a very long time, the people matter a lot and it’s easy to gloss over this. It’s really easy to not put the weight on it that you should, the numbers can tell a very different story than the reality on the ground. So I would just say all of the things that we’ve learned over the year’s just point in the same direction, which is, do business with people that you’d enjoy being stuck in an airport with, do business with people that you admire, do business with people who you trust.

Brent Beshore (50:16):
And if you can’t do that, then just be very careful. I’m not saying that an asset that comes attached to a person that’s not of that type is unsalable, you just got to approach it in a very different way. And that’s not something we enjoy. What we really enjoy doing is partnering with families for a very long time and helping them prosper in the process as well. We’re not trying to get the richest we can, the fastest we can. My wife and I, we’re going to give it all away during our life, our kids are going to be fine, but we want to return it back. We consider ourselves stewards, not owners. And so look, at the end of the day, if you’re not doing it just to get rich, then do it for the enjoyment.

Brent Beshore (50:49):
I love what I do. I love the people I get to do it with. It’s fun and it’s exciting, and it’s meaningful. And so what more do you want? And so I think oftentimes I feel like there’s this compromise that you have to work with people you don’t like and hold your nose, and look, we are all messy. Don’t get me wrong, it’s not like we’re perfect by any means, we make plenty of mistakes. I have to say I’m sorry a lot, and we encourage that. We encourage people to push the boundaries and to be themselves and don’t be fake and false. But I’d say, everything circles around people. And just the beautiful thing about getting older and having interacted with a lot of people is you fine-tune your taste for who you like to work with.

Trey Lockerbie (51:24):
Speaking of messy, you wrote a book called Messy Marketplace, that’s a good plug for that. What drove you to write the book?

Brent Beshore (51:31):
Yeah. There’s like five, six hours of conversations that we want to have with every seller, and we found that we were just repeating the same things over and over again, and we thought, “Okay, surely somebody has written a book that we can just pull off the shelf, give it to somebody and say, ‘Hey, would you go read this then we can talk?'” And we did a survey of like 60 books on the topic and we couldn’t find anything that we really appreciated as much as some stuff that we wanted to say. And so at the end of the day, honestly, it was selfish for us, it was a time saver.

Brent Beshore (52:06):
We put everything into a book, everything we could think of that a seller would want to know, and now we can give it to them. And it saves us a tremendous amount of time. So when somebody approaches us and says, “Hey, we’re thinking about doing this,” the first thing I say is, “Great. Let us send you a copy of the book. Please read it, highlight it, mark it up, ask questions.” It gives us a point to jump off from, then we can really jump into that seventh, eighth hour of conversation. So it saves us a tremendous amount of time and effort. And there are always things you forget. And so for us, we hope it was helpful to sellers. We’ve gotten feedback that it has been.

Brent Beshore (52:40):
In fact, it’s helped us with a couple of the deals we’ve done, sellers really appreciated it. And that’s good for us.

Trey Lockerbie (52:49):
You talked about not coming from a private equity background per se, which would mean that you’re somewhat self-taught. So I’m curious, what other resources besides your own book, what other books maybe you came across over the years that really made an impact that was very helpful for you?

Brent Beshore (53:03):
Certainly, the investment classics, from an investment perspective and understanding, analyzing businesses, it’s hard to beat the Berkshire letters and Howard Marks’s letters. I think they’re the perfect combination. I encourage people, especially on the Marks because he is written a couple of books now and the most important thing I always tell people is, 65% of the value of reading his letters, I really think there’s value in, especially earlier on, and I’m not trying to disparage anything he’s written recently, I think it’s still very good, but I think a lot of the investing principles, he really did a thorough job on early.

Brent Beshore (53:35):
So I always recommend that, and of course, all the classics, all the classics that you and all your, I’ve looked at your bookshelf back there, all the things that you’ve read. I would say, honestly, I Googled the heck out of a lot of stuff in my career. It would be hard for me to understand how I would have the career that I had before Google came along. I’m totally serious when I say this, it’s kind of a weird thing to say, because I didn’t have a playbook that I learned from another investor, I didn’t have a firm that I worked at that I was an apprentice, and so I still remember on my first couple of deals, heck, I still even do this, don’t tell anyone, today.

Brent Beshore (54:09):
Somebody will say something and I’ll be like, “Yeah, absolutely.” And I’m furiously Googling in the background and then trying to hold the conversation long enough to say, “Oh yeah, yeah, we should definitely do that.” Or, “On second thought, I think we’re not going to do that.” So I had no idea. I remember the first time somebody said, “Well, what do you think about reps and warranties?” And I was like, “I think they’re good.” And they’re like, “What?” I’m like, “Was that not the right answer?” I’m Googling reps and warranties, I’m like, “Yes, I think that we would be down the middle.” You’re trying to act like… Ultimately, we’re all trying to figure it out. I’d say Google is a good friend.

Trey Lockerbie (54:41):
I love that response and the transparency in it, and we’ll be sure to put Google in the show notes for the listeners.

Brent Beshore (54:48):
Yeah, yeah. Yeah. Spell it out to Google. Yeah. Make sure you do that.

Trey Lockerbie (54:49):
Oh, man. Brent, this was so much fun. I really, really appreciate it. It’s a refreshing approach and I’m really fascinated by the private market stuff, and this has been really enlightening. So thank you for coming to the show. And before I let you go, I just really want to make sure I give you a handoff for people to find you and look up, anything you want to share with the audience?

Brent Beshore (55:07):
Yeah. I really appreciate it, Trey. Thanks so much for having me on. We’re at permanentequity.com, super straightforward. I’ve got a contact form on there. I’m on Twitter, DM me. My DMS is open. I’m always trying to be helpful to people. I encourage people to explore this area of the market. There’s a huge opportunity set that’s out there. It’s just really hard. And so we’ve written a lot of stuff on the website that hopefully can also help investors that are thinking about maybe potentially getting in this area, to think thoughtfully about what their opportunity costs really are and how their skillset matches up.

Brent Beshore (55:34):
And so if something I’ve said sparks you, feel free to reach out. As I said, I’m always trying to be helpful.

Trey Lockerbie (55:40):
Brent, thanks again.

Brent Beshore (55:41):
Thank you.

Trey Lockerbie (55:43):
All right, everybody, that’s all we had for you this week. If you’re loving the show, please don’t forget to follow us on your favorite podcast app so you get the episodes automatically. Brent and I originally connected on Twitter, so if you want to find me, you can find me there @treylockerbie, we’d love to get your feedback. And if you’re looking to 10X your investing acumen, I highly recommend you go to theinvestorspodcast.com or simply Google TIP Finance. And with that, we’ll see you again next time.

Outro (56:05):
Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by The Investor’s Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.


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