Scott Becker, McGuireWoods | The Window of Opportunity: Healthcare and PE Insights

Sean Mooney:
Welcome to the Karma School of Business, a podcast about the private equity industry, business best practices, and real-time trends. In this episode, we have a fantastic conversation with Scott Becker, partner with McGuire Woods, and founder and publisher of Becker's Healthcare and Becker's Hospital Review, and its related events and publications. This episode is brought to you today by Bluwave. I'm Sean Mooney, Bluwave's founder, and CEO. Bluwave is the go-to expert of those with expertise. Bluwave connects proactive business builders, including more than 500 of the world's leading private equity firms and thousands of companies to the very best service providers for their critical, variable, on-point and on-time business needs.

I am very excited to be joined today by Scott Becker. And Scott, for those of you who don't already know him, and I'm sure many of you of our listeners do, is extremely well-known, not only attorney, but entrepreneur and two of the industries that certainly matter very highly to many in this world, and it's the healthcare world and the private equity world in that intersection. And maybe just to set the stage before we jump in with Scott a little bit, I had a great call with him probably when I was just starting on the Bluwave journey, and I was hoping he talked me out of it, but he encouraged me to stick with it. Scott, thank you so much for joining here today.

Scott Becker:
Sean, thank you so much for having me and to the concept of sticking with it, we're huge fans of perseverance. It's one of my favorite qualities. God bless you, and thank you for having me, Sean.

Sean Mooney:
If it weren't for a stubborn streak, I'd be in a lot of trouble in life. And it's gotten me into a lot of trouble in life. And so thank you so much. Scott, I gave you a little bit of an opener here, but I'd love to hear it direct from the source. Can you tell our listeners just a bit about your journey from becoming an attorney to an entrepreneur, to a PE-backed executive, et cetera?

Scott Becker:
Sure, sure. I spend my time in two different worlds, and they're both related to healthcare primarily. I mean, first is I'm a lawyer by background, partner at a large firm called McGuire Woods, served as the chair of the healthcare group for a long time, 14 years or so. Also served on the board at directors of the firm for a while. And the other thing that I've done, which is where people know me more from, is I founded a healthcare media company called Becker's Healthcare. And Becker's Healthcare focuses primarily hospitals and health systems. It was founded around surgery centers 30 years ago, as well as health IT, orthopedics and spine, and now several other areas, but the core of the business really revolves around hospitals and health systems and really health IT. But those are the two principle things, sort of Becker's healthcare founder, publisher, I still serve as publisher chief Content officer.

Jessica Cole, my partner in that business, is the CEO, has been the CEO for a long time now. Just does a fantastic, fantastic job. And the law firm has several great partners that have really driven and grown the practice and we overlap in the private equity practice. A lot of work in the healthcare business has been around originally in the legal side helping hospitals and health systems, surgery center chains, but also private equity funds that invest in healthcare and got deeply, deeply involved at that intersection of healthcare and private equity a long time ago. And again, like all these things, some of my colleagues and partners have taken it much further and much greater than I have, and we'll try and avoid mentioning too many people. But Jeff Cockrell, Amber Walsh, Holly Buckley, and a variety of others have really driven that healthcare private equity intersection, have done a fantastic job.

But those are my two core worlds. My background, graduate from Harvard Law School. If you wanted a fun fact about me, when I was a third year in law school, I was a teaching assistant for moot court and for advising first year students. In my first year class, I had two brilliant students, one of which was future President Barack Obama. Another one was future law professor and brilliant, brilliant lawyer Eric Posner, the son of a famous judge. And the fun fact about, it's not so much that I had them in my class, but the two of them were, and there's no fake humility here, the two of them were so much smarter than I was that when I would explain things to the class, they would often jump in and articulate, I think this is what Scott means, this is Scott's point on that, but truly were so gracious and so bright and so much better than me that the class started to look like a Saturday Night Live skit where I would tee up the issue and Barack and this gentleman, Eric Posner, would really explain what I meant. And they did so with such grace and such tremendous talent that I was like, that's it. That's a fun background fact from my Harvard Law School days. But Sean, let me turn it back to you.

Sean Mooney:
Yeah. I love the stories and as someone who kind of came up in the business world never being the smartest person in a room filled of really smart people, I can only appreciate knowing you personally, how smart you are already. But then to come in and see Barack Obama and Eric Posner in this class must have been A, fascinating, but B, probably a little bit humbling as you come into these things.

Scott Becker:
I mean 100%. What you always find is there was eight of us that lived together in law school. There was one guy who was much smarter than the rest of us. You're all in different grades, whatever you are, but in anything you do, there's going to be people that are better at it than you are. And this is life and you got to accept it. And it goes back to the flip side is you try and find your own niches where you could excel, where you're not competing against the whole world, but it's a fascinating world and there's always going to be people brighter, smarter, faster, more athletic, more this, more that. And it is what it is. It's an acceptance that we all come to at some point.

Sean Mooney:
Yeah. And I think it jives very well with the advice that I got early and often in life was if you're the smartest person in the room, you need to find a new room.

Scott Becker:
Yeah.

Sean Mooney:
And so I think that's amazing. I'd be curious, Scott, to learn more about how did Becker's Healthcare start? What was kind of the seed that you planted that grew into this extremely well-known and respected media content educational company right now?

Scott Becker:
Sure. Well, like many things, it started for a totally different purpose than it ended up. I mean I started it literally 30 plus years ago and I started it when I was first developing a legal practice and a following as a lawyer and was trying to do what you would call today thought leadership, trying to develop reputation as somebody knew the business and legal issues around at that point, surgery centers, better than anybody else. Was trying to build that brand and build a legal business around that. And then at some point into that journey, five, seven years into that journey, it was clear that this had the potential to be a business in and of itself. And that was the point at which I started hiring a number of full-time people into that business, trying to build out an editorial team, an events team, ultimately a sales team and a client management team.

And of the 10 people I'd hired or so, and this will go back to one of the books we'll talk about later, a couple of those people were extraordinary, one in particular. And then ended up at some point transitioning leadership on the commercial side at first to that person, Jessica Cole, and then growing around that. And we really ended up about 10 years into it, so go back 20 plus years ago, we expanded from surgery centers into hospitals and health systems and into orthopedics and spine. And this is also one of the great lessons in so many things, but you start with your own bias or perspective and what you think is going to be the thing. And then you have to keep your eyes open and follow things to double down on what works. What happens is we grew into the next two areas, and Jessica and I had put together a strategy a long, long time ago that we didn't want to be in 50 areas, but we needed to be in five to seven areas so that we weren't... You need to be in enough areas and deep enough that you could build out the team you want to build out at the end of the day when you just can't have the kind of talent what you want if you have too small a business.

We had an imperative to grow, but we didn't want it 20 different lines. We wanted to be deep in five or seven lines. We thought orthopedics and spine, which is a very close parallel and connected to surgery centers would be our growth area. And it grew great, but hospitals and health systems ended up exploding in growth. And in hindsight, it's clear as to why, but it's one of those things about listening and understanding and following what you're doing, understanding your own business to be able to then grow it to the next level. And I'll tell you, so many things in life are not about brilliance. They're about at least being able to follow the cues. When I first started with surgery centers, people say, oh my God, that was brilliant that you got into surgery centers so early. And the reality is it wasn't so brilliant.

I was testing three different areas. The other ones were cardiovascular and disease management and surgery centers. And the attention that we got, the opportunities we got kept on coming in surgery centers. And it wasn't that I was so brilliant that pick surgery centers, it was more I was able to pay attention. That was the one that was going great. And sort of knowing your own business, following it yourself and doubling down on that area is how we ended up really growing out the surgery center side first as one of our verticals and then hospitals and health systems, orthopedics and spine. But again, a lot of it is not brilliant. It's following what's working and doubling down on it as a constant business imperative and theory around business. Sean, let me turn it back to you before I just keep on taking up all your time.

Sean Mooney:
I love that perspective and I think it's a great lesson not only in life but business. And it reminds me when I was coming up, I had a professor in my undergrad school who had this, it was a student of Napoleon. And he had this great book called Napoleon's Glance. And to this day, I think it's a wonderful book. And his whole notion was that Napoleon wasn't a great X's and O's type general. What he was was amazing at seeing moments of opportunity where they would just open and then seizing those exactly when they saw it double down and go and get it when these small windows of opportunities opened because they close equally quickly. And so it reminds me a lot of that where you saw this opportunity and you went and you took it. And so in different verticals within your business.

Scott Becker:
Yeah. No, I think that's a brilliant perspective. And how we see this is over the course of one's career, and I think this is an important lesson for people. And Warren Buffet speaks to this concept too. Warren Buffet says, I don't have to make great investments every day. I got to make one great investment once in a while when I really see the right opportunity. In my professional life, we saw the opportunity to sort of double down in the surgery center area before it was a popular area and it was just a crazy growth area. Great fun to build a legal practice around, great fun to build an experience route. Then we saw at one point, and most of things are not by design, they sort of happen when you see them, then you see them. The digital media business, starting a digital media business 20 years ago, 30 years ago, ended up being really smart, but it wasn't smart.

We were competing with modern healthcare, one of the great print magazines in healthcare, a magnificent grains publication, great great magazine still. And we couldn't win against them in print. I was funding myself. We couldn't afford to. They were sending out to 30, 60,000 people an issue every week. We couldn't play that game. And I had editorial members, team members that were like, we have to beat them in print. And it was just by necessity we couldn't do that. But it was seeing the opportunity and obviously starting a digital media company 20 years ago was fantastic, where if you started today, there was so much noise, so many different players, so many different participants that to sort of find a spot in the digital audience today is more challenging than when we started it 20 plus years ago. We started the company 30 years ago, but really doubled down on digital 20 plus years ago.

Sean Mooney:
I think it's another great example. One of the things that even with our own team members here, we've got this big mantra of if something gets in your way, you don't just stop, you go around it, above it, below it, through it, whatever you have to do to overcome an obstacle. And it's a great example of how you did that. You had a competitor and you could just stop and say, okay, we're going to try to print and do print and we'll lose or we can do something different. And I think that's a wonderful example. And even to personalize it, I spent a fair bit of my career investing when I was in private equity and healthcare data businesses. And Becker's Healthcare is and was then kind of standard reading for anyone who hoped to be serving or being in the healthcare systems and centers world. And so to your credit, you've built something that really matters and is kind of a cornerstone in those industries.

Scott Becker:
Thank you. The great secret is building great teams that have really built it as the great secret, but we'll talk about that more later.

Sean Mooney:
Yeah. 100%. Scott, I'd be curious. You're tuned into this world in ways that many aren't. I'd be curious, what are some of the top healthcare trends that every private equity firm, every executive in the healthcare world or people merely who are trying to understand that world better should be thinking about right now?

Scott Becker:
Well, certainly. When we think about different things, we look at the following that in healthcare, margins are tougher than they've been in a long time. Reimbursement's relatively flat, inflationary costs are up, though softening one bit. Labor, really challenging across the board. A lot of healthcare still involves in-person labor or real people labor. And so there's this combination of technology and labor, but it is still really challenging on the labor side. There are looming and huge daunting shortages of physicians and nurses, physicians in the specialty area, the primary care area. We've got about a million physicians for 330 million plus people in our country. The numbers, it's just a math problem. Those numbers just don't work, even as much as we supplement technology with the eye, with everything else, but we need more physicians. Anybody who needs a specialist knows it's harder and harder to find a specialist without knowing somebody.

And that's a horrible situation to be in for a whole bunch of different reasons, not the least of which is health equity and access and everything else. We've got this huge shortages of physicians. We've got increasing proliferation of a lot of different players in healthcare. You've got the CVS, the Walgreens, the Amazons, all trying to hire doctors at a time when there's not enough doctors. You've got Optum, which is a part of United Healthcare, has become the largest employer of doctors in the country. You've got hospitals and health systems that need more and more doctors. You've got some percentage of business that's being driven by private equity driven specialty platforms and physician platforms that are hiring doctors. And there's just not enough doctors to go around at the end of the day to meet all the needs out there. Anesthesia is a great example. As we've increased sites of care dramatically, we're looking at a 30% sort of shortage of anesthesiologists.

This is just an incredibly challenging situation and that's just an example, anecdotal, but there's across the board lots of different challenges. You got more and more people that can't get to their doctor when they want to get to their doctor. You got more and more people reverting back to ERs again. I mean, just a lot of different trends. And then one of the last points I'll make about the private equity healthcare world is, and this is the same as any business that relies on leverage some is this has become more challenging from a cashflow perspective as the cost of leverage has gone up. That's put a little bit of softening on the deal environment for private equity because you're looking at, if you're borrowing $100 million for example, that used to be at six, 7%. Now that's at 10, 12%, and it depends what business you're in, whether the margins are strong enough for that extra five million, six million in interest a year or whatever the number is. But it has a real impact on the profitability of deals, the ability to keep on investing and doubling down on deals and just the amount of free cashflow that could be generated when interest rates are that much higher. Those are challenging issues in healthcare and they're challenging in everything, but they're particularly challenging in areas that are in high margin areas.

Sean Mooney:
I think what you said makes a lot of sense and it resonates on multiple levels. One is the inflation and you don't think about that in healthcare. And so I was talking with a friend of mine who's a partner at a healthcare focused private equity firm, and historically healthcare was a very kind of safe place to invest through the cycle because people would still need healthcare regardless of the ups and downs during the cycle. And he mentioned exactly what you were sharing in that it's like, well, no, we are capped on our reimbursements because of CMS and what the private payers will do, but our costs have gone skyrocketing. And so one, they've got an inflation issue, two, they've got a scarcity issue, there's even higher demand than they can serve, but you can't just grow anesthesiologists. And so you think about that and this is a really unique period that usually don't correlate with each other over economic periods. How are healthcare providers overcoming it or can they overcome particularly scarcity and inflation commingles at the same time?

Scott Becker:
Yeah, no, those are really challenging issues. I mean, the systems have gotten better over the last year at not relying so much on temporary workers or on staffing firms. And so it's at least brought the labor costs down to a more reasonable spot. But there was a period of time where they had no way around it. They had no way of being fully staffed or well staffed without enough outside staffing agencies and help and nurse help and so forth. They're trying to bring those things down. But in general, it just is a tougher margin business than it was a few years ago. I mean, government now is 50% plus of pay. That used to be a business where you were cross subsidized by commercial payers. Commercial payers make up a smaller part of the equation, and the commercial payers are stronger and have more negotiating leverage than they've ever had.

I mean, four of the largest top 20 companies in America by revenues are four of the largest payers. United Healthcare, CVS are fifth and sixth. They go back and forth in terms of two of the largest companies by revenues in America, right after Walmart, Amazon, Apple, et cetera, and ExxonMobil, depending on what's going on with oil prices that year. And then Cigna and Elevance are also two of the largest top 20 companies by revenues in the country. And more and more the big payers are able to have a little bit more control like Medicare and Medicaid does over reimbursement. Now the flip side is, there's just not enough doctors to go around. We've got this challenge of this tremendous scarcity of physicians that's going to get a lot worse over the next several years, I'm afraid.

Sean Mooney:
Yeah. It's real interesting, Scott, in that they're in this pinch and how do you get above it, around it, below it, what we were talking about and we're way too in the early innings for this to see how it's going to play out, but I'm really curious to see how machine learning AI plays into it because they're tremendous efficiency tools. They're not necessarily better than what humans can do, but they can make processes more efficient and faster. And so I almost think about radiology. If you're a radiologist 10 years ago, you would look at every cell and say, is that cancer or not? And then they put the robots and they're working side by side. Now the systems can reconcile the easy stuff and the radiologists spend time where their superpowers are needed most. What's your thoughts on that in terms of this is probably playing forward 10 years versus one year?

Scott Becker:
Yeah. No, there's lots of spots where that's already really making an impact. If you look at things like accounts receivable, revenue cycle management, more and more the intervention of artificial intelligence, machine learning and so forth and so on, and so, so important. And partly because hospitals and hold have become reliant on these huge sort of back offices of revenue cycle participants and one, they went through a period time where they just couldn't staff that if they wanted to. And two, a lot of those jobs are relatively lower wage jobs where the turnover was tremendous. And so thus the quality of efforts became more challenging. And you've got places that have 1,500 employees, they can get down to 1,000 employees with using AI and those 1,000 employees, as you just said, much more triaged on the more challenging cases, the places where there's money to be recovered and so forth.

And I think you'll see more and more of that. I mean, everybody's still trying to figure out where it's going to play into the physician diagnosis and treatment role. I mean, we've got a totally different issue, which is medical school is still designed pre-internet, and so we turn out doctors that are very well-trained, but at a tremendous cost of those doctors, tremendous cost of the system, and tremendous debt too. I mean tremendous cost physically and mentally as well as cost. And a specialist isn't out school until they're in their early thirties and a huge percentage of them are part-time by 40 or 50. You've got this horribly inefficient medical school program and residency training program and so forth that is a challenge too. But this mix of technology improvement, education improvement, and there's a lot of vested interest that slows some of those things down.

Sean Mooney:
It'll be really interesting. It's a very good point on the medical school system because they're training people to be their best possible version of Doogie Hauser or Dr. House or you name the medical genius TV show or movie, and now what will be coming up next is they're going to have these amazing copilots that will help do all those kind of brain sequences that they would show on TV are really going to be possible to do these amazing correlations as a copilot. I don't think you could ever turn them over to the robots, at least in our visible future. I think that's a great point. And maybe turning the page here a bit. I'd love to get your perspective on what's going on in Washington DC, what's going on particularly as it relates to the private equity industry and the perceived role that's occurring. And so I'd be curious why are regulators getting engaged? Where are they getting it right and wrong, et cetera, specifically as it relates to private equity's role investing in this part of the economy?

Scott Becker:
Sure. Well, the tone and the amount of extent of Washington DC regulators, Senator Warren, other senators attacking private equity involvement in healthcare, this tends to go up or down at different times depending on whether they think it's a political hot button issue or not. One of the old stories is when for certain politicians going after capital interest is a fun thing to do, it stirs up their base and so forth. And periodically they're able to sort of stir up their base by talking about private equity's role in healthcare. You had mentioned to me a stat that I think private equity platforms of some sort or another might employ 5% of all doctors, 4% of all doctors.

Sean Mooney:
Yeah.

Scott Becker:
A relatively small amount of the big scheme of things. I mean, you have two things that happen with Washington, tech, and private equity. Periodically you have a very visible blowup where a private equity funded firm had been way over leveraged and ends up in financial trouble. But that's not unique to private equity. We get plenty of health systems that get upside down without anything to do with private equity. I mean, just is the way of, if you have too much debt, we always say categorically that kills nations, families and companies. And so people overdo debt, they end up in trouble periodically, and it is part of the private equity tool book to use debt. Now, whether that's a Washington issue that they should get involved in it or not, who knows. I mean, the second thing that happens is we get to a period periodically where healthcare is talked about very much so as it's 18, 19% of the economy, we spend more on it in our country than many other nations do. We don't necessarily get better outcomes than other nations.

People look at that and then it becomes sort of a tangent to that to go after to the private equity funds. And part of the thing that's happened in DC is the Medicare Advantage thing is a great example of this, and I'll go onto the thought in a second. Medicare Advantage is something that is now more than 50% of Medicare is in Medicare Advantage. The stats on Medicare Advantage generally show it's more expensive versus less expensive. It's not necessarily better care hospitals, health systems depending on where they're at, like it or hate it, but it gives them less control over their patient population and more control of the Medicare Advantage plan. What happened with Medicare Advantage, president Trump ended up being pro-Medicare Advantage, and this just goes to political power in Washington we're going to talk about in a second. President Biden started off being anti-Medicare Advantage. He came out originally as anti-Medicare Advantage. And then what's happened is the insurance companies are so powerful in our country and they're more powerful than ever.

I mean, we mentioned it a moment ago that four of the 20 largest companies by revenue in the country right up there with Apple and Walmart and Amazon are four of the biggest payers. So many dollars worth of those payers. And those payers, somehow or another, the DC crowd got to President Biden. President Biden turned his position 180, became very Medicare Advantage. Now we're at a spot where Medicare Advantage is more than half of all Medicare patients. And the data, at least so far, shows it's more expensive versus less expensive. People are always talking about, well, we're going to bend the cost curve sometime in the future. I don't necessarily see that. You get more rationing, you get more control of where people can go. But are we really bending the cost curve? Not so much, but we do have incredibly powerful insurance companies and it is what it is. But what happens is the insurance companies, and it's not so much, there are real problems with solving DC. We don't have doctors and nurses, let's focus there, but it's easy to go after PE funds.

It's hard to go after insurance companies because they're so powerful. The PE funds are multiple different levels, of course, but mostly at the end of the day, insurance companies are incredibly well-connected in DC and private equity funds are not that poorly connected either. They end up sooner or later generally fending through most of these things pretty much okay.

Sean Mooney:
I think it's really interesting what you pointed out, and as I think about healthcare, and I have a much more limited understanding of that world, but when I reflect on my past days spent in it, I would always think about healthcare as this multi-dimensional game of whack-a-mole. And so there's multiple levels, and CMS will whack one mole and another one pops up and another one pops up and you can't, but at the end of the game, it's still a zero-sum game. There's winners and losers, but the size of the pie really can't get much bigger than it is already, even though somehow it continues to find ways to do it. And in that kind of environment, private equity, the biggest challenge they have is the first word in private equity is private. And so they don't use their words, they don't explain what they're doing. They all just try to keep their heads down because they don't want to get whacked on the head by whomever's got the club at the time. And today, most of the people still think about this industry through the lens of a 1980s movie with Michael Douglas and Charlie Sheen. And so that's something that gets them in a lot of trouble over time.

Scott Becker:
Yes. No, I think it's evolved a lot just because private equity has become so prolific and so intertwined in so much of American business and American everything, including where insurance companies, pension funds, everybody else has a portion of their endowments or pieces, colleges, part of their portfolio invested. It's become a little bit less opaque, but it's still fairly opaque and it still is periodically vilified.

Sean Mooney:
Yeah. I mean it's real interesting. Whenever you see these things, I try to do a little bit of my own primary research, and you try to read both sides. I came across one study, which was done by the Medicare Payment Advisory Commission or MidPAC. And they're this independent federal commission for everyone else that was established, I think in 1997 to advise Congress on Medicare issues. And so they did a whole chapter on private equity, and the first thing they said, as you said earlier, it's a pretty small part of the healthcare system in terms of where they're playing. It's 4% of the hospitals, 11% of the nursing homes. And then what they said is we looked at all the data, we looked at the outcomes, and if you look at everything, the cost of their care, their patient satisfaction, their staffing levels, the quality of care, they're all kind of materially the same as everyone else.

And so it's hard to throw them under the bus because they're not necessarily better, but they're not worse than others. And then coming across a study by what they said they are doing, and what an NIH study said is, well, what private equity is doing is they're actually bringing care to lower income and underserved populations in rural areas where healthcare doesn't exist. That's kind of what private equity does is they look for opportunities where there's white space and they go there. And so are you seeing anything in terms of that regard, just bringing it to different spots maybe that your large healthcare system, you don't want to serve rural Kentucky?

Scott Becker:
Yes. I mean, you see all kinds of telehealth, virtual care platforms that private equity has or venture capital has funded. You've seen different types of clinic, different bites at the apple of trying to take care of what we think of as health equity issues, meaning there's not enough care provided in rural communities, not enough care provided in urban communities. And some of those are successful, some of those are not successful, but it's another piece of the puzzle of trying to figure out other ways to solve America's healthcare challenges. And so whether the venture capital funding of all kinds of different initiatives, the private equity investment in companies that already have some profits or some revenues, but either way, it's a critical part of the ecosystem of trying to figure out what can work and what won't work. And like anything else, there's winners and losers in that world as well. People that do it really well, people that don't.

Sean Mooney:
Yeah, and I think that's a good point. And one thing that I'll be absolutely clear on is say private equity is not all good at what they do, but they're not all bad. And the truth lies somewhere in between. And so I came across this great term, I forget who I learned it from, but it was called selfish altruism. And so a lot of what they're doing is 100% selfish. They're trying to generate returns on behalf of investors, many of which are pension funds, many of which are very wealthy families, and they're bringing healthcare to different places out of selfishness because they want to generate returns. But within that selfishness, there's actually some altruistic outcomes. And I think you see some of that in different areas where people aren't served and they're finding ways to overcome, to go around, go below, because that's where opportunities haven't been before to generate selfish but good returns and outcomes for other people. And so I think it's like with everything, we tend to polarize the world and you raise a lot of good points of the truth usually lies somewhere in between.

Scott Becker:
Yeah, no, that's very much how we view it, 100%. I mean, they do good, they do bad like any other business. If you believe in capitalism as the core best economic system in the world, then private equity is a part of that. And it is what it is.

Sean Mooney:
Yeah. I think maybe as a transition here, Scott, I'd love to delve a little bit deeper into kind where we started. You talked about starting the business, and I think your background is exceptionally unique and rare in that you came from the legal world and then you had this solve your own problem and you're going to kind of build your own kind of career within legal, but resulted in this amazing company that is well known and well regarded in an industry that matters. And you founded this company and then you brought in a private equity firm to help you along that journey at some point. I'd be curious, as you look back on that journey, how would you approach the same process today and how would you recommend entrepreneurs consider that path as well?

Scott Becker:
Sure. I think it's a great question. At some point, if you're in your entrepreneurial journey and everybody's different. I mean, I had grown up not in a particularly wealthy family, and so I ended up at some point with most of my net worth tied up in the company that I had founded. And so at some point, I'm a big fan of de-risk when you can just because I've seen enough things happen, seen enough people go bankrupt, seen enough families go bankrupt, seen enough challenges throughout the world, stuff like that, that at some point I got to a spot where I had all of my net worth tied up in the company and at some point wanted to do a couple different things. Wanted to de-risk some, take some money off the table to make sure my family was safe, make sure I can get my kids all through college and one at med school and other stuff right now and all those kinds of things.

And at the same time, we wanted more freedom to grow the company. And so for us, private equity ended up being a good answer, and I think most founders have somewhat of a love hate relationship with private equity, which is a whole nother discussion. But when you go into this with looking at a private equity transaction, like three or four pieces of advice. You have to sort of know what you're trying to accomplish. We were trying to de-risk and grow. We sort of knew what we were trying to accomplish. We didn't have a need to do anything. We had a desire to, which is a far better place to be. Second is, as you go through anything that you're going to do, you got to make sure the core business keeps on running well. There's nothing worse than getting yourself wholly involved in a process and having the company go in the wrong direction.

You have to double down. You end up with multiple full-time jobs during their period of time making sure the company's going great, we're going through your process. Third, you probably almost always need a good investment bank, a good advisor, et cetera, et cetera. People don't realize how much better they know the business in that world than you do. I was a lawyer by background, a CPA, a Harvard lawyer and practicing lawyer in doing this, and I was blown away by the difference in understanding of the market that the investment bankers had than I had. And you think you know a lot, but you don't have any idea how much you don't know. The people on the other side of the transaction do this completely for a living. You're doing it once or twice or three times in your life. You might be doing it as an advisor to others, but it's very different doing it for your own company, your own business.

You need a great advisor. Fourth, you have to understand how you're going to manage the company going forward. For us, Jessica Cole, our CEO is still in charge. Our private equity fund, we ended up with a private equity fund, good people that we trusted. No private equity fund is perfect, but overall good people to work with. And so you really look at when you're doing a transaction, how are you going to work at the people afterwards? They line up with you in terms of your personality, what you're trying to do, what you're trying to accomplish. And it's never perfect, but it's been in the big scheme of things, really good is the offer of the value that you're looking for. It doesn't have to be the perfect offer, but it's got to be a rational offer. The third is, can they close?

Will they close? Do you trust that they'll do what you want them to do and get from point A to point B in the deal? Fourth is are you relatively aligned on management going forward and what's going to look like going forward? A number of those kinds of issues. And then fifth is, if you're not used to having debt, if you bring in a private equity partner, you're going to probably have to get used to managing a company with some debt on it. And I know for me and my partner who's now CEO and president and really the leader of the company, that was a real experience learning to live with a lot of debt when we had no debt forever. But it also gave us freedom to double down on some of the things that were working great or economically we might not have felt as free to do so beforehand.

Having a private equity partner, like anything, it has to be a good partner, people that you would live with. I've been fortunate that I've got a magnificent CEO partner in the leadership of the company. The company's gone great since we brought in private equity several, several years back. That helps a lot too because it avoids a lot of the tensions between private equity and management that you can't have because we've had a great, great leadership team, Jessica, Katie, Abby, Emma, Scott Jones, a whole lot of people. Margo, a whole ton of people. Editorial leadership too, Laura, Molly, Mackenzie, Brian, a lot of people that have really driven things well since, and so that's helped a lot. Haley and Allie too on the sales side have driven a lot of the sales team, but there's just a lot of things have gone well. It makes it a lot easier to manage the relationship. Imperfect, but overall it's been a real plus for us.

Sean Mooney:
Those are really great pieces of advice as I think through them through the lens of being a longtime former PE investor. But now as an entrepreneur who likely will at some point have private equity as an investor in our company is a number of things where I say, you've got so much wisdom that people don't think about. One, it's be prepared for a gauntlet, it's going to be a gauntlet. You got to be able to run fast. And so what I say is do what PE firms do is they're always bringing in an extra interim CFO to help with the load because it will crush your CFO no matter who they are. And then number two, what I really liked you thinking about is bringing in good advisors. When I was on the other side, where I would see people really go off the rails is their friend who was a real estate attorney is their deal attorney and they didn't even want to use an investment banker or they got someone who wasn't a good fit that they met at a cocktail hour at the country club.

And then, so I love how you pointed out bringing really good people. They'll be worth their weight in gold literally and figuratively to get through that process. And then third, I think the thing that was really, really insightful that anyone will benefit from is this whole concept of alignment. Make sure before you slip on rings, you're aligned with your future partners because it turns into a marriage that's going to last quite some time, whether successful or not. And so thank you for that advice. I think it's really, really helpful.

Scott Becker:
No, I think the alignment is so, so important. We looked at several different private equity funds. We came down to four of them and we ended up with one that we felt was the right alignment for us. And are they perfect? No, but they're very good people. We trust them and they're very, very good people. And they've been great partners. I mean, in the big scheme of things, it's always challenging as a founder when you turn over control, this is always a complicated thing for founders. Most people recognize that at some point that that's a complicated transition. Same as any leader who transitions power some, those are complicated, emotional, financial, et cetera things. But in the big scheme of things, they've been wonderful partners and it was a good process and we had sort of been through it pretty hardcore. We knew some people connected to them too.

But to your point, there's nothing worse than when somebody says to me, I know this guy from my club. He does this stuff. I mean as opposed to, and we did what everybody should do is we went through an interview process with several investment bankers. We found out who the right investment banker was with the private equity funds that we came down to. We did a ton of different checks of people that had worked with them trying to understand it. And you have to do that diligence on your side to make sure at the end of the day, as long as you get what you expect to get, it's fine. But if you do a deal with somebody and they're very different after you do a deal, no good, but as long as you understood and you always learn when you do this. You always learn things that you would've known before. But as long as you're dealing with good people, you sort of figure it out ultimately.

Sean Mooney:
Yep, great advice. And I only know how to speak through metaphors and cliches. I grew up in Texas, and so I think about it as a younger person and you're starting to date, it's like, don't marry the first person you go on a date with. Go around and meet people and learn things and calibrate in your mind. And then just like in a marriage, every day it's not going to be perfect. And I'm sure my wife will very fairly tell you that most of the time I'm pretty good, but a lot of times I'm just a total pain in the neck. And so that would be how I process our conversation in my mind. Maybe as a great little transition here, no doubt you have collected a lot of wisdom and takeaways and things you've read, and one of the things I think we both would agree is people we know who are really interesting and successful, they read a lot and often share books with each other and learn from the wisdom and mistakes and opportunities and insights of others. Scott, I'd be really curious to see what's one of maybe your favorite books that you've read over time and some of the takeaways that you'd share.

Scott Becker:
Sure. I'll point to two books, and one of them ties into another question that we're not going to focus on. The two books are, one is Good to Great by Jim Collins. Jim Collins is one of the eminent business authors of our time. But what he really focused on, he had this concept that not so much the culture, each strategy for lunch, people all talk about is become the most overused cliche in the world, but not untrue but overused. But what he said is that people in teams are more important than strategy because if you could build the right people in teams, then you could pursue a lot of different strategies that work. If you put the right teams in place, the right people into place. I'm a huge fan of Jim Collins' thoughts around that. He was the most articulate on the concept and it resonated with what I was doing back in the day in the waft from the media company, which is trying to build great teams of people and keep those people and double down on those people.

And so I love that concept. We think so much about businesses doubling down on great clients, great people, great niches, those three concepts. And Jim Collins was probably the most articulate about getting the right people with you and sorting out people is more important than anything. And we had some real hard times in doing so. I mean, when I took a very young leader and put her in charge of the 10, 20 people I had hired already, there was a lot of rebellion to that, but this was somebody that's outperforming everybody and we put her in charge 20 years ago and probably half my people quit within a month or two because they were like, I'm not working for that young woman, I'm just not doing it. And those were men and women that just couldn't see it.

But what happens is we then sorted out people, built a great team, great leadership in all different areas, and we talk about often the three phases of an entrepreneur, and I'll just touch on this for one second, 30 seconds. The first phase is you're doing everything yourself. You're the chief bottle washer, cook, everything. You're doing everything. The second phase, you're hiring lots of people, but they're not necessarily better than you and you could still leverage yourself. You still get to a certain spot by hiring lots of other people that are starting to fill out positions and you could grow. But the third phase of an entrepreneur is when you've hired people in every key role who's better than how you could do it yourself. And this is when companies can grow on top of companies and can grow at a different level because it's no longer reliant upon a top-down vision to the founder.

It's now lots of people self-actualizing and growing and thriving. We view those as three phases for an entrepreneur. Jim Collins, he might not have articulated that, but he articulated a ton about both leadership and about the importance of building teams. That's one book. The second book I'll point to is recent book I've been reading or finished recently by a Dr. Peter Atiya and Peter writes a book called Outlive. And so one of the things, and you and I are probably on the same vintage, I'm probably a little bit older, but if you were going to talk about one thing I would tell my younger self is how do you make physical and mental health a priority for life. That I tell my children they got to be constructive adults and they've got to make sure they maintain themselves as physically and mentally healthy.

And whether it's the nutrition and the exercise and the other things, that there are so many things that you can do that are so important to your longevity, both as a professional because you see people as they keep to themselves. I'm one of these people who's in good shape, not great shape. I can never quite get to that perfect spot where I'd like to be, but it is what it is and it's a struggle for me. It's a war to stay in reasonably good shape, but you're so much healthier, more effective professionally, and you're so much healthier personally. And Peter Atiya, Dr. Atiya talked about this concept of lifespan versus health span. And the concept is you might live to 85, but if your body and mind is gone at 75, your last 10 years of life are often going to be horrible. He talks about trying to get health span your health to match up as well as possible with your longevity and your lifespan.

And I think the concepts a brilliant concept and he talks about the four different big cause of death and deterioration and how you sort of fight those with nutrition, with exercise, with taking care of yourself mentally, all those kinds of things. Those are two books, Outlived by Peter Atiya and then Good to Great and the different series of books by James Collins that probably continue to resonate with me, both one more recently, but it's something that we think about all the time. And one more longevity wise that I've talked about is the Jim Collins books.

Sean Mooney:
I love both those. And one, Jim Collins, Good to Great. That is, I think, probably the best cover to cover business book out there. And so he has so many things that he gets so right. And we give every member of our team, it was four and now it's five books when they start, and Good To Great is one of the big four that they get. And I think if you could read that, that's 80% of your MBA right there. And Don't Spend the Money.

Scott Becker:
Sean, what are the other four? What are the other four books?

Sean Mooney:
The other ones are The Goal, which is a concept about constraint management and lean thinking. And so how do you manage processes? The other one is The Lean Startup, which is this great idea, how do you start something new? They came up with this concept of the MVP. And so it's getting businesses and doing something in its early form and then getting to customers as soon as possible and they'll help you refine it versus letting perfection be the enemy of really, really good. And then the next book that we give out to everyone is Who Moved My Cheese, which is this great parable about mice navigating through life and dealing with change in your lives. And then the last one is one that was recommended, someone else that I just gave everyone a team and it'll be one of the five books going forward, which is called The Boy, The Mole, the Fox and the Horse.

And it is this really, really great book about life and change and fear and togetherness and navigating through scary things and coming out the other side better and realizing that life's a journey, not a destination. And it's a children's book, but I love it. Those are the five that we give out, but I'm always looking for others. And one book I will absolutely read probably this week is Outlive because my doctor is telling me I need to up my game for the very same things. He's like, "Listen, do you want to be on a glide path into your older years or do you want to come roaring in," and let's just say I'm on a glide path right now.

Scott Becker:
And that's the concept and it's hard work and it becomes a bigger part of your focus as you get older. But paying attention to it when you're younger, it's like investing early, it pays great dividends. It's similar to not letting your physical and mental health get too far out of line. Many of us do in our thirties and forties, been working so hard on growing our businesses, growing our families, doing those kinds of things and just trying to make it a bigger, bigger priority. And it's unfortunately another full-time effort to try and stay physically and mentally healthy over the long run.

Sean Mooney:
I'm interviewing actually personal trainers this week, and so I'm going to try to blitz read that book first to equip me.

Scott Becker:
That is fantastic.

Sean Mooney:
I'm reigning in the chaos as they say.

Scott Becker:
It's outstanding. I love it. Love it.

Sean Mooney:
All right. Well, Scott, this has been incredibly insightful. I've learned a tremendous amount about the healthcare industry, much more about your backstory than I knew from our earlier conversations, and I think I'm just a better person for this conversation. Thank you so much for sharing your insights, your wisdom, your perspectives here.

Scott Becker:
Sean, what a great pleasure to visit with you. Thank you very, very much for having me. What a pleasure. Thank you.

Sean Mooney:
Absolutely. Special thanks to Scott for joining. If you'd like to learn more about Scott, please see the episode notes for links. Please continue to look for the Karma School of Business podcast anywhere you find your favorite podcasts, including Apple, Google, and Spotify. We truly appreciate your support. If you like what you hear, please follow, rate, review and share. It really helps us when you do this. Thank you in advance. In the meantime, if you need to be connected with the world's best in class PE grade professional service providers, independent consultants, interim executives, or anything else, give us a call or visit our website at Bluwave.net. That's B-L-U-W-A-V-E.net, and we'll support your success. Onward.

Private equity insights for and with top business builders, including investors, operators, executives and industry thought leaders. The Karma School of Business Podcast goes behind the scenes of PE, talking about business best practices and real-time industry trends. You'll learn from leading professionals and visionary business executives who will help you take action and enhance your life, whether you’re at a PE firm, a portco or a private or public company.

BluWave Founder & CEO Sean Mooney hosts the Private Equity Karma School of Business Podcast. BluWave is the business builders’ network for private equity grade due diligence and value creation needs.