Private Equity Spotlight: The Role of Digital in Reshaping Business with Darren Herman

[00:00:00] Sean Mooney: Welcome to the Karma School of Business, a podcast about the private equity industry, business best practices, and real time trends. I'm Sean Mooney, BluWave's founder and CEO. In this episode, we have an amazing conversation with Darren Herman, Managing Director with Bain Capital. Enjoy.
I'm super, super excited to be here today with Darren Herman. Darren, thanks for joining us today.

[00:00:40] Darren Herman: I'm excited to be here. Yeah. Long time listener. And First time caller, as

[00:00:45] Sean Mooney: they say. I like that. That's a good one. For those of the younger generation, there used to be this thing called the radio and people would call into it.
It was an amazing, and they still have it. So Darren, I appreciate the reference. I'm looking forward to digging into the conversation. The way we love to kick these things off is to get a little bit of your backstory. You know, one of the most interesting things about the industry that we primarily cover the private equity industry is that it's.
Now, one that has all sorts of on ramps and it has people from coming in all these different directions and almost in some ways serendipitously finding their way there is business builders. So I would love to hear your story, Darren. How did you kind of come up? How did you get into this industry?

[00:01:29] Darren Herman: It's maybe unique.
I like to think I haven't heard much of it. I was in industry. I was coming out of a Silicon Valley based executive tech company position, and I was Putting together a roll up of a few businesses that I wanted to merge together and run within the advertising, marketing, and technology ecosystem. And I started to talk to a whole bunch of private equity firms and some family offices.
And after one meeting with Bain Capital, they asked me to come back and I came back and came back a third time, came back a fourth time. One of them followed me out to the elevator one day and said, have you ever thought about a career in private equity? And I looked at them and I was like, this is not what I'm pitching.
I'm pitching for you to fund my advertising technology and marketing. Roll up and they smiled and said, well, maybe you could do it here, but we think you'd be great on the inside. If you were to consider a position as part of the fund and that never crossed my mind whatsoever. And that gave me a lot to think about on my M track back from Boston to New York, where I was living at the time.
And as you can imagine, a lot of thoughts through the head and. Fast forward eight years later, I'm still here.

[00:02:46] Sean Mooney: That's an amazing story. It does not happen often where they flip the times like, Hey, why don't you just join us? Usually there's a line of people out the door trying to get in and you're hoping to beat the odds.
That's got to be tremendously a flattering and be kind of a wow moment. I think they just offered me a job.

[00:03:07] Darren Herman: It was. It's unbelievably flattering and being most humble about that, but it's not something I ever set my sights on a long time ago. I had a lot of experience in venture. I had a lot of experience in angel investing and then operating, but I never really considered being a private equity investor.
I'd worked with lots of small and mid market, even high cap funds and organizations, but never on this side of the fence. And so this was completely eyeopening and a lot of fun.

[00:03:36] Sean Mooney: I love that. If we were to even roll back the tape a little bit, what was it that kind of led you to say, I'm going to do this kind of roll up inferred listeners who are newer to the industry?
This is a situation where you go to a fragmented industry and you're going to put a bunch of companies that probably are better together than apart in a more of a consolidated thesis where they have more scale so they can displace more water and reinvest into the businesses more easily. What was kind of that nugget that said, Hey, I'm going to go from.
Operating into actually putting together a thesis to bring a bunch of companies together.

[00:04:08] Darren Herman: You have to sort of rewind a couple of careers ago, I had spent about a decade on Madison Avenue and I was at one of the most innovative and entrepreneurial publicly traded holding companies at the time was called MDC Partners.
Now part of Stagwell, I had fortunate to see sort of the evolution of marketing and advertising and all sort of the technology that was coming to be part of that, thus giving it leverage for those 10 years. And we had bought lots of agencies and we'd invested in lots of technologies and I had started a bunch of businesses and.
I had a good sort of grasp at the ecosystem at the time, and it was also at a time where your competitive set wasn't just Madison Avenue. And so a lot of times, if you're running a large advertising agency, you think your competitive set are other large agencies. These days that's not true. You have large management consulting companies coming in for those dollars as well.
You have large systems integrators coming in for those dollars too. Everyone wants to penetrate the chief marketing officer office. And we saw that writing on the wall and we're building for that. So for me, the roll up actually was I wanted to create a holding company of the future and advertising holding company in the future.
But I believe that that advertising holding company doesn't look like the advertising holding companies of yesterday and they look very different. And I'd say the key thing is. How do we improve our margins from an advertising and marketing business? And not just think of the typical agency margins of 18 percent or plus or minus 15, 18%.
And how do we double those? And that gets into a whole bunch of different ways of leveraging technology in order to do that. That was the business. And that was what we were trying to do. And clearly something resonated here with them to get excited about me and bring me on board.

[00:06:07] Sean Mooney: Well, you said there made me completely understand why they said, how would you come join us Darren?
Because. The art of private equity today, as we all know so well, it's not what an industry or a company is. It's what it could or should be. And that's the creating the alpha in every investment. And so I can see that when you're sharing this, I said, Oh, that's your mindset. That's how you look at the world.
Like, let's play chestnut checkers and think three, four, five moves ahead.

[00:06:34] Darren Herman: That's been my role here. My role of my entire career has been taking this world of digital, which is always changing itself every five years. And translating that into what does that mean for my business today? How do I think about this evolving world where digital is not a channel, but a fabric, it's a fabric that enables all different functions of a business supply chain to marketing, to commerce, to operations, et cetera.
And how do I interpret what's happening in the world in digital and then enabling that so that we, as an organization have competitive advantages. Yes. Increase our leverage and are able to create value even more effectively. And that's kind of the through line to what I do here at Bain Capital today.

[00:07:24] Sean Mooney: And we're going to dive into this for sure, because even if you go back 10 years ago, digital was somewhat the realm of large companies with big budgets. Today, it's a must for every single company. The pace of change that is coming to us. is going to be mind boggling, but for those who run towards it, it's going to be amazingly value creative.
And so I look forward to getting to this part of a conversation because it truly is a must for every company now. So hopefully our business builder listeners start really turning their ears on, on this part coming up. But before we do that, I always love to ask another question and really just to get, you know, you a little deeper.
So Darren, One of the things I love to ask is, we'd know you better if we knew this about you. What's one of those things we'd know you better if that's not on your LinkedIn page or your bio, et cetera?

[00:08:14] Darren Herman: It was maybe on my LinkedIn, but I have this saying that we turned into something bigger, which is play well and do good.
And I kind of live by that. Play well, it's like show up every day and bring your best, as best as you can. Whether that's on the field, on the courts or in the office or the boardroom, and then also do good. In this world, it's not hard to do good. 17 years ago, we created this group called Silicon Alley Sports, which is a bunch of tech executives and agency supporters and sort of the digital ecosystem of Silicon Alley in New York coming together to play sports and raise money for charity.
And that's been going on for 17 years. If you see any of our shirts or. We have our hats, or if you go to our website, you'll see play well, do good. We have a great time and we donate all monies to charity after all of our events. And so that's been 17 years and running. We've got golf, we've got tennis, we've got pickleball, we've had paddle tennis.
There's a lot. Unfortunately, I'm not a full time sports programmer. I have a day job, and so we can't expand to all the sports that we want to get to, but our Board of Advisors has been super helpful in expanding out over the years, and all of us have real jobs. So this is all sort of nights and weekends fun.
So that's been great. On the other side of do good, I sit on the Board of Trustees at the Tremont School here in Massachusetts. Which is both a neuro typical and neuro divergent group of children, and the school caters to all and any of the above. And so that's been a big learning for myself. I don't know much about education as it pertains to running a school, but I've learned a lot.
This will be my second year on that board, and I have a son who's neuro divergent. And so I've spent the last 16 years learning all about him and What gets him going and it's fascinating and he's brilliant in so many ways. And so how do we get the magic of the school out to the world? And that's what really gets me excited.

[00:10:16] Sean Mooney: I truly love both of those, but also the overriding philosophy that you have of play well and do good. And so for our listeners, you can also tell one of the many reasons why we asked Aaron to join us for a podcast called the karma school of business, where we just, you Do good things with and for good people and the world seems to spin a little faster in the right direction So a thank you for doing that We'll put some links in the notes for those of you who'd like to learn more about either of those organizations and support their cause But I would love to dig a little bit more into Silicon Alley Sports, because this is something that we became aware of kind of serendipitously earlier this year and got involved with and started supporting, and it truly is an amazing organization.

[00:10:59] Darren Herman: Yeah, I appreciate that. Your support has gone a long way, and we're super appreciative of that. What's interesting about Silicon Alley Sports is you never know who's coming out every year. So it's one of these events, our golf and pickleball event, which is our flagship, that It's an event where you sign up as a single, where I've gone to plenty of golf events and you're buying a foursome, or you go to plenty of tennis events and you're buying a doubles team.
Here, the only way to come is you sign up as a single and we pair you at the event and you have no idea who you're going to be paired with before the event. And the secret rule of Fight Club, or as Silicon Alley Sports, as we call it is, you don't talk about it. And so you send us an email saying, Hey, I hear X and Y is coming to the event on whenever we make sure that you're not paired with that person.
Our goal is for people to meet new folks and have a great time. And we try and make all of our teams equal, both from a networking perspective, but also from a scoring perspective. So everyone has a chance to win the trophy at the end of the day. It keeps people coming back and I guess as long as we are able to create value for folks by keeping a solid level of participants that people want to network with and also making it fun and not taking yourself too seriously on the tennis courts or on the golf course or wherever.
We keep having people come back. And so for 17 years, we've been pretty much sold out. It brings new folks in each year. And the only thing that keeps people from not coming back is maybe the date there's a board meeting, or maybe they've got vacation travel or something like that. But we keep filling it up and we have a great time doing it.
And we love that BluWave has participated with us this year and really come and put your brand behind it. And it's been fantastic for us. So thank you.

[00:12:46] Sean Mooney: We're fortunate to be able to do a modest amount that we can to help. And I'm curious this year, what was the charity that you're supporting?

[00:12:54] Darren Herman: So this year is A meaningful charity, both on the sides of education, but also comes from a fellow Silicon Alley sports participant, a gentleman by the name of Jay Sear.
This one hits close to home. So Jay started a foundation called Team Daya. And Team Daya builds schools in impoverished parts of the world that are extremely hard to get to. I'm talking about building a full school for like 40, 000, which is like. Mind blowing like in the side of Nepal or anywhere else, we've been able to partner with Jay and team Daya, and we're super excited because he's participated in many Silicon Alley sports events over the years and comes alongside many other organizations that we've backed each year, such as code.
org or the Mozilla foundation or charity water or Robin hood, or the list has gone on for so many years. And so. We like to pick one impact partner for each year, and this year is Team Daya.

[00:13:55] Sean Mooney: That's great. Well, I'm going to look in and learn more about that charity as well. It seems like an extremely good cause.

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So,

[00:14:21] Sean Mooney: maybe we move along, you think about even as a segue from there, Darren, one of the things I've appreciated most about the opportunities to work with people like you is this idea and this mindset that you have of overcoming challenges. It's not this like you run into an obstacle, you stop or you turn around.
It's no, we're going to go left. We're going to go right. We're going to go up. We're going to go below it and figure out a way around this and flip challenge into an opportunity. I'm curious with that in mind, how do you think about and go about addressing challenges and finding a path through and beyond?

[00:14:58] Darren Herman: There's no lack of challenges in the world of private equity. Also with that said, there's plenty of opportunities in the world of private equity. I'll use an example of a challenge that I was faced a bunch of years ago and then turn that into a bunch of opportunity areas. So we have a company in the portfolio that had.
An enterprise grade piece of software that's both B2B to B2C that was built a long time ago in the 90s and used a core technology, which was super popular at the time and probably was the right call at the time called Flash. We ended up buying this business and this core piece of technology supported significant EBITDA of the business.
And just before I had come to Bain Capital, I spent a few years out in Silicon Valley. As an executive at a tech company called Mozilla, many of you listeners may know our product, which is Firefox. And I had just literally spent two years trying to kill Flash. And not only myself, but working with Google and Apple and the other browsers that exist in the world, Flash has a lot of positives, but also has a ton of negatives.
Most importantly, Adobe, who is the current owner of Flash, Stop supporting it. And when you stop supporting a technology, there's lots of vulnerabilities that can come up that can create security issues. And flash is no longer as secure as it once was back when it was being supported by major technology.
And so I came in and I saw, but this new portfolio company of ours where, Oh my goodness, we paid quite the entry price for the business. And quite a bit of EBITDA is flowing through this piece of software, but it's 100 percent flash based. And, knowing what I knew, I was like, we need to get this piece of software off flash.
As fast as we possibly can, because it's about to be unsupported within the ecosystem that poses a significant threat. And so I spoke to the team and I learned that they tried six times. They had seen this, but they had tried remediating it six times and changing platforms, but they did the same thing over and over again.
And expected different results and they just couldn't get there. And so we brought, and this is where I spent a lot of my time. This is probably one of my first big challenges while I was here at Bain Capital was taking over this project and then finding a way to change platforms off of flash onto something else.
And we had to change a lot working with this said portfolio company. Getting management re excited and oriented around, all right, Darren's going to come in and help, you know, bank capital's here, going to come in and help get us from what we've tried to do and failed a bunch of times over to where we need to be.
And that like started with governance, which is putting the right governance layer in place for us to truly understand the problems, understand the data that comes with those problems. And then be able to make decisions and then move swiftly once we make those decisions. And that governance layer plays all the way down into the execution team.
The second is talent with the same team doing the same problem six times. So we had to give our talent that was on the ground, superpowers, and many private equity firms have key partners that they bring in to help sort of drive. And even BluWaves founded on this, which is.
Help us find those key partners to go execute what we need. We called in two of our best partners, one of which to project manage this and two to which to change over the engineering component of this from where it currently was staying to somewhere new. And we brought those two partners in and they partnered with me and the team and we drove forward and this was a 12 to 16 month process.
When we came out of this, we looked much different than when we came into this. And what I mean by this is. We were kind of playing defense. We had a software that our B2C users were using, but it wasn't like a software anybody got excited about from a B2B perspective, it ranked really high from like functionality and usability, et cetera, but we weren't winning awards with this.
It wasn't this key thing. This was purely built to keep the EBITDA flowing through the business. And when we came out of this project, we went from defense to offense. We didn't just build what we had historically. We built what we needed for the future. And that's actually a big question that operators ask themselves when they're sort of thinking about software and thinking about product.
Do I build feature for feature, just switch platforms? Or do I take this moment in time and think about, What do I need four years from now and start building that in so that you can accomplish that the latter is where we went? So we built some partnerships. So we partnered with one of the world's leading image creation companies We built that exclusively into our software and we put a huge sort of light on this piece of software That looked, felt, smelt, acted differently than what it did when we came in.
And we took something that we play defense with, now we're playing offense. It's won all sorts of awards. And is something that is a reason for our customers now to select us as a business. That was a super hard project just based upon the initial failures. This was an area that wasn't a sexy part of the business.
And we were able to. Flip and turn that and shine the beautiful light on it. And now it's a reason why we win business with this organization.

[00:20:47] Sean Mooney: I really, really appreciate it. And for people listening to this, when you want to tackle big problems, do what Darren says. It's this idea of stick with sports.
It's go to where the puck's going. If you're going to take on a big challenge, don't just kind of solve it at time zero. Solve it for where you're going to be down the ice, then turn it into. A goal and a weapon and all those types of things. But then also so often when I think people are trying to solve the big challenges, they look through the lens of, or we're going to do this or that.
And what you're articulating here is the word. And we're going to bring in the right talent. We're going to bring in partners. We're going to have partnerships. We're going to have governance and we're going to intensely focus on this thing. Because the easy thing to do is quit. And that's what probably 80 percent of companies would do is like, well, and candidly, we get lots of calls from other private equity firms for tech migration in a pretty meaningful percentage of the time.
They're just like, yeah, we're going to let the next person do it. And that's the easy thing to do, but the right thing to do is intensely overcome this mountain. And on your Pareto chart, it was probably really big on it, but it was like, in terms of ease of execution versus outcome, you're like, uh, but the outcome is you're articulating was huge, but it's hard doing the hard, it's hard.

[00:22:00] Darren Herman: It was hard. And to your point about like kicking the can down the street, so to speak, do I want to get into this tech project? There's plenty of those that we do too, which is, you know, not for us, not at this moment, but this one was just so core to the value creation of this business that we had to lean in.
And one of the things that I see too much of is we're going through some tech transformation or going through some digital transformation, whatever you want to call it, you're taking something that exists on a, and you're moving it to be like for like, and that like for like is good for this moment in time, but what I'd love to see and love to see the industry do is if you're pairing a CIO or CTO up trying to figure out how to transform something, we'll maybe put like.
Two in a box with like a little bit of a visionary there to say, okay, this is what we need today. But where do we need to go for tomorrow? Do a bunch of customer centric work understanding where the customers want to be Understanding the competitive set where the competitors are understanding where the markets are And then build a roadmap that isn't like for like but builds towards what you're getting from that information So that you set yourself up for the next five to ten years and what's important for us is You Private equity firms is we're not in this for a year or two here at Bain Capital.
We like to say, we're not even in it for our hold. We're in it for the next hold, whoever that may be, because that's where we have to exit the business too. So we have to show that there's value to create down the road, not just for us. And that's that opportunity, which is you build for tomorrow, not just built for today.

[00:23:41] Sean Mooney: Very, very well said. Everyone's got a five year plan, but it's really a 10 year plan. That whole idea of like, you're looking. into the next owner, you're building things, you're thinking ahead. And I don't know that I fully appreciate as intimate as I do now when I was in private equity, because you just didn't live it.
But now I'm building a company. You can see the value of. Doing things now that aren't going to have an impact for three to four years, when they hit and you know three to four years they're going to be impactful, it just supercharges you ahead of the pack. Because everyone else is thinking kind of tactically and like, one move ahead, but you're saying like, think three, four, five moves ahead.
And then the world comes to you and by the time they get to where you were, you're a lap ahead.

[00:24:21] Darren Herman: It's not hard to do, it just adds maybe a sprint or two of extra time to imagine the future, but it's worth it. You get years of leverage and value creation off of it.

[00:24:31] Sean Mooney: So let's talk about some of the other things that your firm is doing to create value.
There's certainly the technology migrations that we've talked about, the vision of where technology is going. What are some of the other things that you all think about as a firm in terms of bringing resources and support to your portfolio companies that you partner with?

[00:24:52] Darren Herman: The good news is Bain Capital wasn't born yesterday.
And so we've had about 40 years of value creating activities and investment activities to pull from. And our very founding is differential to pretty much anybody else out there, which was We've got the consulting DNA in us from Bain Company and so even well further than the first employees but the first folks that came on board were all Bain folks and using their strategy chops came in and looked at businesses differently and Really thought about what strategic value creation opportunities may there be Within this respective asset and then what's it going to take to go get it and then how do we figure out what that's worth and then go invest in the business and that's how we're founded and even to this day, that sort of consulting mentality is embedded in everything we do now today, we look a little bit different than what we looked like 40 years ago, but with that said, it.
The principles of being super strategic, thinking about the forest of the trees, asking a ton of questions, being data curious, grounding everything in data. Those principles still exist. Now, what we've done with that is the evolution of what the market has needed over the last 40 years. So we'd like to say, we'd like to raise the bar and keep ourselves continually pushing our game even further.
And so way back when we established the first portfolio group in private equity as main capital in what is that historically in private equity, we've seen our investors, people that are hunting and fishing and looking for great investment archetypes and opportunities and partnering with CEOs and founders and management teams and finding a way to invest in those businesses.
And the way the portfolio group has come and other firms call this by different names. But they come in really at the tail end of the investment process and then taking that investment once it's become an investment and then helping to create as much of that value that they anticipate as they can and partnering with the management team and everybody surrounding that investment to really do whatever it takes to get that investment to be successful.
And so here at Bain Capital, We like to say we're one team, the investment team in the portfolio group. And how we do that is we call ourselves two in a box. And so there's always an investment professional and a portfolio professional together leading all of our investments. We all sit amongst each other in the office.
I have actually on both sides of my walls, I've got one wall is an investment professional and the other wall is an investment professional and I'm portfolio. And so we're completely one team throughout the office. On Slack and email and everything else. And every one of our investments have surrounded by both investment and portfolio resources.
Another thing we've done to continually raise the bar is we've added subject matter experts. And so we have phenomenal experts that understand operations and talents and that go to market and IT and infrastructure. And pretty much all functions of an organization, we have subject matter experts and that are here within our walls where historically we may have relied on consultants or agencies or other types of boutiques or et cetera.
We're now able to just walk down the hall into someone's office such as myself on digital and just ask a question or, Hey Darren, I need you to go spend some time with this portfolio company. I need a guy. What you're thinking or Hey, the management team has some questions. Do you mind sitting in the next ELT meeting and just answering some questions and sort of giving them the lay of the land?
We do that all the time. We always say one of the things that inhibits value creation is friction. What causes friction time by having these folks here, myself included, you're literally a water cooler conversation away from deploying into a portfolio company and really help triage something or just answer some questions to the CEO.
For other board members, you know, we're able to do that. And that the last part about all of this is we're all aligned the same way. Bancapital is well known for having, if not the largest, but in the top tier of the amount of alignment between its partners and its companies, we are some of our largest investors in our own funds.
And so. We, as investment professionals, portfolio group members, we are all as incented and as aligned with our management teams, and to be honest, our LPs as well, that we all want the same thing. We take great pride that we are one of the top shops around alignment, because when we all row in the same direction, it's a lot easier to get to where you're going.

[00:29:55] Sean Mooney: I love that. You've said so many things that struck a chord with me, and there's a lot of kind of continuity and symmetry in this conversation so far. One of it is this constant concept of using the word and not or. You're doing multiple things to achieve a greater goal that are in kind of synchronous harmony with each other.
I was internally here, I'll call it, it's a symphony of motion in private equity. In the late 90s, when I first started in PE, it was like you had one guitar, kind of thing. Now, It's the whole orchestra and for alignment, you all have to be playing together for this thing to sound good and sell tickets if you will.

[00:30:33] Darren Herman: I'll jump on that. I love that. If you work with me and, or if you're one of my portfolio companies, you always smile. Cause I always find a way to bring up the Dave Matthews band in a meeting. Like I look for every opportunity to do so. When that band started in the early nineties on the university of Virginia, it was like three band members and Over time, you go see them today and it's like eight band members.
And the question is, is how do you go from three to eight? And it's how do you continually raise the bar of the band so that they're constantly putting out fantastic music? If that's the music you like, and I'm sure half the podcast is saying, no, we don't like the Dave Matthews band. It's the same as us, which is.
What gets you here is not necessarily what gets you there, especially when you're underwriting something. You got to remember the past is the past may predict the future, but it may not predict the future. And so how do you think about what we always need in this next three, five, seven year cycle? And bank capital has been really good about resourcing that and pushing us hard as a firm, as an institution to do that across all of our funds.
And that's definitely differentiating that we see here.

[00:31:52] Sean Mooney: It's so spot on. And by the way, I'm pro Dave Matthews as a proud Gen Xer here going to college in the DC area in the early to mid nineties. But what you're saying about is so important as you think about the future of private equity, the business of private equity is turning into a business.
It has to, it needs to, and what you all are already doing is that kind of forward plan. How do you get to where you're going? Having a hypothesis, maybe not chapter and verse based on history, but having a hypothesis informed by history, but having the audacity to peer into where the world's going. And so what you're articulating, I think, is exactly where P.
E. has to be. But it's where you guys already are. And so at the risk of overly flattering you all, it's good. I like it. And so Darren, I think maybe as we think about turning the page here, I'm curious, what are some of the top kind of value creation themes that you're thinking about engaging with right now that other business leaders should also be thinking about?

[00:32:57] Darren Herman: So I'm going to go to two areas that are practical. The first one I'm going to bring up is conversion rate optimization, which may sound scary, may not, depending upon your background, but within the world of digital, all too often I see or get the response, and this is even before I even came to Bain Capital, which was, We built the website, we're good to go.
Or we built the app, we're good. The beauty of digital is that we're never actually done. And changing the experience is all but changing a few lines of code. And the opportunity that we have in a digital world is to consistently tweak the experience to both do two things. One, give great satisfaction to our audience, be it customers, prospects, et cetera, and to give such great satisfaction that it drives some type of goal and the goal could be a lead, a sale, some kind of conversion.
Whatever the goal happens to be, a lot of times we use the word key performance indicators that tie into that. So what we get is usually, Hey, we built it. We're good. And I was like, no, no, no. The game just started. And so the game's just started and we're on the field. Now we're playing with the ball. How do we get that ball down the field?
And what I love to do with our portfolio companies, et cetera, is truly understanding the funnel. If we've got a site or an app. Or some digital component, how many folks are coming to it and then how many folks are completing that goal and then where are all the drop off points and then let's go talk about those drop off points and see how to fix it.
It's almost like a leaky bucket. If we're putting water into a bucket at the top, how do we get as much water to go through it at the bottom? And let's make sure that we have the right tooling and infrastructure so that we can understand and ask those questions. And then two, how do we have the right team in place that can.
Not run from the data, but embrace the data and not feel like they built something that failed, but feel like they built something that they're going to make better. And then three have potentially the right partners in place to go execute whatever the leaky bucket is and go fix whatever it is that happens to be.

[00:35:18] Sean Mooney: And so maybe, Darren, if you're a founder owned business right now, you're looking at this and you kind of know, probably like a lot of people listening to this, you kind of know you have opportunity there. Yeah. What's your advice for someone to even approach this? How do you get started? How can you get that easy first kind of win?

[00:35:33] Darren Herman: Great question. I always start with, can we talk about the customer experience and let's take 100 customers and figure out how many of them go through the journey. Asking that question, whether it be in diligence, if we're potentially making an investment, or if we've bought a business. We're invested in a business and we're meeting with the team for the first time post investment is just trying to understand, do we understand the opportunity?
Like, does the organization itself know how to answer this question and are they even asking the question to themselves? And so the first part is to understand, does the data exist? Does the talent exist? Does the problem exist within the organization? And I've never seen a website be perfect where a hundred visitors come in and a hundred visitors convert.
And typically commerce, we can see anywhere between like a one to 5 percent conversion rate. That means that the best 95 people that started the bucket are not converting in that moment in time. There's always upside. And so. Asking that question up front and then building a team or working with a partner that could then look at that flow, the data and say, maybe we should start a B testing something, or maybe we see a lot of drop off on the conversion page.
Should we stop asking so many questions on the conversion page, take that off and just have just the credit card information. Or whatever it happens to be. And so having a super curious team, that's not afraid to ask the questions and really driving that sort of motion of continuous conversion rate optimization, then building out sprints or cycles of.
We're going to do two conversion optimization techniques, this sprint. We're going to try then another two, then kind of prioritizing those against what we think has the biggest impact is feasible and takes the shortest time to go kind of execute those.

[00:37:37] Sean Mooney: That's spot on. And we get calls literally every day.
Whether it's a private equity firm, a portfolio company, or just an everyday company, like, Hey, we need an agency, or we need a person who can help us start. And it can be daunting. And I think absolutely it's a good place to start if you bring in someone who's expert at it. But to your point, there's also a lot of things you can just do yourself to get started.
Like, think what the journey is, like, follow them through their website, look at the data, when are they breaking off? Just be curious. Why is that? What if we tried this instead of that? I think that might help. And then just see how it does. So there's so much that you can do yourself that every business builder can do, like, right now.

[00:38:14] Darren Herman: Absolutely. I mean, if you built a website without Google Analytics or Adobe Analytics or some analytics package, you're done. And that's on you, but if you have access to analytics, which 99. 9 percent of people do, just go play with it. Go learn. Ask questions. And that actually pushes us into the second value creation thing, which is if you're asking questions, some of the new analytics packages have prompt based questions.
And so what we're talking quite a bit about with our portfolio companies and new investments is AI, regardless of whether it's analytics or not. But we're spending a lot of time now with generative artificial intelligence and AI and machine learning and a bunch of other areas, not just because it's a hot topic, but because it's a topic that actually in the right functions works, we started talking about the evolution of marketing, advertising and technology.
For me, that was 10, 15 years ago, here it's back and I've never seen such innovation in the marketing organization as much as AI today. I can put programmatic advertising there. I can put customer data platforms there. I can put a few other things, but no, no, no. The application of AI should profoundly affect the marketing organization today.
There are use cases that drive value even in the early days, but I don't believe they are the use cases. That ultimately will drive value a few years from now when we see a bit more maturity to the space. And so for us, the marketing department, customer service, sales and engineering or technology are three or four areas that we see prime, ripe use cases today, day one, that aren't the most transformative business use cases.
But they are evolutionary, in some cases potentially transformative, that do drive both growth and value. We get excited about them.

[00:40:12] Sean Mooney: I think you're spot on on AI. And right now, we talked about this earlier, if everyone's got this kind of XY graph of where you've got Impact versus ease of execution.
There's a lot of things that might not have the biggest impact, but they're just real easy to start with. And they're going to set you on that journey. And so content production and marketing, helping your coders develop a little bit faster, helping your call center, like address some of the issues before they even get to an encumber your call, your people.
Those are all things that you can do right now that are going to set you on that journey for the things that we don't even know are going to be created in a very short time that are going to have transformative impact.

[00:40:51] Darren Herman: The two tidbits that I take from this and the two use cases that have me a believer in the ecosystem is.
I have yet to see a human written prospecting email perform better than a gen AI written prospecting email. The machine can write better than a lot of our humans.

[00:41:15] Sean Mooney: So long as you coach chat GPT, not to be overly flowery.

[00:41:18] Darren Herman: Exactly. Exactly. And I'm not saying all of our prospecting emails are written by gen AI today, but we've run lots of tests at different portfolio companies.
So And more often than not, you're able to write at more scale, faster, and also have higher conversion rates with a gen AI based email versus a human read email. So give your sales teams or marketing teams superpowers with some gen AI there. And the other thing too, is we've got some gen AI based agents and bots on the front end of many customer experiences at some of our portfolio companies.
So what I mean by that is. You go to their website, you go to their app, and you can interact with what looks like a chatbot. Well, chatbots historically were linear and basically were question answer trees. Those still exist today, but the more advanced ones Are AI based and they're using some small language model that's been derived on their back end to learn some dictionary and that's what they spit back out.
And what we've seen is on the sales side, when people interact with these bots, we have higher average order values on the service side. When people interact with these bots, they've hired net promoter scores. And what I liken to this is. The digital commerce experience historically, I'm talking 1990s, 2000s, was kind of a lonely experience because it's you in a store on your screen doing your own checkouts and browsing and doing stuff here.
When you have your bot next to you, it's like being in a real store and being able to ask questions to a personal shopper. That personal shopper is going to follow you around the website and ask you questions and help you find things. And Make recommendations. So for those super high end shoppers that may have a real life personal shopper at Nordstrom's or Neiman's or something like that, imagine that now at scale for everybody on the web and with more product information than any one single personal shopper could have.
I get excited about that. I've seen some early, not just proof of concepts, but seeing some early rollouts of this. The data is pretty incredible. And so I get excited about what AI can do for all different portfolio companies. And these aren't just consumer companies. These are industrial technology and healthcare companies.
There's just so much opportunity. And we're just scratching the surface from where we are today.

[00:43:48] Sean Mooney: It's fascinating. You bring this up. Cause I was just thinking about that the other day is just a consumer and I was going through the whole deal and it was going to take forever to get through the phone, they encourage you to do the chat bot.
And I'm like, well, okay. Cause I don't even think the phone line was on. Before I would do everything I could to avoid going on one of these little linear decision trees and I would just get so terribly frustrated. And so I'm like, all right, I'll do this. And it's at night after work. And sure enough, this thing solved my problem in like 40 seconds.
I was thrilled. I was like, this is great. Normally this has been 30 minutes waiting on the phone and me getting frustrated for a whole host of other reasons and it just solved it. And so the future is bright on these things. And so Darren, maybe as we bring our conversation home, the last couple of things I'd love to get your perspective on is a life hack and a book.
And so I'm curious if you think about almost like a business life hack, what are one of the things that you would think about that would make the operating executive, the operating partners, which is standard operating procedure now and required in private equity, something that would make them just a little more effective at their job and give them the ability to have greater impact.

[00:45:07] Darren Herman: I love the question. I had someone in the New York venture community that taught me at a super young age, who I've always looked up to, I think in public, and when you think in public, it's risky, but really is it?
And what I mean by that is if you think in public, you're at risk of giving someone your idea, or you're at risk of making yourself look like a fool, or You're at risk of alienating certain people, but I think all of that actually makes you better and what I mean by that is I had a blog early in my business career that kind of really meant nothing other than to me.
I was just sharing My commentary on all the digital media news that was going on in the ecosystem. And when I joined Bain Capital, I turned that blog into a newsletter. So it's not indexed in Google, but it's purely a newsletter that anyone can subscribe to called the operating partner. And what I love about that, what I love about it is I put hypotheses, theses out to the market and people agree with them and they don't.
And it makes my hypotheses so much better. And I learn from thousands of subscribers why I'm right or why I'm wrong. And if I'm wrong, that's where I learn a ton about. Which is like, Hey Darren, have you thought about something this way? Or, Hey Darren, have you thought about something that, like, you know, I read what you wrote.
I think you're shortchanging it. Have you thought about this factor? And, to be honest, it makes me better. It allows me to think openly and share. And the other thing, too, is In this world where people want to share ideas with like minded individuals, or we're in the business of working with founders and CEOs and boards, and they want to work with people who share a common interest or vision or the way they see the world, that allows people to find me.
When people read my newsletter, they know what I'm interested in, and it helps sort of self select the right inbound to me because people know if I'm interested in it or not. And I would say the operating partner today, or whatever it was called before, I've just met so many amazing people at all levels.
I'm talking about like students in high school that are looking to like, what do we do next? Like looking for career advice, all the way up to fortune 100 CEOs that somehow got my newsletter and they're like, Hey, thanks for writing about us. I'd love to break bread. Let's go chat. That's been a life hack for me or a business hack for me, because one opens.
Two, it helps me refine my ideas and three, I just never know what comes in my inbox next from it. So it keeps me on my toes and it's been fun.

[00:47:49] Sean Mooney: There's a reason why Darren and I can hear maybe the rapport here because I love the way that you think about these things. I too would say like the biggest problem in private equity is the first word is private.
When I was in PE, I came up through the deal side and admittedly two of my biggest weak clanks were. One, kind of I was trapped in this zero sum game thinking, I would win one auction, 200 firms would lose. And so it was always like, win loss, win loss, and I would answer in the affirmative with a negative, which would drive my wife nuts, and I'd go, no, you're right, or no, that's a good idea.
And she's like, why do you say yes with no? And I was like, I was trapped in this level of thinking, which then extended to like this stealth thinking, like I gotta always be undercover, because if they know, then it's not gonna be one in 200, it'll be one in 300. And I was trapped in that vicious circle, and one of the most liberating things that helped me evolve, and lord knows I've got a long way to go, it was one of those things where you're like, I was freed from that, and I learned to do things like my What I Wish I Knew newsletter that I'll send out just because someone said, hey, why don't you send this to us?
I was like, okay. But I would never dare do that when I was in P, or things like these podcasts where more equals more. You can kind of free yourself from that zero sum mentality. I love that you're sharing that. And I think it's extremely important really for anyone, but also the future of the PE industry.
The next thing I'd love is we kind of bring it home here. Darren is. What's one of your favorite business or personal books that you've read over time, and what are some of the takeaways?

[00:49:25] Darren Herman: In the early nineties, I believe, a book came out called Startup, and it was written by a gentleman by the name of Jerry Kaplan.
And the book is written in diary style, most pages are, about the diary of a CEO founder who's building a technology company. And I was given it by one of my mentors who was trying to tell me that not every day is a sunny day in Philadelphia, so to speak. This is a CEO going through building a pen computing company, and every single day he's checking.
And writing in his diary and what's amazing to me is the amount of business lessons that this gentleman's learning along the way he's the CEO. You'd think CEOs know every business lesson there is. No, they don't. You're just humbled by what he's learning as he goes through building this company. You learn about this is a company that goes from zero to 100 really fast.
It's playing into macro trends that are on the right side of history. At the time, not anymore today, you learn about scale because you're playing into that. The third, and I won't give it away too much, but you learn about failure. You put all three of those together and there's a lot of business lessons in that.
I guess the book that I always loved growing up in the grade school was Catcher in the Rye. The way that J. D. Salinger wrote that book, to me, in almost like a conversational like tone, that use of English in that book would never stand up at like Oxford or any other literary school. But it was written in a literary tone that I actually have adopted ever since I got that book.
And that's kind of my style. And when I read Startup by Jerry Kaplan, it was very similar. It just hit me. I was like, wow, I haven't bonded with a book since I read Catcher in the Rye like this. And just the conversation and reading this diary and just understanding what's going through a CEO's mind was just fascinating.
I haven't gone back to read it in the last 15 years, but I did read it. In the mid 2000s, as I was starting another business and it's a bunch of humble pie and you learn a lot from it. So I always recommend it to anyone starting a business or thinking about starting a business, which is there are a lot of lessons in that book that you can learn from and hopefully not make the same mistakes twice.

[00:51:52] Sean Mooney: I can't wait to read that. It's probably something I wish I had eight years ago because it's like the thing particularly And people who are listeners and come on a private equity, you'll get this, but you're never allowed to fail. And it's the most daunting thing because then you can't take chances. And so it turned me, at least I felt like in this pressure pot and I'm like, I've got to evolve, but I'm not allowed to fail and I got to do all these other things.
It's just like this vicious circle you get caught in, in this kind of washing machine. And so kind of what you're articulating is exactly kind of what I felt like I went through and the biggest mind shift I had to go through in starting BluWave was being comfortable with failure. The flip side of that coin was asking for help.
And once I figured that out, then it became something that was so liberating, freeing and fun. And so people have always asked me, but I think particularly peers of mine from other P firms back in the day, they're like, what's it like doing a startup and doing your own thing? And I was like, well, it's the highest highs and the lowest lows seven times a day, but I wouldn't trade it for anything else.

[00:52:56] Darren Herman: Absolutely.

[00:52:57] Sean Mooney: What you shared just kind of brought me back. Not only to the, Eight years ago, but to the current exhilaration of doing these things, that is a really great recommendation. And we'll be at the top of my book pile on the side of my table here. Well, Darren, this has been a phenomenal conversation here.
I've learned all sorts of things I wish I knew before, and I'm much better for it now. So thank you, thank you, thank you so much for taking some time out of your day and sharing some of the insights that you've gleaned, no doubt over some hard earned lessons in life.

[00:53:29] Darren Herman: We appreciate that. Thank you for being an awesome partner of BluWave.

[00:53:32] Sean Mooney: Thanks so much, Darren.
That's all we have for today. Special thanks to Darren for joining. If you'd like to learn more about Darren Herman and Bain Capital, please see the episode notes for links. Please continue to look for the Karma School of Business podcast anywhere you find your favorite podcast. We truly appreciate your support.
If you enjoy the Karma School of Business, a free way to support the show is to follow in five star rate. It really helps us when you do this. So thank you in advance. In the meantime, if you need to be connected with the world's best in class, private equity grade, professional service providers, independent consultants, interim executives that are deployed by the best business builders in the world, Give us a call or visit our website at BluWave.net. That's B L U W A V E, 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.