[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 awesome conversation with Brett Holcomb, Partner with Prospect Partners. Enjoy.
[00:00:33] I'm super excited to be here with Brett Holcomb. Brett, thanks for joining.
[00:00:38] Brett Holcomb: Sean. Thanks for having me. Very excited.
[00:00:40] Sean Mooney: I've been looking forward to this one for a long time, so let's get into it. The way I love to start these things is let's get the story of you. So Brett, can you tell us a little bit about kind of how you grew up, form of experience college, how you ultimately got into PE, all that kind of fun stuff.
[00:00:53] Brett Holcomb: You want the official story or the unofficial story?
[00:00:56] Sean Mooney: Maybe a little bit of both.
[00:00:58] Brett Holcomb: Yeah, we'll blend the two.
[00:00:59] I grew up in Michigan. Dad was in the auto industry, grew up in suburbs of Detroit, was a, uh, high school swimmer and wanted to keep swimming in college. So I found my way down to Kenyon College. Swam for a small liberal arts school with a really good division three swim team in this is where the unofficial story begins.
[00:01:18] Probably didn't pay as much attention to the career track as I should have. I was not one of those guys that in middle school decided I wanted to be an investment banker or a private equity guy. I kind of figured my way through liberal arts swim season ended senior year and I thought I'll go into investment banking.
[00:01:35] Not knowing that people have been recruiting for investment banking for months and years before I had that brilliant epiphany. So instead, I graduated, went back to Michigan, worked for a small consulting company up in Michigan, and if this were an official interview, I would tell you. Then I went and got my job at Bear Stearns here in Chicago, and I was launched on my investment banking track.
[00:01:56] The unofficial version of that is that that year that I was in Michigan. My girlfriend at the time was working over in Spain, and so I spent a bunch of time hanging out in Spain, living the good life a year after undergrad. I'll say we've been married for 21 years. We've got three kids. So from an ROI perspective, probably the best investment I've ever made was that year over in Spain, but it doesn't show up on a resume that way.
[00:02:22] But as part of that, knew that I wanted to get in investment banking. I started interviewing around and landed at Bear Stearns here in Chicago, where I've been for the last 23 or so years. Did my stint, served my dues, however you wanna think about it, in the investment banking world. Then moved over to private equity.
[00:02:39] I joined a firm called American Capital Strategies. Worked there for a few years, got my MBA up at Kellogg. I spent an interesting summer over in Dubai working in private equity before I joined the folks here at Prospect Partners about 17 years ago, where we focus on pretty lower middle market companies with three to 10 million of EBITDA building platforms for those larger funds, a rung or two above us.
[00:03:03] Sean Mooney: I love the background. If you don't mind, I'd love to dig into some of it. And so what your dad was, you said in the auto industry, what part of the business was he in?
[00:03:11] Brett Holcomb: He was in sales and marketing specifically on the international side. He maintained that he's a Jeep guy all the way through. So he started with AMC when it owned Jeep, then joined Chrysler as Chrysler bought Jeep and AMC, then Daimler Chrysler, and then, uh, decided to get off the train when Daimler decided to spin off Chrysler. After they bought it.
[00:03:31] He was a sales and marketing guy on the international side, and so family actually spent some time living overseas. I was born here in Michigan, but raised in Venezuela for the first four years of my life. And then when I was in college, parents moved over to Argentina and then from there over to Germany before back to the US.
[00:03:48] So my sister did high school in Argentina. There's lots of interesting stories to come out of that, but I was mainly kind of a Michigan kid through and through.
[00:03:58] Sean Mooney: What an amazing way to grow up going to these spectacular parts of the world throughout. It was fascinating seeing the way things are done overseas.
[00:04:07] You kind of did this another adventure you, but you found your way in through tenacity and grit and Bear Stearns. You know, a lot of people, I think maybe newer to this world, probably don't recall, but Bear Stearns is one of the most iconic, most revered investment bankings in the history of, of the business.
[00:04:25] Brett Holcomb: It was a fascinating place for a kid outta Michigan in the Midwest.
[00:04:30] Bear was a unique environment that had a very unique culture over a long period of time, and obviously sad in many ways the way it came to an end during the great recession. But it was one of those firms that kept saying, Hey. We don't look for PhDs, we look for PSDs, right? That poor, smart, with a deep desire to be rich.
[00:04:49] And I don't know that all three of those certainly sums up how I thought about myself, but it was a meritocracy. You sunk or swam within that Bear Stern's system. A lot of great folks came out of the institution over a long number of years.
[00:05:02] Sean Mooney: Another thing that's amazing about it, and I had friends that worked at Bear Stearns and the investment banking world can be kind of a land of excess.
[00:05:10] And kind of amazingness and Bear Stearns was always somewhat iconic about also being practically frugal on things
[00:05:16] Brett Holcomb: Sometimes to the point of Impractically frugal. I mean, Ace Greenberg had a long memo written about paperclips and how nobody would ever buy paperclips, and it was true. The one thing you would never do in our office is go to someone and ask if you could buy a box of paperclips.
[00:05:33] He absolutely hated that. Now seeing how many binder clips and paper clips sit around our office, it's hard not to walk past and find yourself grumbling about paper clips and feeling like an old curmudgeon.
[00:05:45] Sean Mooney: Oh, it's amazing. I'd have friends at Bear Stearns asking me if I could get a box of these clips and give them to 'em. 'Cause they somehow like someone like, like stole their or something.
[00:05:54] Brett Holcomb: That's right.
[00:05:55] Sean Mooney: Well, maybe for another episode we'll go into the deep dive into the archives. Let's go deeper into the story of you. And so, one of the other things I love to ask is what's something that we would know you better if we knew this about you?
[00:06:07] So what might one of those things be? Brett?
[00:06:09] Brett Holcomb: I'd probably think about my swimming era. I think every sport leaves a mark on its participants and having kids right now, going through the sports journey with high school athletics and the like; it's interesting seeing kind of a team sport versus swimming that kind of has that blend but is more in some ways solitary.
[00:06:29] My best event was an event called the 400 IM, for those that don't know, you put all four swimming events together. It's not a glamorous event, but it's a kind of grueling, brutal event in some ways, not so different than private equity. It isn't the fastest swimmer that wins the 400 IM, but it's that individual that can kind of piece together all four strokes, can think about the strategy.
[00:06:52] And can overcome certain weaknesses. And I think about that often. I think about that as it relates to our teams, our management teams, our companies. I think about it here at Prospect. We don't have to be the glitziest and the glamorous firm, but we need to put together and we need to execute on all elements of our industry and we need to do it really well every day.
[00:07:13] And if you can kind of put those together, I think you can have a lot of success. You don't need to be the one out there looking for the glory or on the front page of the Wall Street Journal, day in and day out.
[00:07:22] Sean Mooney: As I reflect on what you're saying there, there are so many people that I know who are successful in business, but particularly in private equity who came with a swimming background.
[00:07:31] I worked with one at the first job I had in private equity. He was amazing. Another one of our guests, John Hodge from Rubicon, he was a swimmer and I just knew so many swimmers and I was thinking about it. It's exactly what you said is you, particularly the stroke you did, where you've gotta put a lot of things together.
[00:07:47] Also, you need a ton of tenacity and grit and resilience, but it's also like you've gotta be self-motivated. You're gonna be in the pool at 6:00 AM every day, and you're racing against yourself. You're not only is it a team sport, but you're also, you have to improve yourself every single day. You're trying to get your personal best.
[00:08:06] There's no finish line. How does that kind of go into your thinking when you kind of reflect back on those days?
[00:08:11] Brett Holcomb: It is exactly as you described, the only way you kind of survive. In swimming is to be doing it for yourself in some form or fashion. Like that internal motivation versus the extrinsic motivation, I think is really powerful and something that you self-select for over time.
[00:08:30] You do it not 'cause you're gonna get glory, as we all know. There's no swimmer other than maybe Michael Phelps or Katie Ledecky that uh, is on the front page of anything. But you do it because you're constantly trying to get a little bit better every single day. I think that is something that we focus on here at Prospect.
[00:08:48] Our teams focus on what's that cliched? Can you get 1% better? Can you get a little bit better? Can you push yourself a little bit further? For all the right reasons? And you know, I've found that's very applicable in the world we live in today. In the industry that I operate in. As much as it was in swimming.
[00:09:08] Sean Mooney: Hey, as a quick interlude, this is Sean here. Wanted to address one quick question that we regularly get. We often get people who show up at our website, call our account executives that say, Hey, I'm not private equity. Can I still use Bluwave to get connected with resources? And the short answer is yes, even though we're mostly and largely used by Hundreds of private equity firms, thousands of their portfolio company leaders, every day we get calls from everyday top proactive business leaders at public companies, independent companies, family companies. So absolutely you can use this as well. If you want to use the exact same resources that are trusted in being deployed and perfectly calibrated for your business needs, give us a call.
[00:09:49] Visit our website at bluwave.net. Thanks. Back to the episode.
[00:09:56] Let's maybe turn the the page here and maybe with tenacity and grit and resilience in mind as I reflect back on my days in PE, it wasn't that I had these genius kind of like decks and plans 'cause I don't think a single one turned out the way that I thought it would. As much as anything. You know, you have to be smart enough, you have to be a good team member, but you also have to be able to overcome challenges that are unexpected.
[00:10:23] And so I'm curious. What's one of the maybe the harder things that you've had to take on and overcome, and how did you kind of approach it?
[00:10:31] Brett Holcomb: Let's reflect back to COVID. I know it's becoming a little cliche. Most anybody can reflect to COVID in varying degrees, but we had a business in our portfolio called Wedgewood Hospitality Group.
[00:10:43] One of those dream businesses you get to invest in once, maybe twice in your career if you're lucky. We backed a phenomenal entrepreneur named Bill Zaruka that built this wedding business, headquartered out of Temecula, California. Hosting weddings. All inclusive weddings. When we first got involved, they were in 19 different locations today and they're in 80 plus locations.
[00:11:07] We had quadrupled that business from the time we invested in kind of 2014 to 2020. Had thought about was it the right time to exit? EBITDA almost four x from where we started on that business. Just really kind of moving in the right direction. And then COVID hits. And as you can imagine, being largely concentrated in California, California was not hospitable to weddings, and we suddenly ran into a buzz saw that nobody anticipated.
[00:11:39] To give you a sense of context, Wedgewood at that time. Would host six or 7,000 weddings in a given year. And so you have six or 7,000 couples that want to be married, and all of a sudden you're calling all of them to let them know their wedding's off. So you've got 6,000 brides. You've got 6,000 mothers of the bride.
[00:11:58] You've got people flying in and you're telling them their wedding's off, and a lot of them still wanted to get married. There's a couple different ways you go about this, right? One is like the human element, and let's start there, right? You've got people that were planning on showing up tomorrow, grandma's flying in, maybe from a different country, from across the country, and for this lifetime achievement, and all of a sudden, no luck.
[00:12:21] So you've got all the human drama and the human element you're going through. We also had a thousand employees that were suddenly being told they can't do their job. And how do you pivot as an organization? How do you manage through the PR related to that? And as COVID progressed, what you quickly realized is it wasn't just PR and it wasn't how do you manage for the business.
[00:12:42] It was also how do you make sure you're keeping your people safe? How do you make sure that you're following local regulations. A lot of what was going on was down at the county level, not even at the state level, let alone the national level. And so there's this whole patchwork of events while you're bleeding cash, literally every week you're getting cash reports and you're watching cash balances dropping.
[00:13:04] You're watching what was an incredibly successful business, kind of suddenly start taking on water in a rate that you never anticipated. I think on the business side. Where we spent so much time and effort was making sure that we identified really quickly what is our North Star? What are we gonna follow above all else?
[00:13:24] How do we feel about our employees and what they're going through? How do we manage through that? As in an organization, how do you communicate that as quickly and clearly as you can? Like I said, Bill Zaruka, our CEO, phenomenal leader, did a tremendous job. At one point, we had to furlough 800 people. And try to figure out how to both keep them in the family, but also acknowledge that we couldn't afford to continue to pay folks and keep the business afloat at the same time.
[00:13:55] There's a whole lot that's swirling through your head on the human side, on the business side, managing through that. Our North Star was we are gonna follow local regulations to the T. We are gonna prioritize employee and guest safety above all else, and we're gonna over communicate with what was going on in the business, right?
[00:14:13] We wanted people to know exactly why we were making decisions, how we were making decisions, and what our plans were from the business. This may sound crazy, but we also use it as a chance to accelerate some stuff that we had anticipated doing. And it had kind of feared we would stage in over time. So we actually, in the midst of all this chaos, upgraded our CRM/ERP system, we are gonna slow roll that through all these locations and we just decided to accelerate and push forward in an effort to kind of give folks something to latch onto, give folks a win in the midst of a really difficult time.
[00:14:49] And feel like as we're coming out the other side of that, that we would put ourselves in even better position than when we went into it. On the personal side, we as an organization here at Prospect had never been work from home folks. We were obviously thrust home trying to figure all this out, and I'll tell you a, a great life lesson that I never fully appreciated was the value of a commute I took for granted that 30 minutes or 40 minutes of decompression time and the ability on a train ride home to slowly migrate from Work Brett, to kind of home, Brett, and all of a sudden I found myself in those early weeks as we were trying to battle through with Wedgewood and everything else coming out, and all of a sudden, you know, thrust into home life 15 seconds after you get off a difficult phone call. And that wasn't productive for any of us.
[00:15:40] I quickly created an artificial commute, if you will, right? Step out of a long day. Go take some minutes to decompress, go hop in the shower. Calm down, create that commute so that by the time you came downstairs, by the time you got the chance to interact with the family, you had gone through some of that decompression time, and I think about that.
[00:16:00] Today. We're back in the office. We have been for a long time. We're big believers in office culture. And to think of a commute as not being something that is thrust upon you, but is an opportunity and an opportunity to decompress, an opportunity to transition and to spend a little bit of time thinking, again, back to my swimming days, I kind of enjoy the chance to just kind of think and not to be confronted right away with various topics so that commute provides that opportunity.
[00:16:30] Sean Mooney: Hi, this is Sean. Wanted to take a quick moment to tell you a little bit why Bluwave exists. It's based on this whole notion that assessing opportunities and building businesses really hard. We all know third party expert service providers can dramatically help, but at the same time, it's hard to know who's good, usually leaving you like I would do, and call friends and ask, do you know someone who does this?
[00:16:55] Or just go the square peg, round hole route. So after nearly 20 years in PE, I decided to solve my own problem and create a Bluwave. Today, many hundreds of PE firms, thousands of porticos leading public companies, private companies. All call Bluewave to instantly get connected with the exact third party service provider they want that's pre credentialed by Bluwave and perfectly calibrated for their need and really good.
[00:17:20] You too can give us a call or visit our website at Bluwave.net. We're free to use and you can benefit the same way other top PE firms do. Back to the show.
[00:17:30] There's a lot of really interesting nuggets in there and one of the things I wanna kind of double tap on is going back to that moment. To me it's surreal.
[00:17:39] Looking back, there's this hazy dream at this point probably 'cause there's some sort of protective measure in my brain that's like saying, don't go back there. But I remember like it was just kind of like, there was this one week when everything just shut down. And in some ways my business here at Bluwave was almost built for that.
[00:17:58] The video conferencing was still kind of not used that much, but we could get to that stuff really quickly. That was the business. It was all kind of virtual anyways. But you have this business that's an in-person business that requires people to be together in a, in a convening place. And you talked about your North Star, but at that moment, how did you even get to that framework?
[00:18:20] It's like a cold glass of water gets thrown on your face and you're just shocked. How did you find that piece to kind of like, okay, let's break this down.
[00:18:29] Brett Holcomb: I think you have to start with acknowledging that shock, right? Like you have to acknowledge it in some ways. Let it wash over you. I remember my partner, Eric Maurer and I having a conversation being like, this is one of the best deals we've ever done and we'll ever do as a firm.
[00:18:46] And now in the matter of days, it's gone from being a highlight to potentially could disappear. If we don't move in the right direction and and kind of move quickly on it. And again, we had a great team at Wedgewood that we had all the confidence in the world on. I think you have to acknowledge that moment.
[00:19:03] Like you have to take that time to say, okay, this is not at all what we thought. And wow, didn't imagine this, right? Like anybody that's trying to bluff their way through that at that time is full of bs. Nobody knew what was gonna happen. Nobody knew where this is going. And let's acknowledge that for a second here.
[00:19:20] And once we've acknowledged that. Then we can start finding solutions. I'm a big believer as, is everybody here. Like, don't just bring me problems, let's talk about solutions. Let's acknowledge there is a problem, and then let's focus on the solution side. And that's where you start. And then you slowly, like any big issue, you slowly start peeling that onion back, right?
[00:19:42] It's like, okay, what are we dealing with here? And how many layers are there to this? I smiled today because I'd never thought of, you know, what is a wedding like? Truly think about what a wedding is, and the state of California made us think this through. Okay? A wedding is a cultural ceremony. A wedding is speeches, A wedding is a dinner, and a wedding is a party.
[00:20:06] You put all four of those together and you call a wedding, but really you have four different events that are going on with a group of individuals. In the state of California regulated every one of those differently for a cultural ceremony. You could do this for a kind of get together in speeches, you could do this. For a dinner, a restaurant could do this and a nightclub could do that or couldn't do that. So you put the four together, you call it a wedding. You pull the four apart, and you've got four different sets of regulations for that one event. And so. Our team, and we did say, okay, for a cultural celebration, here's what we're allowed to do.
[00:20:45] Okay, here's what we can do for a dinner. And you can't do anything for a nightclub or a party in the midst of COVID. And so can we rejigger what we call a wedding to really balance those four elements in the right way, and it kind of forces you to reimagine. Even the most basic building blocks of your business as to like, what is this thing we're hosting called a wedding?
[00:21:09] And try to put the puzzle pieces together in a different way than you had before.
[00:21:14] Sean Mooney: I really like that approach, and I think it's well said and, and I think a lot of times when there's, there's huge problem that occurs. There's a black swan that flies by and you're just shocked. So many people get caught up in the entirety of the problem, and it's overwhelming.
[00:21:27] You can't, you know, it's like, how do I take on this huge, huge, huge problem. A lot of times it's okay, just get it into like the fetal position and get catatonic. And what you said really, I think nicely done was big problems are are not big problems. If they're a series of smaller ones. And if you're able to break 'em into components and then take 'em on one at a time, then it's not nearly as overwhelming.
[00:21:49] And then as part of that, as you said earlier, finding out your north stars, then you can work your way through and it's one step at a time. And so I think that's a really important lesson that I think is lost on a lot of people, including like me at times, where something will happen. You go, oh my God, this is a massive problem.
[00:22:05] It's really not. If you break it into little pieces,
[00:22:07] Brett Holcomb: We see that time and time again, the number of times that we spend with our CEOs and our teams and, all right, let's take this big issue, whether it's good or bad, a massive customer that you've just landed. Is a big issue that you gotta break down into its smaller components and say, okay, how are we gonna manage this kind of growth?
[00:22:26] Just like the loss of a big customer. Just like retention issues. Turnover issues. You take any of these, what seemingly are really big issues and you start to break it down and often by the time you really think this through, there's a couple of smaller components that you need to tweak or you need to be focused on or you need to get right.
[00:22:46] And then there's a whole bunch of things that aren't really the problem, and so you take over, Hey, we've got really big turnover going on in our company. Okay. Is it voluntary or involuntary? Hey, it's involuntary. Okay. Is that because they don't like the culture? They don't like their wage? There's something else going on within the, oh, it's a wage issue.
[00:23:04] Okay. Within the wage issue, is it across the border? Is it within these certain, oh, it's within these certain levels that we've got a wage issue. Okay. How much are we off? We're off by 6%. Okay. Now I know this massive issue of retention at this company is really because we have a group of employees where we're 6% under market on wages.
[00:23:24] What's the impact of managing a 6% wage increase for this group of employees? Fairly small. Okay. Let's focus on that and let's kind of move ahead. So I think it is the ability to simplify, I think oftentimes leads you to really good outcomes.
[00:23:40] Sean Mooney: I think it's very well said. One of the other things you mentioned that I, I thought was also really important is there's crises you'd rather not have them, but there's some positive things that come out of them because one, you get stronger as an organization and it creates a massive rallying cry for the organization.
[00:24:01] And this is not meant to be kind of trite or, or not maybe empathetic, but. It's like a good Chicagoan, one said, and like, "You never waste a good crisis." Yeah. Rahm Emanuel – so and so. Like you can use these things as a moment, not only to solve the problem, but to fundamentally get better as an organization and come out.
[00:24:21] Better, stronger, faster, more resilient and take on some of these big challenges that maybe were never, like, you didn't have the inertial momentum to say we're gonna do more of the extraordinary in a faster period of time. Because there's a, this is a moment in time that matters and it gives you that capital to spend and otherwise, sometimes it's just hard to get the flywheel spinning.
[00:24:42] Brett Holcomb: I'll date myself a little bit, but I remember coming out of that great financial crisis, and I remember one of our CEOs, this was probably 2010 - 2011, as you're kind of on the back end of it, said, we are a much better business for having gone through the financial crisis and I never want to do it again.
[00:25:01] And I think there's a lot of truth in that. There is a lot of opportunity to be found, but it's incredibly hard. My concern right now where we sit today is we've had a series of those to just start with COVID. You've come through COVID, you've come through supply chain issues, you've come through labor shortage and wage availability and kind of people job hopping all over.
[00:25:26] You've come through inflation. You're focused on tariffs right now. Like there've been a series of these. My current concern is I think a lot of teams and a lot of organizations are tired. You can have that big rallying cry for one or two, Hey, let's get through COVID, or Let's manage our supply chain shortages, or Let's figure out inflation.
[00:25:48] We haven't seen anything like this in recent years, but when you start stacking one up after another. I think it's exhausting for especially smaller organizations. Our companies, when we get involved (3 - 10 million of EBIDTA, 25 - 100 million of revenue), you don't have the bench strength that you do in the Amazons of the world to say, okay, next man up.
[00:26:08] Next lady up. Let's keep pushing ahead. A lot of times this falls on the same five or six people at a company. Where we're spending a lot of time right now with our teams is making sure that they're doing okay, that morale is good, that the organizational health is strong and is positive. 'Cause I, I think all the great stuff you can put on a checklist and all the value creation initiatives and everything you can want to accomplish.
[00:26:33] If your team is exhausted or you know, morale is low in an organization, none of it's gonna happen. It's not for lack of people caring. In fact, I would argue it's probably our teams carrying too much and really taking it all personally. But I think it's been an exhausting kind of five, six year run. Let alone, if you wanna go back earlier than that.
[00:26:53] So I think really kind of keeping a focus on that human element with our teams is something that we take seriously and we spend a lot of time with our organizations on.
[00:27:03] Sean Mooney: It's a really interesting, finer point, and I was thinking about a conversation I was having with a friend of mine in New York, the New York Knicks.
[00:27:11] We were talking sports, and I go, Hey, coach Thibodeau Thibs got you all to division finals and you fired him. What the heck? He goes, well, here's the problem is like every single season, he just plays his starters and he exhausts them. And by the time we get to the, to the playoffs, the team is like injured and broken down and they just, they're just like, they resent it and the the morale drops, and it's like, we just knew that we're never gonna get to that next level because the starters were always exhausted.
[00:27:42] As you were saying, this kind of made me think about like, yeah, if you're, if you're just like crisis after crisis, after crisis, every game is a crisis and you're playing your starters, eventually people break down and you gotta figure out how to rest your starters a little bit.
[00:27:53] Brett Holcomb: That's right. We had certain meets in our collegiate careers, certain swim meets where they were deemed no option meets.
[00:28:00] Like our coach was like, you have no option to, but to go out there and perform in this meet. We had great performances in that meet, but we couldn't sustain that over the course of an entire season. If every meet was a no option meet, you would find a whole lot of problems on the back end of that season.
[00:28:17] And I think you have to think about that very similarly, right? We all wanna perform at the highest level. We all have a duty, whether it's our teams have an innate pressure to their employees, their customers, to us. For us to our investors, our employees, like we all have this desire to perform at the highest level.
[00:28:34] I, I think the art in this industry is figuring out where to push, where to pull, when to do it, and how to do it in a way that you're building a sustainable business, not just one for short period of time. We spend a lot of time with our teams at the outset saying, what do we wanna look like the next 20 years?
[00:28:52] Right? Like, Prospect won't be involved for all 20 years. That's not our job. We want to build in this organization that's looking out 20 years, we'll step out at some point along this journey, but the sustainability that we put in place for our organization should be there and should be kind of that guiding light going forward.
[00:29:11] And there's an art to it. There's not a science. It's not a checklist. It's not something you can easily work your way through, and that's where you have to focus.
[00:29:20] Sean Mooney: Yeah. For our business builders listening here, listen to what Brett says. You know, this, it's just this whole idea of if your real goal is you wanna win championships, it's not just go, go, go the whole time.
[00:29:31] You've gotta find those moments to have the, the whole kind of organization having not only the, the ability to do the acute, but also the chronic and get a little bit of rest in between to get to Ultimatly, get the Ws and the trophy.
[00:29:46] Brett Holcomb: Absolutely.
[00:29:48] Sean Mooney: So let's maybe turn our page here and maybe drill down some of the things that we've touched base on.
[00:29:54] And so one of the things I'd love to hear more about, Brett is how does your firm really manage and do the interplay between what you all do and working with your portfolio company teams to make them as successful as possible?
[00:30:11] Brett Holcomb: Sean, you have to start by building a culture that's aligned. Is on the same page as to where you want to go and what, what I mean by that is at Prospect, I think we've selected a team and an organization that loves the industry and the size in which we play.
[00:30:31] We're never gonna be the biggest private equity firm. On the market. We raised a $225 million fund last year. We had the ability to raise more capital and we capped it at that level 'cause we thought that was appropriate for the types of investments we wanna do and the size companies we wanna invest in.
[00:30:47] If people here want to invest in larger deals or different deals or different industries. Then it's not gonna work. 'cause we feel strongly that our playbook, our style, our vision works well for what we do. So you gotta get an organization that believes and buys into that. I, I think you also have to translate that ephemeral thought into reality.
[00:31:06] What does that mean? And for us it's, we are big believers and we say it all the time is better, not just bigger. Right? Like we really wanna build a better business. And I get it. That sounds like. Maybe even a little hokey for some of your listeners, but again, back to that North Star. For us, we spend a lot of time doing stuff that will not at all look like we've built a bigger business, but we'll make it a much better business.
[00:31:32] And we call that kind of phase one evaluation, which is foundation building. And if you don't have that strong foundation in place, then you're gonna run into trouble. Down the road. And you know, I think we've seen a lot of that in our industry in recent years, where folks go to exit and maybe the foundation wasn't as strong and the next person realizes, oh, it's kind of a house of cards.
[00:31:53] We wanna avoid that at all costs. We take a lot of pride in the fact that when we exit businesses, a lot of our businesses go on to be much bigger after us than they were with us, and they do it with the same team in place. That we put in place over our time. So I think you have to start with that. In our case, that better, not bigger mentality or not just bigger mentality.
[00:32:15] And then from there, I think you have to incorporate a version of that servant leadership quality, which is, we've been invited into our businesses by these entrepreneurs after they've made thousands of decisions over oftentimes decades. And we arrive at a point where we're then invited in to kind of share in the future of that organization.
[00:32:41] And I think it requires a level of humbleness to go along and say, okay, clearly they've done something incredibly well. We think we will bring stuff to the table. We've been doing this for almost 30 years. We've invested in 175 companies plus. Built up 60 platforms. So we will bring something to the table, but gosh, they're gonna bring a ton to the table as well.
[00:33:02] And so that partner mindset and orientation. And we'll spend a lot of time with our teams upfront marrying these two together, saying, okay, are you Mr. or Mrs. CEO aligned with the idea of better, not just bigger, right? Because there's plenty of people that are gonna walk into our management teams and say, here's how you're gonna become a billion dollar company in the next five years, and we're not gonna say that.
[00:33:25] We're gonna say we're gonna make you a much better business. Here's how we can help. And also, what do you think? How are you gonna kind of come to the same conclusion? And so you gotta get that alignment at the outset. We need to make sure every element of our business is aligned on that. So whether it's the BD sourcing effort on the front end, whether it's the deal and the investment team that's working with our companies day in and day out, and whether it's our operating partners, everybody needs to have that same alignment and be moving in the same direction and be really excited to be working with entrepreneurs at the size range that we are, if not.
[00:34:01] Gosh, there's tons of other funds. It's a big industry, tons of capital. You, you should go find a place where you're better aligned in that situation.
[00:34:08] Sean Mooney: I'd love your point there. And it's really often lost, I think, in this day and age on on many. And the goal here is to be better, not bigger. And I was talking with a friend of mine who is getting kind of pulled into maybe one of these VC fast growing kind of deals.
[00:34:26] And it was, we think we can build like a unicorn, like a billion dollar enterprise value business. And my question is like, well, how, what's the equity value gonna be worth? And he's like, uh, we know we're gonna get to a billion dollar enterprise value. And I say, no. The question to ask is what are they gonna build in terms of the IRR and the multiple of money on the equity?
[00:34:46] Because if you have to do round, after round, after round to push this rock uphill just to get bigger. Guess what? There's not gonna be anything left over for you if you're, if you're monetarily inclined to our earlier the conversation, it's gonna be utterly exhausting getting there, and you're just not gonna have anything to show for it.
[00:35:02] So the question you need to ask the group that you're going to talk about is like, what do we think the equity is gonna be worth? I don't care about the enterprise value. And, and at the core, that's kind of what, in many ways what you're saying is like, we gotta make it better. We gotta build this thing to last.
[00:35:15] The company's not gonna be worth anything to the next buyer if there's nothing left. So you gotta build it for the next 10 to 15 years, not the next three year sprint so that you can get a paper valuation where there's nothing left for anyone down below the press stack.
[00:35:29] Brett Holcomb: It's absolutely right, and like I said, we think there's a lot of value in building a business that will go on and perform incredibly well after us, the reputation we wanna have in the market.
[00:35:41] Is that we build really high quality platforms for larger private equity funds, and they know if they buy a Prospect company that it is going to go and be really successful because we put the building blocks in place. I don't run a charity, so what I would like in return is for you to pay me a premium valuation for that high quality asset that we built.
[00:36:02] It is not altruistic in how we're thinking about it. I do think it is a win-win scenario where we can be paid a premium for the hard work we've done and generate a fantastic outcome for our investors and our teams. In return, that next level private equity firm, if that's who we're exiting to, knows that they have bought a business that is incredibly well positioned, has a plan for the next 10 or 15 years that they can execute or change as they like.
[00:36:32] But those building blocks are in place and it's been done the right way.
[00:36:36] Sean Mooney: That's also well said and and someone taught me this term at one point, I wish I knew who, who told me, 'cause I think it's a great term. It was called selfish altruism. And you go like, listen. Whether you're doing it altruistically or or selfishly, altruistically, it's kind of one and the same.
[00:36:51] Because if doing the right thing and the good thing is ultimately gonna be better for you, going back to your north star point, like, Hey, build a company that's built to last, you will be rewarded for it in the multiple. You're probably doing for multiple reasons. 'cause A, it's the right way to build a business, but B, you're gonna get a better return.
[00:37:08] And it's kind of the same reason why we named this podcast, Karma School of Business. It was a term I used to use when I was coming up. It was just like. Just do the good and the right thing with and for the good and the right people. And then the flywheel of business and life will spin in the direction on its own much faster than like all this like nonsense of chasing your tail running around.
[00:37:27] Brett Holcomb: Couldn't agree more.
[00:37:29] Sean Mooney: So talking about the times that were in previously in kind of the, the topsy turviness that it's just kind of like the new normal, what are some of maybe one or some of the pieces of advice that you're giving your colleagues, your portfolio company leaders today to. Kind of not only manage for safety, but also success and play to win.
[00:37:46] Brett Holcomb: This is such an interesting time. I mentioned it earlier, inflation, tariffs, supply chain, like a lot is coming at our teams in ways they haven't seen maybe ever in their careers, depending on their age or certainly for a long, long time. And I think one of those areas that we've certainly realized over the last few years that they could use some support and guidance on is pricing strategy.
[00:38:11] Trying to figure out the art of pushing pricing, playing offense, maintaining margins, enhancing margins, gaining market share. There's a tradeoff in all of that. And if we wanna think about the positive of where we are right now, we have the opportunity to explore those tradeoffs, right? And so when you have competitors that are raising price, 10 or 15%, how do you react?
[00:38:36] Should you lead? Should you follow? Should you react? Should you not react? Do you wanna play offense and gain market share by keeping pricing lower? Or do you wanna try to match pricing? You use it as an opportunity to capture some additional margin or capture some additional share. It's a big question that I think oftentimes can get lost in the theory, right?
[00:38:57] Hey, what is your theory and what's your pricing strategy? And like there are big words that people like to throw around. But again, they're, they're small things that our teams often haven't thought about in a long time, if ever. Right. Something as simple as how long do you keep a quote open when you issue it?
[00:39:13] We had teams that kept quotes open for 90 days. Hey, this quote is valid for 90 days. Well, that may no longer be the appropriate timeline, should that quote only be valid for 30 days or 15 days. Right? How do you think about other elements of pricing and how do you track your market share? How do you know if you're gaining market share or not gaining market share?
[00:39:34] Right? Again, back to peeling that onion, you suddenly realize there's a whole lot of questions you can attack in there, and I think it's really good conversation for teams that haven't had to do that in a while. So, you know, I tend to be glass half full. I, I think this day and age provides you the opportunity to have some of those conversations that you wouldn't necessarily have had coming out of this or maybe prior to this sort of environment that we're in right now?
[00:40:00] Sean Mooney: I think it's a great point. So often people think about pricing strategy as raising prices, and we're gonna figure out ways to capture more margin, which in certain situations makes absolute sense.
[00:40:13] But so often the market is just exhausted by three years of inflationary pass through. And there's a window of opportunity for companies right now, particularly those who have invested in the efficiency of their own operation. They've leaned into their procurement strategies, their Lean Six Sigma efforts, so they're more of a well honed machine so that they can actually either keep prices or sometimes even lower prices while not actually having a diminished cash flow position or margins.
[00:40:43] And then go on the offensive and grab market share. 'cause that's what matters. I think it's such a great point and so often missed. Like there's huge opportunities right now to go on the offense and just grab share because everyone's exhausted about these other price increases.
[00:40:57] Brett Holcomb: I think the interesting thing for companies of the size that we invest in is there's also a massive opportunity on the data side to be helping do it in a way that's not just shooting from the gut or the hip, which is how a lot of our teams had operated in the past.
[00:41:15] And done it incredibly well. Right? And that's not a knock, but I, I think as you're trying to run a business and build a business, you don't have a full deep bench behind you. You're out there and, and you're making quick decisions. And I think the opportunity now more so than ever to say, okay, what does the data tell us on how we ought to be thinking about this?
[00:41:36] And not a, Hey, let's get paralyzed by data, but we've got data out there and, and let's take a look and is it confirming or refuting what we think? And so as part of this whole pricing discussion, a lot of times it's what's the data tell us as we're looking further up the funnel. It's not just, hey, like, where's demand today?
[00:41:55] And how are we thinking about pricing given current demand? But you know, how far up that funnel can we look, right? I mean, how are we feeling about quoting volumes? How are we feeling about leads coming in? How are we feeling about initial conversation, right? If you think about that funnel that ultimately leads down to demand and the decision on pricing, there's a lot of steps you can go along the way that a lot of times in the chaos of the moment, it's easy to skip past.
[00:42:20] Again, I think right now offers an interesting opportunity and time to kind of pull some of that back and say, all right, are we marching down the right path?
[00:42:28] Sean Mooney: Another spot on point and, and I think what everyone needs to appreciate is there is no better time in the history of the world to get access to your data, analyze it to do business intelligence activities, AI enabled insights at such a low cost.
[00:42:44] That it's ever been. And so we were looking at our third quarter data, you know, so hundreds of PE firms use us. They come in with the the levers of diligence and value creation that they're enacting in their portfolio company. We break down the data in these quarterly reports and third quarter we saw a 300% year over year increase in BI analytics and AI usage.
[00:43:05] And it's like massive, if you dare to use these tools. To date myself like in the late nineties, like they're almost giving away these things 'cause they have this like land grab mindset and so you can get so much power into your organization right now if you have the audacity to get someone to help you put it in and do it the right way.
[00:43:24] Brett Holcomb: Where I think you have captured an opportunity faster and better than many others is recognizing that for companies like the companies I work with or for our firm. We can neither afford nor want the big co names to come in and do this, right? And so when we reach out to you guys on the regular. I think what's been really great is you guys replying and say, Hey, we've got a two man band.
[00:43:53] We've got a five person shop. We've got somebody that can help you on this. 'cause you know what we need is that targeted solution, not that bazooka. A bazooka will overwhelm our companies. If I told our companies, Hey, we're gonna go bring in Accenture to help us think about our data, first of all, that'd probably be a years of EBITDA, just bringing them in to start with.
[00:44:15] But second of all, those big companies expect a certain level of data and a certain level of management depth, like the team depth that smaller companies just don't have. And so oftentimes when you guys are able to help us find that specialist, they're willing to roll up their sleeves, do some of the work, and jump in as an augmentation to the management team.
[00:44:40] Not expecting the management team to serve them stuff up on that silver platter. And for us, that's made a massive difference in our companies is having those small but specialized resources. It's like, listen, this is where Sean focuses his business. It aligns really well with us and what we're looking for.
[00:45:00] Big companies just don't work that way for us.
[00:45:03] Sean Mooney: I agree, and I appreciate the call out. But it was exactly what you're saying is like when I was in your shoes, I couldn't afford and nor our companies afford the big names, but there's talent there that can help in a way that's much more addressable and suitable for smaller and mid-sized businesses.
[00:45:20] And you just have to have the audacity. You think about if you're in the shoes and listening to this, there are people who can help you out. It's much more addressable than you think, and you don't have to recreate the wheel. So you better bring in a specialist who's been there, done that. We'll get you kind of 80% of the way lightning fast and then maybe you can figure out the rest.
[00:45:39] So I think it's another great call out. And Brent, maybe as we kind of bring our conversation full circle here, there's been so many of these kind of recurring themes and one of them is like a lot of like looking back into our prior lives and all these lessons learned. And one of the my favorite questions I get to ask people like you who've learned, you know, so many lessons in business and life is.
[00:46:02] If you could go all the way back in time and meet your 22-year-old self, what might be one of the piece of advice that you give 22-year-old Brett then? And I say this selfishly 'cause I'm just gonna then stick it onto me like, because I'm an imperfect person at best.
[00:46:19] Brett Holcomb: Is 22-year-old Brett listening, or is he not listening for the response here?
[00:46:23] I think that's a big question mark. I've been really intrigued by this concept of like a leap of faith. And I probably wouldn't have appreciated when I was younger, how much success is determined by both the leap of faith that someone takes in you and also by the leap of faith you take in others. And for me, and, and having thought about that, in order to take a leap of faith, someone needs to first have faith in you, right?
[00:46:49] You can't take a leap without having faith. And so what can I do to put myself in a position where people will have faith in me? And then also as I'm looking at other folks, how can I build faith in them and in what they're doing and really staying focused on this concept. Our job has an awesome responsibility to it.
[00:47:13] I mean, we have investors and if you kind of work your way all the way back, our investors are oftentimes people who have, whether it's pensions or other ways, saved up their hard-earned dollars, endowments or family offices. People have worked really hard for their money and they've decided that Prospect Partners is worth taking that leap of faith on.
[00:47:33] And sure, we've got a great track record and sure we've got a long history to support it, but at its core, they're making this decision of like, is Brett worth taking a leap of faith on? And people in our industry, and I think it's one of the biggest misconceptions, talk about playing with other people's money and how, oh, you know, do you have enough skin in the game because you're just raising money from other folks?
[00:47:56] What keeps me awake at night is the concept that I'm working with other people's money and having a duty to that is a massive responsibility and they've taken that leap of faith on me. The flip side of that is in order for me to be successful, I have to take a leap of faith on people in our industry.
[00:48:15] You know this, you can always find. One, let alone 10 reasons to kill a deal, right? Like every deal, you can find a reason to kill a deal, and at some point you've gotta take a leap of faith on an investment. I don't know that there's one deal in my career I've ever closed where the night before, I don't lie awake at some point in bed thinking through, Hey, tomorrow's closing.
[00:48:38] Am I making the right call? How am I thinking about it? And ultimately, am I taking a big leap of faith or a small leap of faith on someone? And. You have to leap at some point. Our job is to leap. Our job is to put money to work, to invest in people, but you're making that leap at at some point along the way.
[00:48:57] And so if I were to think back early in my career and give myself some advice, it's really, think through that leap of faith concept. Think about what can you do to minimize the leap others are making in you. And then what can you do to try to suss out how big of a leap are you making in others and is it the right leap?
[00:49:15] Right? I mean, we've had plenty of situations where everything lines up perfectly, and at some point you just can't get comfortable with that leap of faith you're making on someone for whatever reason. What's that red line? When do you walk away? When everything else is looking good? In times, our job is really easy.
[00:49:32] There's something that pops up. It's a red flag, everybody knows it, and you're never gonna do that deal.
[00:49:39] But more often than not, we operate in the gray area, and that gray area is a really tough spot to operate in. You have to have some strong view of right and wrong in there, but you also have to know when to step off that ledge and take that jump trusting that you've done the best you can.
[00:49:58] Sean Mooney: It's such great advice and you think about it, you know, the easiest word in the world to say, and the most common word across the world is no. And it's so easy to say no. It's so easy to be locked in by fear, and we know from countless behavioral economic stories, people over weight risk and fear and underweight opportunity and kind of like excitement about it.
[00:50:21] And so as a result, people don't take those leaps of faith. They kind of take the road more commonly traveled. As a result, you just don't go as far. And your business is one that you're measuring a hundred variables. You're competing against a large number of other really smart people, and then you've gotta transform a company.
[00:50:41] And it's this whole idea, like when you win, you're like, oh my God, we've won. And so I was like, holy mackerel, we won. I was like, but hearts beating. But uh, you've done the work, you know you've got a plan, you have trust in yourself and your team. You're gonna continue to overcome adversity, as we've talked about so often this conversation.
[00:51:00] Brett Holcomb: I think the corollary to all that is the answer's never in the spreadsheet. And I don't know whether the spreadsheet will be right or wrong or high or low, but you're not gonna find the answer there. And so I think you have to have confidence and everything you've done. You have to have confidence in your team, and you have to have confidence in that leap.
[00:51:21] That you're gonna make. 'cause if, if you're trying to stare at the numbers, you're waiting for perfect information, it's never gonna happen.
[00:51:27] Sean Mooney: Every year we get the entire team involved in kind of a strategic planning exercise because we learned so much from everyone throughout the organization. And every year I show this video clip from this movie from the eighties called Better Off Dead.
[00:51:40] This classic John Cusack movie, John Cusack is up on this mountain that's just daunting and he's a skier. He's looking down and he's with his romantic interest, Monique, the foreign exchange student, and he is like, look at this. There's no way that you can go down this thing. We're all, we're gonna die if we do this.
[00:51:59] He's staring and, and then Monique looks at him just kind of like, chill out buddy. And she goes, oh, it's really easy. All you have to do is jump off this cliff. Go down really, really fast. If something gets in your way, turn. And she jumps off the cliff and she beautifully navigates it. And then John goes, um, or Lane Meyer, I think is his, his character.
[00:52:22] And he goes, well, if you can do it, I can do it. And he jumps off the cliff. And immediately tumbles the whole way down,
[00:52:29] Brett Holcomb: Depending on the day. I dunno whether I'm, I'm executing it beautifully or I'm tumbling, but I know that feeling.
[00:52:34] Sean Mooney: But, then he quickly gets up and then he like tries again in 30 movie seconds later.
[00:52:39] He's a pro. And so, yeah, that's right. So it's always, it's a great, you know, to your point, I was like, take that and leap of faith. It's gonna be scary, but you're gonna, you know, you might tumble at first, but just get up fast and then you'll, you'll do it best next time. I think that's amazing. Times advice.
[00:52:52] So. So this has been a really awesome conversation. I appreciate you taking the time here. I know your, your time is scarce and valuable and it's a tremendous gift for me and our listeners here because I think all of us can say we've learned all sorts of things we wish we knew before and so very much appreciate that.
[00:53:11] Brett Holcomb: Likewise, Sean, thanks for having us on. Certainly thank you for the support along the years.
[00:53:28] Sean Mooney: That's all we have for today. Special thanks to Brett for joining. If you'd like to learn more about Brett Holcomb and Prospect Partners, 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.
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