[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 a fascinating conversation with Jeff Drazan, the managing partner of the 2026 Top Private Equity Innovator of the Year, Bertram Capital.
[00:00:28] Enjoy.
[00:00:36] I am super privileged to be here today with Jeff Drazan, managing partner with Bertram Capital, and also the founder of a firm that is this year the, not only the Top Private Equity Innovator, but also the Innovator of the Year. And so Jeff, I'm really fortunate to be here with you and super excited to spend time with you.
[00:00:55] Jeff Drazan: Very happy to be here. Appreciate the award and everything that goes with it.
[00:00:59] Sean Mooney: That's great. And one of the things that I love doing on these things, the opportunity is to hear the story before the story. And you have a really, I think, pretty amazing origin story within your firm. What I think would be great is if we could even start a little bit further, can you tell us a little bit about your upbringing, where you grew up, where you went to college, those type of things.
[00:01:18] Jeff Drazan: Sure. So I grew up in Long Island, went to public high school. My dad went to Deerfield. He went to a prep school, wanted me to go to a prep school. I was just having too much fun in regular high school that I didn't want to go off to private school. I ended up going to Princeton, originally was recruited to play football there.
[00:01:36] Had a, just a marvelous experience at Princeton. I was an engineering major, played on the football team, made some great friends who have been friends for life and work with many of them today in my business.
[00:01:48] Sean Mooney: Were your parents in the business world? What kind of led to like this kind of engineering background?
[00:01:54] Was there like an inspiration growing up to do that?
[00:01:57] Jeff Drazan: Oh, my mom was a teacher. My dad was a radiologist and I was thinking I was going to be a chemistry major at Princeton. And when I got to school I found out that they put me in the engineering school and I did everything I could to try to get out of the engineering school because the challenge at the engineering school is you had to take 36 courses to graduate, whereas in the liberal arts school you only had to take 32.
[00:02:18] I said, "Why do I want all that pain? Why do I have to take four extra courses? I want to be in a liberal arts school and do chemistry," but I ended up staying in the engineering school and it worked out fabulously well.
[00:02:28] Sean Mooney: It's interesting, Jeff, we've done a lot of these episode and had good fortune to talk with a lot of private equity professionals.
[00:02:35] One day I put all of our transcripts into a large language model and I had to basically break down the backgrounds of people who came into this industry. And the three biggest backgrounds of parents of the people who ended up in PE were teacher, doctor, and engineer
[00:02:53] Jeff Drazan: How about that.
[00:02:55] Sean Mooney: But it makes a lot of sense, right?
[00:02:56] There's so much of each of those and like the job and the role that you're in, like that's not surprising. And then particularly engineering, there's just so much, at least in my mind, so much of these like design of solving problems and finding opportunities from that framework they give you in college.
[00:03:12] Jeff Drazan: It is. And in fact, it's the bane of my existence actually, because my wife tells me I'm always trying to solve problems, and I should just listen.
[00:03:19] Sean Mooney: Yeah.
[00:03:20] Jeff Drazan: So I try to do more listening these days than solving problems.
[00:03:23] Sean Mooney: Okay. I'm going to, I'm going to do some notes from you on after this, because I too have that conversation at home a lot.
[00:03:29] The listening part I'm working on. So you played sports. That's another big thing is like people who go, there's a competition, particularly team sports. And then what did you do after college? You graduate from this amazing place and then the world is all in front of you. What was the first step after that?
[00:03:45] Jeff Drazan: I went to work five days after I graduated college for AT&T and Bell Labs. Was working in the bells of the Bell system in New York City in a windowless building and my career AT&T developed from being a low level manager supervisor to ultimately a middle manager working for the labs doing software development.
[00:04:08] Sean Mooney: So tell me about Bell Labs. Bell Labs is one of these kind of legendary skunk works that everyone's heard of. But I haven't met too many people who actually got to work within the belly of the beast, if you will.
[00:04:20] Jeff Drazan: Yeah, well it was a great experience. I had a long chat with my dad about this.
[00:04:26] Because I was very frustrated there. I knew I didn't want to make a career out of staying at AT&T because I looked at my boss's job and that was a good job. And I looked at my boss's job, and that was a pretty good job. And I looked at my boss's boss's job. And the job that I really wanted was my boss's boss's boss's boss's boss's job.
[00:04:45] Because AT&T at that point in time, was the largest employer in the country. They had over a million employees. I really didn't want to wait around 30 years to have my boss's job. And even then, I wouldn't be at the top. So the advice that my dad gave me was treat it as a fellowship, as a stipend, they're paying you to learn, so learn as much as you possibly can while you're there.
[00:05:05] So while I was at AT&T, and the labs, because there was one organization back then, I took advantage of all the educational opportunities and all the managerial opportunities that were available. And so I took a lot of courses. I took a lot of training programs. I moved around to different jobs as much as I possibly could, and I learned a ton about running a business.
[00:05:27] I learned a ton about what a good manager looks like and what a bad manager looks like. All the different personalities and management styles, and I learned a lot about information technology, having been in the IT department essentially of AT&T writing software for the Bell system.
[00:05:44] Sean Mooney: You had this almost this great kind of almost like business school before business school, right?
[00:05:48] It sounds like where you got to see the great thing about these established companies is they had such amazing training programs and it sounded like you, you benefited immensely from that. What was the next step then in your career? Was it right back to business school or where did you go after that?
[00:06:03] Jeff Drazan: Well, I realized that I didn't want to stay there. I wanted to continue my education in some way, and so I had the opportunity to go to business school at night. And so I was working in New Jersey. I was commuting to NYU in the evenings, going to business school at night there and then coming back. And what was great about that is I was making peanuts.
[00:06:24] I was making probably $30, $40,000 a year, but I'd hire a car to take me to the city and back every night. Because AT&T was paying for my education, plus they were paying me a stipend as well. And so I did all my homework in the car going to and from Manhattan. I was working at AT&T, and then I had an opportunity to go work in the venture capital business.
[00:06:47] It was interesting. I didn't even know what venture capital was, and I happened to have a dinner with my cousin and he brought a friend of his along who was his college roommate at Penn, who was actually working in Silicon Valley at the time. He was explaining to me at dinner what the venture capital business was, and I had no clue what venture capital was back in, this is like early 80s, and it sounded very interesting to me. And so I had that experience of learning about that a little bit. I talked to my dad about it, and lo and behold, my dad sends me an article very shortly thereafter about a couple of fellows who were Princeton grads who were starting a venture capital firm.
[00:07:23] So I wrote him a letter because back then we didn't have email. We certainly didn't have phones or messaging or chat or any of that stuff. So I wrote him a letter. Couple weeks later, I get a letter back, "Come talk to me." I go to a city, I meet with this fellow by the name of Peter Wendell, who ended up being my partner for 22 years.
[00:07:42] We sat down at the Harvard Club. He had graduated from Harvard, worked at IBM, and then worked for another individual who was a Princeton grad who was 20 years older than him. And that Princeton grad wanted him to start a venture capital firm venture. And Peter interviewed me, decided I'd be a good associate, and so I had a job offer at the end of that interview.
[00:08:03] Sean Mooney: Was he doing venture capital in New York on the East coast?
[00:08:06] Jeff Drazan: He was doing venture capital in California.
[00:08:08] Sean Mooney: Oh, okay.
[00:08:08] Jeff Drazan: And so while I was at AT&T at that time, I had started to go to business school at night. So I quit AT&T, I took a job in the venture capital business and Monday, Tuesday I would go to school and then Wednesday morning, and then Wednesday evening I'd get on a plane and fly to California.
[00:08:28] I'd work in the venture capital business on Thursday and Friday. Then Saturday I would fly back to New York and finish my business school education. So I originally was taking two courses and I moved to taking five courses at a time. I had all that time on an airplane going back and forth to the west coast.
[00:08:45] So it just became a way of life. And so I finished my business school education by doubling down on my course load. I got some experience in the venture capital business and ultimately moved to California to start Sierra Ventures at the time.
[00:09:03] Sean Mooney: Hey, as a quick interlude, this is Sean here. Wanted to address one quick question that we regularly get.
[00:09:09] 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.
[00:09:33] 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, visit our website at BluWave.net. Thanks. Back to the episode.
[00:09:52] So you got to start your amazing journey towards having world class airline privilege and status at an early age. That's right.
[00:10:00] Jeff Drazan: I did. Yep.
[00:10:02] Sean Mooney: It's interesting, as I'm hearing you talk about this stuff, there's some parallels that I had where I grew up in Texas. I grew up in Austin, Texas. Which very famously had the Nerd Bird coming to Silicon Valley in the early days.
[00:10:14] I ended up going to school in the Mid-Atlantic in Washington, DC. All of my college roommates were from New Jersey, and I had no clue what I used to work in the back of like chemical plants and when I was in high school and college, so I had no clue what was what, but their dads all knew about Wall Street.
[00:10:30] And so the only reason I got onto this whole track was because I asked my roommates, what are they going to do? And they go, "Oh, we're going to go to Wall Street." And I'm like, "Well, I've seen the movies, but what do you mean?" " We do investment banking." And I go, "What's that?" Like, I didn't have a clue, but they did it.
[00:10:43] So I said, "Okay, I guess I'll do that." Then I went ahead and did that and it got me on this journey. And then I too did an executive MBA where I worked, where I'd go on weekends, the same deal. And it was just one of those things where the firm, fortunately that I was with, was like, "Hey, you can go off, go to school, or you can stay in this job and we'll pay for it.
[00:11:01] You're not there to get A's though." I think I wired six deals in class, in my 20 months there. I had my little Blackberry when people had Blackberries and I'm like, release wires and there were just all, a bunch of us. But I went to Columbia because I lived in Connecticut and so Columbia was closer.
[00:11:18] And then the only reason, like even before then I ended up in PE was because some boss grabbed me by the collar and said, "Hey, you're going to go do private equity. And I'm like, what is that?"
[00:11:26] Jeff Drazan: What is that? Right.
[00:11:27] Sean Mooney: But you did that big jump. It was more rare kind of East coast to West coast venture. Very rare.
[00:11:33] Jeff Drazan: Very rare.
[00:11:34] Sean Mooney: And what was that like when people were describing that? You probably would've gotten on the same path that I did, where it was like just naturally go to PE. But I think your more interesting path was the one that took you west and ultimately well informed the rest of the story here was that when you were chased with like going for the California dream from someone who grew up in Long Island and then New Jersey, and then how was that kind of moved to the West coast?
[00:11:58] Jeff Drazan: Well, I think some of it happened my senior year in college. I had the opportunity to interview with Goldman Sachs when I was at Princeton and I got offered a job and it was going to be as an analyst at Goldman Sachs. And then when I went to interview with Goldman, after I, they offered me the job to find out what it was all about,
[00:12:17] basically, being a glorified secretary. I would staple documents and collate documents and get on the Concorde and bring them to London and come back as they wanted you to, someone responsible to physically deliver them and they didn't trust FedEx or whatever it was, if even FedEx was around back then.
[00:12:33] And then I was back in my dorm one day and one of my buddies comes and says to me, "Hey, you've got to go down to Career Services and go interview with AT&T." I said, "Why would I want to do that?"
[00:12:43] And when I looked at that job compared to the job at Goldman, I was going to be a manager day one. They were going to put me through all these training programs, but I was going to have 12 people working for me the first day on the job.
[00:12:54] And I said, "Wow, that's pretty interesting." And the career path there seemed much more what I wanted, which was some hands-on responsibility where I could actually say I did something other than collate documents. And so I took the job at AT&T and I was, I learned so much my first couple years there, and I was there for four and a half years.
[00:13:15] I decided that was the direction that I wanted to go in. And then as I learned about the venture capital business in California, I said, "Oh my God, this is for me. This is just exactly what I want." I've got a technology background. There's few people that are coming out of these backgrounds that are going to have the insights that I was going to have going into the venture capital business, and it worked out well.
[00:13:36] My first two deals were probably the two best deals I ever did in my life.
[00:13:40] Sean Mooney: What were the things that you were investing in in like your early days of your career in venture capital?
[00:13:44] Jeff Drazan: It was telecommunications. Mostly telecom and semiconductors.
[00:13:49] Sean Mooney: Yeah. Like the Qualcomm stuff coming out of the west coast?
[00:13:52] Jeff Drazan: Exactly.
[00:13:52] Sean Mooney: Splitting up packets and all those things that were just mindbogglingly complex. Even to today it seems like, how do you take a bunch of data and move it into the packets and put it all back together?
[00:14:02] Jeff Drazan: A hundred percent.
[00:14:03] Yep.
[00:14:03] Sean Mooney: And then you probably had some of that data was some of the, like the intel stuff going on with chips and things like that, were they still doing the physical world as well?
[00:14:12] Jeff Drazan: Oh, absolutely.
[00:14:13] Sean Mooney: And so how long were you in the venture capital industry?
[00:14:15] Jeff Drazan: 22 years.
[00:14:17] Sean Mooney: 22 years. So you got to see in some ways the advent of an industry that has changed the world in all ways probably.
[00:14:25] Jeff Drazan: Well, when I first joined, I thought I'd missed the boat because they were taking companies public with $20 million valuations back then.
[00:14:35] And you had the three horsemen. You had Robertson, Stevens, you had Hambrecht and Quist. And there was one other, I forget who it was offhand.
[00:14:43] Sean Mooney: Montgomery, maybe?
[00:14:44] Jeff Drazan: Montgomery. Montgomery, yes. Yeah, Tommy Weisel, right?
[00:14:46] Sean Mooney: Yeah. Yeah.
[00:14:47] Jeff Drazan: We're doing all those deals and I had the opportunity to experience all that, but a lot of money was made in the years before I got to the venture capital business, and we had a bit of a dry spell for three or four years when I entered it in 1985, and then it just took off like a rocket ship after that
[00:15:04] Sean Mooney: 22 years.
[00:15:05] That's a career in itself. You got to see an industry that literally changed the world, And as today continues to change the world, how did that then ultimately factor in your ability to say, "Hey, a lot of what I've learned here could also be applied into this other industry that's similar but different,
[00:15:23] that's called private equity."
[00:15:25] Jeff Drazan: Well, I had some friends in the private equity business and I listened to how they prosecuted their business, and I realized it was a missing component there. And that was technology and the world was becoming more digital. E-commerce wasn't even a figment of anybody's imagination.
[00:15:40] Back in when I started Bertram, it was just starting to become a reality a couple years after I started Bertram, but we saw it coming and so I wanted to get involved in that at the front end if I possibly could. And so the idea of bringing digital transformation to low-tech no-tech businesses was something that was going to be unique in the private equity business.
[00:16:04] And that really was the foundation of why we started Bertram.
[00:16:08] Sean Mooney: And when was Bertram founded?
[00:16:10] Jeff Drazan: 2006.
[00:16:12] Sean Mooney: As I go back on the way-back machine, you had, there'll be some probably parallels to modern times. You have the modern day internet formed in the mid 90s with Netscape and someone can use it, a lot of boom, boom, boom, boom, boom buzz, buzz, buzz, buzz, buzz.
[00:16:26] And then a lot of the talk kind of crashes in 2001. And then suddenly out of that fire that occurred, all these phoenixes started coming out and people realized, no, this is a really powerful tactical tool that can power a business, not just a buzzy buzzword, right? That's going to be a strategy into itself.
[00:16:45] So right around there, 2006, as I kind of channel what's going on right now. All these tools are starting to be addressable by mere mortal companies, am I remembering the world correctly?
[00:16:54] Jeff Drazan: You are, but they weren't mere mortal companies that were using those tools. They were pioneers. So they were companies that were being very progressive and certainly for the private equity business, especially in the lower middle market or the lower market, nobody was using those tools at all. In fact, we built our own e-commerce system in the very beginning days of Bertram Labs because there wasn't one available. And ultimately you have Shopify and all those other systems that are available today. We don't have to build them anymore. All we do is integrate them. Back in the day, we had to write that software, and that's where Bertram Labs got started.
[00:17:33] We wrote a lot of that software, but Bertram Labs evolved into, instead of writing the software, integrating what was available on the shelf here in Silicon Valley and being here in Silicon Valley helps us stay on the leading edge of what tools are available to more progressive businesses.
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[00:18:18] To this day, many don't know that BluWave has turned the Interim Exec offering on its head, and completely made it the way that my friends and I in PE always wished it was. BluWave has a dedicated team that does nothing but interview, pre-vet, credentialize, and reference private equity grade groups and people so that we know who you need.
[00:18:38] Before you call us, in the case of Interims, we have more than a thousand top Interim private equity grade CEOs and CFOs that are ready to be matched for your exact need. When you need it, give us a call, or visit our website at BluWave.net, and we can give you excellence and alpha with ease.
[00:18:56] Back to the show.
[00:19:00] What did the original team look like at Bertram? What was that that founding setup that you had? It sounded like, at the beginning of Bertram Labs, and we should maybe introduce that in terms of like, what it is today, but what was it then? And then how much of it was investment professionals versus technology and operating professionals and the original day one, when you get the band together?
[00:19:23] Jeff Drazan: We had no clue what we were doing.
[00:19:25] Just if you look at how we run our business today, if we had that knowledge back then we would've retired by now. We were teaching ourselves how to do this business, and very few of us in the early days had any experience in private equity. I was bringing my venture capital tool set to bear, but there was a lot that we still had to learn about how to prosecute the private equity business.
[00:19:48] But maybe that's why we became what we did is because we didn't do it the old fashioned way. We pioneered our own ground.
[00:19:55] Sean Mooney: You didn't have a mold and so you start off you have yourself. You're from the investment side, but you came out of Bell Labs and so you understand the technology.
[00:20:05] And then you have Bertram Labs, which is the name of essentially your operations team within your firm.
[00:20:11] Jeff Drazan: Which we didn't start until three or four years in. We used consultants on the outside and then realized that we needed to bring that in-house.
[00:20:20] Sean Mooney: So you own it.
[00:20:21] Jeff Drazan: So it wasn't until our second fund that we brought all that in-house.
[00:20:24] Sean Mooney: Particularly from a tech perspective, that would've been amongst the very, very earliest PE firms that brought that kind of capability in-house.
[00:20:34] Jeff Drazan: There are very few PE firms today that have that capability in-house.
[00:20:36] Sean Mooney: Yeah, that's a very good point.
[00:20:37] Jeff Drazan: What most PE firms have is Operating Partners. What Operating Partners do: they tell the management team what they should do.
[00:20:44] They don't actually do it. They don't get their fingernails dirty. Every one of the people in our Bertram Labs team, 20 people, they get their fingernails dirty. Everybody is a player-coach.
[00:20:53] Sean Mooney: What are some of the things that Bertram Labs is doing today within the construct of the business of Bertram? What are the areas that they add to in both maybe diligence and value creation?
[00:21:04] Jeff Drazan: Yeah, well, there's five areas. There's software development, because there's still a fair amount of work that we do to add on to some of the package software that's available. There's cybersecurity, to keep these companies safe. There's ERP and CRM integration to help with the acquisitions that we do and to integrate those into our core businesses.
[00:21:24] There's digital marketing and e-commerce, so we're helping our companies understand how to operate digitally in this world, how to sell on Shopify, how to sell on Amazon, how to market on Facebook, and all the various social media platforms, TikTok, et cetera. Those are very complex algorithms that are changing all the time.
[00:21:47] We understand how to do that. And a lot of what we do for one company, even though it might even be in a separate industry, there are parallels in how we implement those practices in other industry segments. So we've got this library of operating procedures and systems that we can bring to bear that are tried and true across many companies by the same people that are doing it day in, day out.
[00:22:12] Sean Mooney: What are the ranges of types of companies that you're investing in today, what types of businesses are you applying these skills to?
[00:22:22] Jeff Drazan: We've invested in a skincare and cosmetics business. We've invested in a smoothie chain. We've invested in a cellular based camera company. We've invested in distribution businesses that distribute construction supplies.
[00:22:40] Or components that go into starter motors or automobiles. Opportunity legal services. So it's a broad range of applications across business services, consumer products and services, as well as industrial businesses.
[00:22:55] Sean Mooney: What I think is really interesting about your approach, Jeff, is you're not only bringing them to maybe some areas you would expect they would be addressable to.
[00:23:03] B2C, right? That makes sense. "Okay, we're going to do things with e-commerce systems and digital marketing," the traditional areas where people think is the mainstay where those are applied. But you're also bringing it to B2B, into manufacturing, and to the more traditional areas that even to your point today, don't even think about using these tools.
[00:23:21] Jeff Drazan: Yeah. Even in a B2B environment, there's still room for e-commerce because someone's got to buy that business's products. Well, it's another business that's buying those business' products. Our objective is to make it as easy as possible for them to buy that product. How do you do that? Make it available online so they can use their phone.
[00:23:39] So the whole concept around a lot of our e-commerce work and our digital marketing work is mobile-first because everybody has a mobile phone.
[00:23:47] Sean Mooney: Yeah. Even in B2B, right?
[00:23:49] Jeff Drazan: Absolutely.
[00:23:50] Sean Mooney: You're increasingly not at your desk no matter who you are, right? Particularly if you're buying something that's a valuable product.
[00:23:56] As you think about the skills you have, you've got investment professionals, you've got Bertram Labs, You've got this really kind of technology-first mindset, and you're bringing it to both B2C companies that are maybe more naturally using these tools, but also B2B, which aren't where I imagine you find a huge advantage.
[00:24:15] You're looking at new prospective companies. How do those capabilities, particularly within Bertram Labs, help you gain advantage during diligence in the assessment process?
[00:24:28] Jeff Drazan: There's two sides to it. It all depends on who owns the business. If the founders still own and manage the business, it's a different sale process for us than it is if another sponsor, another private equity firm owns the business.
[00:24:42] If another private equity firm owns the business, they could care less what we can do to that business, Because they're not going to roll. They want the highest price no matter what. If it's a set of founders that still own the business and are operating the business, they realize that they need to make a transition to the digital world.
[00:24:57] And we differentiate ourselves from other private equity firms because we can give them the confidence that we can deliver that. And a lot of times we'll walk into a management meeting with solutions for them, for their existing business right then and there. Whereas other private equity firms will say, "You should think about doing this."
[00:25:15] We walk into the meeting and we say, "We've done this for you already, and you didn't even have to ask."
[00:25:21] Sean Mooney: I think, you're adding value and I'm in my mind's eye thinking about a management meeting with you all where you're there with maybe the founder and the management team of the portfolio company and having been in a ton of management meetings over my career, the ones where you knew you were doing a good job is when the owner was taking as many notes as you were.
[00:25:39] Jeff Drazan: Yeah.
[00:25:40] Sean Mooney: And I can see a lot of notes being taken, like given the capabilities, particularly the areas that you're addressing are probably the most daunting for any small, midsize, even larger company. Because it's just moves so fast and you always feel like you're behind already and you don't know where to start.
[00:25:55] And if you're able to come in and say like, "We're here. Like let us show you the way."
[00:26:00] Jeff Drazan: I'll give you two examples. One's an earlier example at Bertram where we're trying to buy a skincare and cosmetics business, very competitive process. And for whatever reason, the founder of that company foolishly decided they were going to do an ERP conversion right in the middle of their process.
[00:26:18] And so right in the middle of the process, while they were taking management meetings, their ERP system went down and they couldn't get it back up and business completely halted at that company, which was a disaster for them.
[00:26:28] Sean Mooney: Were they putting in SAP, stop all production or?
[00:26:31] Jeff Drazan: Something very similar, actually moving to Microsoft Dynamics from, just QuickBooks, right?
[00:26:35] And so what happened was they called us and told us, well, they needed to cancel the meeting. They're going to put off this, that, and the other thing. And we said, "Well, what's the problem?" They explained the problem to us, says, "Well, maybe we can help you fix it," because they had tried to call consultants to try to fix it and they couldn't get it back up and running.
[00:26:51] So we sent our Bertram Labs team up there and in 24 hours they fixed the problem, got the ERP system up and running again, and they canceled the process and they sold the company to us.
[00:27:00] Sean Mooney: Holy mackerel.
[00:27:01] Jeff Drazan: More recently, we bought a chain of smoothies shops. We collected all the data they had from their point of sale data and realized that people that buy this also buy that.
[00:27:15] No one at the front desk was saying, "Would you like fries with your burger, or would you like a shot of wheatgrass, with your smoothie?" We did that. Correlation figured it out, and when we went to our management meeting, handed them that data. The next week they instructed their 50 chain smoothie operation to start doing that, and their sales went up by some percentage almost immediately when they started doing that.
[00:27:40] Well, we won that deal because of that. Now no other private equity firm could have pulled that off because they don't have an inside data sciences team. We do.
[00:27:49] Sean Mooney: It really informs why we're here talking about the Top Private Equity Innovator and Innovator of the Year here. Because I think the way that you're thinking about this, the business of private equity as a business and you're equipping resources that enable you to execute a strategy that's wholly different and unique.
[00:28:05] So I left private equity in 2016. Even then, it was really competitive. Back then, you still couldn't even really, you weren't making money on the buy. Maybe it was one of the few, maybe the last chapter of that book of making money on the buy. It was a little bit left. And the reason I joined the firm that I was with is because we were highly specialized on a discrete range of business around the information and data value chain.
[00:28:28] And the whole notion was, the only way that we're going to be successful over time is A) by being able to add value. But B) if there is any chance on the buy, we don't want to buy at the intersection of supply and demand. So we have to be able to see something that's not in that book that 200 other PE firms are seeing.
[00:28:45] Jeff Drazan: That's right. Particularly if it's sponsor owned. Because they're just looking for the highest price. So you got to figure out, how do I justify that higher price?
[00:28:52] Sean Mooney: Exactly. Right. And then even then, we still wanted to have it because to your point, like we wanted to be able to show our value to what we're bringing other than, in addition to a check.
[00:29:03] I'm curious, as you think about your ability to go into a process, not only can you show the value, but how does that help you see things that aren't in the book? Which means you're not buying at the intersection of supply and demand, unknown information like everyone else's. Because you're able to see what you can do with the company afterwards, probably in ways other people can't.
[00:29:25] Jeff Drazan: Yeah, it's all about the data. It's a hundred percent about the data. It's just having a very sophisticated approach to analyzing data and looking for where the opportunity lies. And we have 20 people inside of this firm right now that are using AI extensively to help evaluate and look for those opportunities in the data. The smoothie company is a classic example of that.
[00:29:47] Sean Mooney: I think it's really amazing and thoughtful, and part of it is like the art of PE today, and it has been for a while, is it's not what the company is, it's what it can and should and will be, and your ability to impact value creation immediately. So to the extent when you do invest in a company and you are partnering, how does that diligence then inform what you're going to do kind of day one in partnership with the companies?
[00:30:14] Jeff Drazan: Well, so on the front page of our website: 'Unlock Your Potential'. And so that is our job, is to find those areas where the potential lies and then add some kinetic capability to it with our labs team to accelerate that opportunity to get to the full potential. And so we're just using what we've learned over the years.
[00:30:35] It really is a game of pattern recognition more than anything else. When you see 2000 businesses a year and you evaluate 2000 business a year, you see patterns and you see what works, what doesn't work, and you see of a range of how people approach those same problems in different ways. And so it's recognizing the problem, recognizing the opportunity, and then applying your playbook to those opportunities.
[00:31:00] That's a pattern recognition game, and that's the beauty of why we have this concept of One Bertram here, where everybody's involved in everything here at Bertram. If you go to our Monday meetings, this room is packed. And what are we doing on that Monday meetings? We're evaluating businesses together.
[00:31:17] It's not siloed. We're evaluating them together, and everybody from the youngest person on the team is encouraged to participate.
[00:31:25] Sean Mooney: So you're playing rugby, you know it's the scrum, right?
[00:31:27] Jeff Drazan: Oh yeah.
[00:31:27] Sean Mooney: You're getting together. It's not everyone doing their kind of their own thing and playing single sports, your mob and kind of gang tackling the opportunity and then helping move the ball forward.
[00:31:36] Jeff Drazan: Absolutely.
[00:31:37] Sean Mooney: When you talked about 'Unlock the Potential', it brought me back to the way that we used to look at companies. And I grew up in Texas, so I only know I speak metaphorically, and I would always say we're looking for companies that are successful in spite of themselves. They have like all these areas that they're doing well, but there's like 10 things that you can do in addition that are just going to unlock this full potential.
[00:31:59] And I always thought it was a really clever saying until one year, we would always go play like a winter sport together in Westchester County and it was like, there's this paddle tennis sport where you play outside and it was really as much as anything about drinking beer while you were ostensibly exercising.
[00:32:14] Jeff Drazan: Yeah.
[00:32:14] Sean Mooney: And we would always...
[00:32:15] Jeff Drazan: But you did a lot playing rugby too.
[00:32:16] Sean Mooney: Yeah. Yeah, exactly. Really excellent sports.
[00:32:19] To kick off the season we would always give each other shirts. I thought it was really like such a great saying until one year the shirt that they gave me said: Successful in Spite of Himself. I was like, it's funny because it's true.
[00:32:32] With that in mind, there's things that I would always look for after having pattern recognition. Like whenever a sim would come in, an information memorandum from an investment banker, and you're looking at things, and for our listeners who are less familiar on this, you're going to look at hundreds, if not thousands of companies a year where you get these memorandums that will play out all the attributes of the company, and you learn from your vantage of your firm and where your skills are and what your capabilities are like, what the elements of value are. And so for almost like a little MBA class for our listeners, when you get a sim or your team's looking at a sim, you're looking at a company for the first time, what are the big things that you're looking for that say, "You know what?
[00:33:12] This could be a Bertram company because it either has it or we can bring value to enable it."
[00:33:18] Jeff Drazan: We look for two things. We look for TAM, so we look for large markets where we can grow into those markets, and not only where we can grow into those markets, but the buyer of our company five years down the road can grow into that market too.
[00:33:32] And now as we're getting larger and buying bigger companies, we have to make sure that that next buyer has an opportunity. So large markets are really critical to everything that we do right now, and we've learned our lesson there. We've made some mistakes by participating in smaller markets where we've reached thresholds, we've reached 40, 50% market share, where does the next person go and where does the person go after that?
[00:33:53] That's a problem. The other thing we look for is margin. Is there a really good gross margin? Gross margin is a good example or very representative of how good that business is relative to its peers or what the level of competition is, in that market. How exclusive their relationship is with their customers in that market.
[00:34:11] So low margin businesses? Not a great place for us to start. Small TAM businesses? Not a great place for us to start. So that's generally the first barrier that we have to cross with everything that comes across our desk.
[00:34:23] Sean Mooney: Yeah. What you did there, I thought was, you just summed up a multi-hundred thousand dollars worth of business school that I had. Saving money people.
[00:34:32] And then B) what I saw there was this great melding of your two backgrounds of venture capital and private equity, and both historically were better at one versus the other. And so venture capital, like the market always wins, get a large market, and they really understood that much better than PE did in its early innings.
[00:34:51] And what I think that you really shared that our listeners should hone in on and take to heart is I think a lot of people get caught up in this three to five year strategy. You're really building a company with a 10 to 15 year strategy.
[00:35:03] Jeff Drazan: A hundred percent.
[00:35:04] Sean Mooney: Because the next buyer needs their five years and their next buyer needs five years and their next, their buyers.
[00:35:09] Jeff Drazan: And that's the thing that people miss in this business quite a bit. It took us a while to learn that lesson. The reason we're learning that lesson late, it's because we were working with smaller businesses and TAM wasn't as much of an issue, and that next buyer and the buyer thereafter wasn't that much of an issue.
[00:35:25] But now that we're buying larger companies and building larger companies it creates a problem. So for instance, if you look at the number of private equity firms that manage an excess of two and a half billion dollars, there's a hundred of them. And so if you're a two and a half billion dollar private equity firm, which we'll shortly become, we need to build a business that has something that those one hundred buyers are interested in. Because there's a future for them as well, but there's fewer and fewer buyers as you get to the top of that pyramid, and so you have to find something that gives them the opportunity to sell to their buyer where there might only be 20 buyers for their business at that point in time if they do what we did with our business in terms of growth.
[00:36:10] Sean Mooney: It's such a good point. Maybe the older mindset in PE is: There's riches and niches. You didn't need it, just find your little niche. This is not the way it is today, but the early chapters, you could take cost out, you could optimize it, you could increase EBITDA. But I think even today, your mindset of like even PE, it's a growth game.
[00:36:30] It's not a cost game. That doesn't work. The cost game works when you make money on your buy. That world failed years ago. What I also like though, that you think about, the melding of your worldview and businesses between the two worlds is: have a great TAM, have multiple years to go, which also gives you multiple ways to win typically.
[00:36:49] But you also said is like, are you making real money on this business? And that's very much more on the private equity lane is like, do you make money on what you earn? And if you have high gross margins, that means someone is willing to pay you substantial sums above what that unit or that product or that software costs to make because it's inherently valuable.
[00:37:11] And very rarely have I seen someone couple those and use the word "and" versus, "or". There's usually "We're going to highly index on one or the other." And you put them on an even playing field together.
[00:37:22] Jeff Drazan: Absolutely. I don't know if you remember this up in the New York area when I was growing up, there was a TV commercial for an electronic store called Crazy Eddie.
[00:37:32] Sean Mooney: Yeah. I remember Crazy Eddie.
[00:37:33] Jeff Drazan: And Crazy Eddie would go on and say, "We have the lowest prices, but we make it up in volume."
[00:37:38] Sean Mooney: Yeah.
[00:37:38] Jeff Drazan: Right. Well, that strategy really doesn't work. Crazy Eddie's out of business.
[00:37:42] Sean Mooney: Yeah. Yeah.
[00:37:43] Jeff Drazan: You can't make it up in volume unless you're Amazon. Amazon makes it up in volume, but Amazon doesn't own any of the goods.
[00:37:50] Everybody else owns good. They just created the marketplace, so they get a little vig on everything that everybody else does, and they make them make it up in volume.
[00:37:58] Sean Mooney: You can make it up in volume when you have low cost structures, and you don't have working capital.
[00:38:02] Jeff Drazan: You don't have working capital.
[00:38:02] Sean Mooney: Or CapEx.
[00:38:03] Jeff Drazan: Exactly.
[00:38:04] Sean Mooney: For our listeners here listening to this, put a save on this. Whether you're a small business, a family business, or a large company, what Jeff shared is just so foundational to being successful in keeping things not necessarily simple, but principled. And if you can have a large market where you have opportunity to grow and you can make money while you're doing it, business is not easy, but it becomes easier if you can do that.
[00:38:26] So you've made the investment in the business. It has these features that you're interested in. Bertram Labs has an opportunity to help add value. Walk me through like the first six months, what it's like to be partnering with you. What does Bertram do in terms of what can they expect from Bertram Labs and the people on your board?
[00:38:48] How are you going to jump in hand in hand and then get this company off to the races, into this trajectory towards kind of victory and success?
[00:38:56] Jeff Drazan: Well, again, team effort. Bertram Labs is involved in our management meetings before we even bought the company, working with management to understand their business, we actually put a Bertram Labs person with various people in the firm and have them sit there next to them, watch them do their job every day for a couple of days so they can learn about, "Well, how can I create some efficiency with this process downstream and add information technology to that component?"
[00:39:23] And because we're hands-on fingernails, dirty group, we're able to add value very, very quickly. So we'll introduce information technology into the fold to improve operations very, very quickly. Example of that, we had a distribution company. Now we have multiple distribution companies, but we use the same software that we developed for them in all of our distribution companies right now.
[00:39:46] This company had a couple of hundred thousand SKUs that they would buy, put in their warehouse, and then sell. We were doing lots of acquisitions for them. So we'd find another company that had 50,000 SKUs, a hundred thousand SKUs, and we have to integrate that. But a lot of those SKUs were similar or the same.
[00:40:02] And so how do we know whether buying that company is going to add value to what we have? Well, if their supply chain is less expensive than ours, for the same SKU, if they add more SKUs to our list so that we have more of an endless aisle of product that we can sell, how do you get to that answer of whether there's value there in that acquisition opportunity or not?
[00:40:24] And in the distribution business, there's tons of opportunities for acquisition, and so we're looking at 10 to 20, 30 acquisition opportunities at the same time. How do we meld all that data? Well, Bertram Labs put together a program that looks at their SKUs, looks at our SKUs, matches them, and comes up with an exception list where they can't find the answer, but understands that a hex screw that's two inches long, that's named XYZ is the same as this hex screw that's two inches long and named ZYX over here. We marry those two things together to determine where there's overlap and then we look at the supply chain cost and determine, "Ah, they're buying that screw for 2 cents, and we're buying it for 3 cents."
[00:41:07] So if we buy that company, we're going to make 50% more on that screw than we did before. We'll do that before we buy the company, with all the potential acquisitions that we're looking at, which are actionable so that we can move on them immediately. And there used to be an individual inside of those businesses that would do that comparison and take them weeks to do that.
[00:41:29] Weeks. Because they would put spreadsheets together and manually compare the spreadsheets and the columns.
[00:41:34] Sean Mooney: That used to be me when I was an associate in PE. I was that person.
[00:41:37] Jeff Drazan: That's right. Exactly. Now we do it in minutes instead of weeks. It just adds so much more value. When we show that to the management teams, when we're in our diligence process, they're blown away by the capability, and nobody else can do that because they can't bring those resources to bear as quickly as we can because we have that in-house capability.
[00:41:58] Sean Mooney: Then what that ultimately enables you to do is: the investment banker's
[00:42:01] saying, "EBITDA is X," you know it's Y, and so you're not paying the market clearing pricing, so your value creation plan starts in seconds, not months.
[00:42:10] Jeff Drazan: Exactly, but one of the challenges we have is because of that, we reserve a certain amount of capital to do acquisitions.
[00:42:18] We rarely use that capital or as much of it as we reserve because we find out that we're able to find value and increase our EBITDA and deleverage our business along the way, which enables us to borrow more money on similar or more attractive terms.
[00:42:33] Sean Mooney: The organic game stands on its own, and you don't need to have the acquisitions to make the math work.
[00:42:39] You can enhance the math by doing that in a way that's principled in a way that you don't have to do it to make it happen. The model works at the end of the day.
[00:42:47] Jeff Drazan: Correct.
[00:42:48] Sean Mooney: So the world's changing fast, right? And I think everyone's trying to get a sense for what is going to happen not only tomorrow, but a week from now, a month from now, a year from now.
[00:42:58] What are some of the themes that you're working with right now with your portfolio companies thematically, that say, "Hey, like we need to be focusing on these things Because they're going to matter. In the days ahead."
[00:43:09] Jeff Drazan: Good question. It's different for every company, but first and foremost, with all of our businesses, customer satisfaction is at the very top of the list.
[00:43:20] If your customers are happy with you and you've built a trusting relationship with them, they're going to buy more from you. And there are enough businesses out there that try to cheat their customers along the way. We went to see a company years ago. That was in the HOA services business. And so when a homeowner who was in an HOA had a problem, they would call this company and this company would arrange for whatever services were required to solve that problem.
[00:43:48] Well, he had a big sign up on the wall in his call center. He probably had 250 people in his call center, but he had a big sign on the wall. It said, 'If it's gray, we pay.' And that is a philosophy that I love because that's customer first, company profitability, if you will, or company priority, second. You keep your customers happy, you make them believe, or you help them to believe truthfully that you have their best interests in mind,
[00:44:18] they're going to come back to you again and again. And so it works across the spectrum. And the more you keep your customers happy, the more business you're going to get and the better your reputation's going to be in the marketplace. And so, I think that's the way you compete in this world because things are so tight everywhere, but if you service your customers, you're going to win every day of the week.
[00:44:39] Sean Mooney: It's interesting you said that. It brought me back like to the blurry, scary years of when I left out of PE and I started BluWave. And even if you think you know your customer so often people don't really think intentionally about it. I was in PE for almost 20 years and I was like, I know what our customers want and I came up with this offering.
[00:44:59] They liked everything about it other than the way we wanted to charge for it and the way we wanted to deliver it. And so I was like the first six months, zero customers, but they're like, "We like what you're doing, just not those two things."
[00:45:11] Jeff Drazan: Yeah, "Here's a hundred dollars bill. We're going to charge you $150 for it and we'll give it to you. You'll pay us up front."
[00:45:16] Sean Mooney: And I was like "No, this is what they need. They don't know it yet." And it was just terrifying. And I probably almost shut down BluWave like four or five times, because it just wasn't getting traction. And then finally I had the audacity just, and really to talking to people, it's like, just go ask your customers what they want, Bozo. And I went and I talked to them and I talked to the early customers, like, "All right, this is what we're doing. What should we do?" And the same friends who told me this was a great idea with that model in the beginning were like, you find out, your friends don't tell you necessarily what the truth is.
[00:45:43] They tell you what you want to hear in the beginning. But then they were extremely generous. Like, "Here's the way we really want it. We like the core business. But like, if you do these two things, we'll use it all day." And I was like, "Well, that's not conventional." But I said, "Okay, what else do I have to lose? But I'm going to have the audacity to listen to our customers."
[00:46:01] And I did that. And the second I did that, we went from no customers, like literally like a flip to five PE firms, 10, 50, 100, 200, 400. Next thing you know, we're in the top 4% of the Inc. 5,000. And it was just like having the audacity to ask your customers what they want and what will make them happy.
[00:46:19] And if you ask them, they'll tell you. It's just like keep life in business simple. And it becomes simpler.
[00:46:25] Jeff Drazan: I actually learned something from a sales guy that I worked with more recently and he said, "Customers like to be right." And so one of his sales techniques that he found very successful was to go into a customer who was reluctant to give him information, and he would guess what that information is.
[00:46:46] The customer would inevitably correct him because the customer doesn't want the wrong answer to be out there. And that's how we would get information out of the customer. So for instance, if he's selling software, he would say, "Well, are you currently using Microsoft Dynamics for your ERPI?" "Well, I don't really want to talk about that."
[00:47:07] But he would, instead of asking him whether he is using it, he would say, "Well, I know you're using Microsoft Dynamics for your ERP." And the customer would say, "No, I'm not!"
[00:47:16] Sean Mooney: That's a great trick. I've got to make a call to our sales team real quick.
[00:47:19] No, but that is such a great kind of way, like the truth lies in within your customers.
[00:47:24] And if they like it, and I love the symmetry of our conversation here, if they're satisfied, they're going to be willing to pay you a lot more than it costs you to make that tool or that software or that product. The whole conversation we had, I think all goes very well together. If they're satisfied, they're going to pay you more.
[00:47:40] If they pay you more, and you have a lot of market to go after, you're going to be pretty successful in business, in life, if only, it we're that simple. But it's like those are the core pillars that matter.
[00:47:49] So maybe as we round out our conversation, Jeff, let's dare to look forward. And as I'm thinking about ending this, a lot of the conversation with friends that I have in PE, they're like, "Oh, it's so hard."
[00:48:01] And I remember having this conversation with bosses of mine decades ago in PE, and one of my bosses said, "Sean, it was always easier 10 years ago and 10 years ago, it was always easier 10 years ago. Welcome to life, like dust off your pants."
[00:48:16] With that in mind, that PEs gotten harder, but it's still really good, what does the next 10 years of PE look like in your mind?
[00:48:23] Jeff Drazan: It gets back to how are you going to create value and coming up with innovative ways to create value because everything that we were doing 10 years ago, everybody else is doing now, everything we're doing uniquely today, people are going to be doing 1, 2, 3, 4, 5, 6, 7 years from now. So we have to continue to innovate and find ways to be differentiated and add more value in ways that other people aren't. How do you do that? You have to take risks, you have to take chances. You have to be forward thinking. You have to be cognizant of all that's happening around you.
[00:48:59] That's why it's so very important to engage all the members of your team because we're all talking to different people. We're all reading different things, and we have our own interpretation of where the trends are going, and so it's just putting all hands on deck to be able to seek those areas where other people aren't adding value, where we can potentially add value and take risks in trying to add that value in those different ways.
[00:49:25] Sean Mooney: I think that's extremely well said, and it reflects why we're here today talking about the Innovator of the Year. The PE industry has turned into an industry, the business of is a business and A through Z. During our conversations today, you've shown that you run your business like a business and appreciate that.
[00:49:41] The world isn't static, right? It's a multiplayer game. You're in a multiplayer multiboard, three-dimensional chess game, and you're going to do something and they're going to do things, and that's why it's probably one of the most fascinating industries you could ever operate in. But you have to dare to be great, and you have to dare to look forward and take some moves.
[00:49:57] And so Jeff, I really appreciate you spending the time kind of pulling back the curtain here and showing how you all have been so excellent so far, and are no doubt positioned to continue to be excellent in the next decades ahead here. So thanks so much Jeff for spending time. I learned all sorts of things I wish I knew before and that's been incredibly generous of you.
[00:50:18] Jeff Drazan: Appreciate the opportunity to speak with you.
[00:50:33] Sean Mooney: That's all we have for today. Huge thanks to Jeff for joining. If you'd like to learn more about Jeff Drazan, Bertram Capital, and/or the Top Private Equity Innovator awards, please see the episode notes for links. Please continue to look for the Karma School of Business Podcast anywhere you find your favorite podcast.
[00:50:50] We truly appreciate your support. If you like what you hear, please follow, five star rate, review, and/or share. This is a free way to support the show, and it really helps us when you do this, so thank you in advance.
[00:51:00] In the meantime, if you want to be connected with the world's best in class, private equity-grade professional service providers, independent consultants, interim executives,
[00:51:08] that are deployed and trusted by the very best business builders in the world, including many hundreds of the top PE firms and thousands of portfolio companies, and you can do the same whether or not you're in PE: 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.
[00:51:27] Onward.
[00:51:29] The views and opinions expressed in this program are those of the individuals presenting, and do not necessarily reflect the views or positions of any other persons or entities, including those referenced herein. No representations, warranties, financial, legal, tax, or other advice made herein.
[00:51:44] Consult your advisors regarding any topics discussed during this episode.
