[00:00:00] Sean Mooney: Welcome to the Karma School of Business, a podcast about the private equity industry, business best practices, and realtime trends. I'm Sean Mooney, BluWave's founder and CEO. In this episode, we have an awesome conversation with Jim Murphy, Senior Managing Director with LLR Partners. Enjoy.
[00:00:34] I am super excited to be here today with Jim Murphy. Jim, thanks for joining.
[00:00:39] Jim Murphy: Hey, great to be here. Thanks for having me.
[00:00:42] Sean Mooney: This is a really good one. I've been looking forward to this one for a long time and I finally had the opportunity to corner Jim and so it was Jim and I were at a dinner at one of these big kind of PE conferences the other day.
[00:00:53] I've been wanting and wanting, and then Jim had no choice but to straight up answer me and we finally got him, so, so I appreciate Jim, because this is a, this is going to be a really good one.
[00:01:02] Jim Murphy: So I appreciate you buying the wine at dinner, so that was good.
[00:01:05] Sean Mooney: Exactly. Yeah, i'm good for a few things these days and that's one of them.
[00:01:08] But mostly I'm not let out of the office for a whole host of reasons.
[00:01:12] And maybe Jim, as we jump into this, the way I love to start these things is to get the story of you. So can you tell us how you grew up, college experiences, first jobs out of college, and then how you ultimately got into private equity?
[00:01:26] Jim Murphy: Yeah, so I grew up in California, Northern California. Enjoyed it. It was a great environment to grow up in. A lot to do. I went to school at Cal State Hayward, actually started at Cal Poly and finished at Cal State Hayward, so it was part of the state school system. From there, my first job out of school was with Arthur Anderson.
[00:01:45] Really enjoyed it. It was a great place to learn. They did a good job of teaching you how to work. I did that for about three and a half years and
decided I did not want to be in public accounting. And so I actually went and worked for a large developer, KB Homes and was their assistant controller.
[00:02:02] Did that for a couple of years and really decided I wanted to move up and continue to move along with my career. Actually got a CFO job shortly after that, I think i'll tell you a little bit more about that later, but started my CFO career and went through a couple of different iterations of it.
[00:02:19] I started in healthcare and was in long-term care for about the first, I would say, third of my C-level career, and then spent the last two thirds in technology and made that pivot in the '99, 2000 timeframe, so right as .com boom was happening. But it was a nice chance for me to pivot from healthcare into technology.
[00:02:40] The last half of my CFO career, which was spanned 30 years, I was also the COO. So I was a very operational person and really enjoyed having both hats. That's one of the things I talk to our CFOs in the portfolio about all the time is I think they should be very operational. And really how I made my way to PE was I went through the cycle, sold four companies during that period of time.
[00:03:03] So it was interesting. Not all of them were created equal. Some of them were good, some more you were just happy to be out of. But when I had sold the last company that I worked for, a company called Greensmith, I had two years of basically a transition agreement with them. We sold to a company called Wärtsilä, which is a big Finnish-based company, and we were this small, nimble company and they did not want the big Finnish-based public company to ruin the small, nimble company.
[00:03:28] And so we made the transition. I was the COO and CFO, and so they selected me to transition. Our CEO had been much more external, so as I was coming to the end of this two year period, I was starting to look around and trying to figure out what I wanted to do. And got a reach out from LLR from one of the partners.
[00:03:46] I also knew the attorney that they used quite a bit, and I knew their business development person, and so they were calling me about potentially going into one of their portfolio companies as a C-level executive. But then it morphed into,
[00:04:00] "Do you want to come in? We're building this value creation function here at LLR.
[00:04:05] We're very early in it. Do you want to come in and be part of that?"
[00:04:09] And really it was providing me optionality. They said, "Come in, do this for a couple years and then, look around the portfolio, see a company that you may want to go into and you can do that." I thought it was interesting because it was something new for me,
[00:04:20] something where you got to see a bunch of different companies, but really hadn't, this wasn't part of the plan that I had from a standpoint it fell on me or fell to me. And so I joined. Was about six months in. They actually asked me to take over and lead the group and grow the function.
[00:04:40] And so I've been there for a little over six years and been the leader of it for about five and a half. It's been fun. It's really interesting to be on the other side in private equity as opposed to being on the company side where you're having to answer to the private equity folks.
[00:04:56] Sean Mooney: Yeah, and it's, it presents maybe a whole host of opportunities, but challenges on being on the other side.
[00:05:02] But I can see how I was listening to what you were saying and thinking about the state of the industry of private equity, the path that you took as such a, an excellent job, A to be in, in the value creation role, but B, to be leading the team. I would always talk with my colleagues when I was in PE and we would always say, that
[00:05:21] it was debatable which job was the hardest, the CEO or the CFO, but they were always close. And the CEO, the, the buck stopped with them and their, the pressure that everyone else felt. But the CFO, it was such an interesting combination of skills and traits that you needed because you needed to be
[00:05:41] introverted and analytical, but you needed to be extroverted enough to be a source of information gathering across the organization. You had to be able to understand what the information says. You had to be able to disseminate it to others, so the rest of the organization could be, well, you had to be able to be really tactical and get stuff done and detail oriented, but you also had to be really strategic and that is like, that's a purple unicorn.
[00:06:06] And so to do that, particularly in the quote unquote Strategic CFO role, which is the highest level of Maslow's hierarchy of CFO, that's really hard. And you've done that journey. So how did that path equip you to then take this
role as a leading a value creation team of one of the top private equity firms in the world?
[00:06:25] Jim Murphy: No, I appreciate your thoughts on it because I do think, as you look at it, having the CFO background really grounds you and you have to really understand the nuts and bolts of a business and be in a position where you really understand the metrics of the business and what makes it tick. Being that number two in a company and really having, for me, it was operating responsibility, so I had both hats, gave you a different perspective and so I liked the fact that,
[00:06:55] where if you were just a CFO, you'd be like, "We're not going to do that." But when you own the operations, you're like, "Well, we're not going to grow the business then." You can't be the world of, "No", we have to be in a position where you're actually thinking about where we want to get to. And so I thought the two married well for me and I really liked it.
[00:07:10] I was also able to bring that to this role in that I had built big teams, run big teams. And so when we looked at building a team, that didn't scare me at all. This is something I've been doing for years. I also felt like bringing some of the company experience and having lived that journey of growing a company, one of the companies I was at, I started when it had $8 million and sold it when it had $250.
[00:07:34] So you live through a whole life cycle and having done a lot of, I would say, M&A work, both good and bad and bringing all those experiences really helps when you look at it and you have a lot of credibility when you go out to the portfolio and you're talking to them. So I think a lot of those experiences are really important and I think that they bode really well within, kind of the value creation landscape for, I would say these portfolio companies, especially we invest in smaller companies, these are founder led companies early on in their life cycle, and it's a different thing going into a founder led company and trying to help them go from what I'll call startup to scale.
[00:08:16] And it's not always the easiest thing, but having already lived that cycle gives you credibility to help them on that journey.
[00:08:23] Sean Mooney: Yeah. I think you said a lot there, and this Jim could probably be a whole other episode, like the Strategic CFO, right? Which is really to your point, is like, particularly in a lower middle market business, you really almost need to evolve into both the CFO and COO, and then you explicitly wore that.
[00:08:39] The one thing that you said that really every CFO or someone who aspires to be one is particularly an operationally strategic one, is your job is not to be the captain of "No." Your job is to actually find creative in risk adjusted and protected ways to say "Yes", and in a way that delivers ROI. And so right off the bat, anyone who's in the CFO world, like listen to what Jim said there because that's how you get to that job and you keep that job and then you go even higher than that.
[00:09:07] And so I think that's another area we can dig deeper into and maybe even a whole other show. But that's a, just a really good nugget right out of the gates here.
[00:09:17] 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.
[00:09:28] 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.
[00:09:47] 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.
[00:10:05] As we maybe pull back the layers of Jim a little more here, Jim, one of the questions I love to ask is, we'd know you better if we knew this about you. So what's maybe one tidbit of trivia, one piece of information about you that people don't know about you that would help us know you better?
[00:10:21] Jim Murphy: Yeah, actually, a fun one is I got my first CFO job and it was of a public company and I was 29 years old.
[00:10:29] I'll tell you a little bit about the journey, how I got there. It was a little bit of a winding road, but it was interesting, but I had no business having this job. And I can tell you a little bit about it, but it was actually coming out of that Assistant Controller role at KB Homes, and I was about to go back to grad school.
[00:10:43] So I reached out to the Arthur Anderson partner who had hired me at Arthur Anderson. I was going to get him to be a reference for me. And so I asked him and he said, "Well, if you're going to go back to school, how would you like to do this six month, I'll call it a consulting engagement with one of their clients? And I'll make sure that they pay you, a lot more than you're getting paid right now, but you're going back to school anyway, so this would be a good transition for you."
[00:11:07] So he told me the number and I said, "Okay I'll do it." I was saving for grad school, and so it was with a small public company. You'll remember back in the days you could go public and you didn't have to have $100 million in revenue. This was probably a $40 million revenue business. But it had just gone public.
[00:11:24] Its CFO had left, and there were a lot of not good things about that. And they were in a shareholder lawsuit. And so Anderson was being drawn into the lawsuit. And so they were very focused on having somebody they knew. And so you're like, "Why you?" And so when I was at Anderson, I worked on almost solely public companies when I was there.
[00:11:44] So I had a lot of the SEC reporting down, and then during the summer, at our office, we had the head of the healthcare practice, so everybody worked on healthcare during the summer, during the off season. So I had those kind of two pieces, and so I said, "Yeah, I'll do it. So I stepped in and really the major focus for me was not to be the CFO.
[00:12:04] It was really to make sure the accounting got done, that the trains ran on time, and that the SEC reporting got done, which I think was one of the most important things for them. And so I did that for six months and I hit it off with the CEO, who's a great guy. He was a doctor, he was a pretty extravagant guy, but I loved him.
[00:12:20] He was great. And so he and I hit it off and he said at the end of the six months, he goes, "Do you want to be CFO of this company? And I was like, "Sure." What else do you say? You're like, "Of course I will." And as I look back at it, it's almost amusing because I was so ill-equipped for that role at the time, and
[00:12:37] maybe the training you got at Anderson was a good thing. Because they always throw you in the deep end of the pool. If you bob your head up, they push you down again. So, it's always, you're always challenging yourself.
But this was a huge challenge. They were like, "yeah, we've got an analyst call
next week."
[00:12:49] And I'm like, "Analyst call?" It was fun. I did it for six years. Really enjoyed it. Learned a lot. Learned how to be a CFO. I made a whole lot of mistakes during that period of time, but the one thing I will always take away from it is it really changed my career trajectory. Huge. At that point in time, it actually changed my life too.
[00:13:11] I'll always remember that they gave me that opportunity when I probably didn't deserve it. I think they saw something in me maybe that I didn't even see in myself, and so I really never take that for granted. I think it's also one of the things, if I think now I really focus on paying it forward and so I'm really big at mentoring.
[00:13:30] I mentor six or seven of the CFOs in the portfolio. I've mentored a number of other VP of finance to get into the CFO role as part of this. And so I think I take that experience back and I try to make sure that I do pay it forward. It is part of, I would say, in recognition of the opportunity that I got.
[00:13:49] Sean Mooney: What a great experience. And as you're sharing that, I was thinking right as we're recording this, we have a large crop of new people joining our company. And so when I do that, I'll explain the PE industry through the lens that I experienced it when I was in PE and to let them know the realities of what you all face every day.
[00:14:06] And one of the things I share is like in PE it's filled with plenty of smart people, but the world's filled with smart people. That's not necessarily the differentiator. It's maybe table stakes, but that's table stakes in almost anywhere, right? But the real differentiator in that industry is the people who are attracted to it and survive and thrive in it, both at the PE firm level and the PortCo level
[00:14:27] have off the charts, tenacity, grit, resilience, and figure-it-out in their kind of like DNA. And to your point is like they're usually raised on this sink-or-swim kind of tutorship coming up where they just throw you into the deep end, and if you come up, they let you stay in the pool. If you don't, they're like, "Well, that was a good run."
[00:14:47] And so like what you're explaining is like, I was like, "Oh, I need to have Jim tell this story." Because it's like, this is like, it's just like you just in PE in your job, you're looking at hundreds of companies a year, you're investing in
handfuls of them. Every one of them. You've got to just figure it out. And then you're usually told "no" 99 out of 100 times or telling someone else
[00:15:08] "no." And so it's just you're in this constant multidimensional speed chess game with 10 boards in front of you at all times. And so what an amazing experience, and I can see why it sets you up to who you eventually became and will become even more so. Is that like a fair kind of observation?
[00:15:26] Jim Murphy: Yeah, the benefit of PE is you get to hire super smart people.
[00:15:29] People want to come and work, especially now. So there are some people that work directly for me that are just really super smart. And I take the same thing. I'm like, I throw them into opportunities. One of them was, they were more of a generalist and never been A CFO. I said, "Hey, you want to be an interim CFO?"
[00:15:48] And they were like, "Okay. And I'm like, "I'm not going to let you fail. Don't worry. The alternative is the portfolio company's going to have to pay somebody to do it three days a week, $70,000 a month. They don't want to do that. And so you're part of the value creation team. You're part of what we're offering them.
[00:16:03] So I continually try to do this and try to give people opportunities. It's about that. You need those hungry people, the people that want to learn, that want to do different things that are really focused on their own personal growth.
[00:16:15] And to find those people and be able to give them that opportunity is really fun to see. And again, that's what happened with me a long time ago.
[00:16:22] Sean Mooney: Yeah. And that's the amazing part about your firm, your industry is like, you get smart people, but they're like, find-a-way people as well.
[00:16:30] And that's when it gets fun. Maybe it's fun in retrospect, but it's, but I think that's fun because you're just like, you're constantly playing speed chess with multiple boards, so.
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[00:17:40] Give us a call or visit our website at BluWave.net, and we can give you excellence and alpha with ease. Back to the show.
[00:17:49] If we move our conversation forward here, Jim, what I'd love to get your perspective on is like you've been an operator. You're now a private equity leader and the most important part of private equity today, which is value creation, creating something into more, and I'm curious, when you look at companies, whether they're coming in the diligence phase or you've just invested and you're trying to see what the opportunities are, what are some of the traits that you look for in these companies when you say, "Oh this is where this company is
[00:18:18] excellent. This is where this company can and will be excellent, and we can go through this kind of metamorphosis into creating something even more beautiful than what existed before."
[00:18:29] Jim Murphy: Some of that happens in diligence and the way we've set it up at our firm is we'll have, and we will talk about the makeup of the firm maybe later, but I have very senior level functional leaders that look like me, C level that we brought into to run functional areas within the value creation team.
[00:18:45] And we each go out and look at these companies as part of diligence. And we're not, there's no way I'm doing a QOE. This is not my value add, but my value add is to look at certain functions of the company and say, "If you're going to be in the portfolio, if we're going to bring you in and we want this company to double or triple, at least during the hold period, what are we going to need to do?
