Private Equity's AI-Driven Transformation: Insights from Bob Root

Sean Mooney: [00:00:00] 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 fantastic conversation with Bob Root, Transformation Partner with Southfield Capital. Enjoy.

I am super excited to be here today with Bob Root. Bob, thanks for joining us.

Bob Root: Oh, thanks, Sean, for having me.

Sean Mooney: I've been looking forward to this for a long time. So Bob has got, A) a really cool background that is not maybe the road less traveled, but I think a very probably perhaps more interesting road that led to where he is now, and we get to see how they operate.

And so they do some truly fantastic things in the [00:01:00] world of business building. And so I think for all of our listeners who are trying to get more up to speed on kind of the art of business building, this is going to be a good one for all. So why don't we jump right into this?

One of the ways I'd really like to start these for everyone here is just to get more of the story of you. So can you start off like where you grew up and formative experiences, and then ultimately how you got into your role in private equity today?

Bob Root: Sure. Let me maybe start with where I grew up and all that, and then we'll kind of get into that. I grew up in Canada, born, raised, educated.

Started my career in Canada and ultimately obviously moved to the US amongst other places. One of four kids. I was a middle child, number three of four. Dad is a civil engineer for the government. My mom was a public school educator. That was pretty formative for me, frankly. Having my mom was actually a school principal in the same school division I went to school at.

Being good at [00:02:00] academics was not an option. You had to be a little bit more creative about your mischief when you were young in my house. I grew up with a pretty, I'll call it very hands-on upbringing. Always working on a car, always fixing a house, always, working in the garden. We had a pretty stereotypical Canadian cottage sort of thing, so going to the cottage was, "All right, Bob, get up on the roof with your uncle, fix the roof," or whatever it was.

That sort of defines how I grew up. We did a lot of family vacations loading up in like a nineteen seventy-nine Ford Econoline van, two-tone, and driving all around North America.

Sean Mooney: I can see Chevy Chase as you're saying this here.

Bob Root: Oh, yeah. So many adventures with car breakdowns and camping in all sorts of places.

I look back on that super thankful. All about discovery, exploration. [00:03:00] Outside of that, I guess a pretty stereotypical Canadian boy upbringing. Played hockey, fishing, hunting, all that sort of thing. Yeah, I guess moving into, like, how did I end up here in private equity, I started my career at Procter & Gamble.

I graduated from the University of Manitoba in Winnipeg and really wasn't sure what to do. I think I'm not different than a lot of people. I just was probably open about it, wasn't sure, heard Procter & Gamble is this great place for development, and it proved to be that and so much more for me. I started as a plant accounting manager, plant financial analyst in a small manufacturing town on the St. Lawrence Seaway, Brockville, Ontario, between Toronto and Montreal. I was managing a group of people that were more than twice my age and, you had payroll, you had asset accounting, the cost of goods accounting. Really amazing experience. It was really sort of a experience that forced an enormous amount of growth in a [00:04:00] very short period of time.

After that, P&G is a very people-centric, grow from within. I did ten different roles, Sean, from, of course, supply chain, but commercial jobs, CFO of countries, M&A integration, divestitures. A variety of different jobs. If you say, "Hey, what's the formative experience?" My time there, in sixteen years, ten different roles, learning on the job becomes part of how you do things, and there's a certain level of, frankly, humility that you need to learn pretty quickly is key to surviving, never mind success.

So fast-forwarding to how did I end up in private equity, I went from Procter & Gamble to Microsoft, did a few different jobs at Microsoft, started in finance jobs, and then left in a technology-ish job. I was leading the lifetime value team there, really figuring out how to leverage the [00:05:00] telemetry of everything in the Microsoft ecosystem to enhance the experience of customers.

It was a really great experience, really my first sort of full technology-ish job, and it is frankly a lot of what the opportunity that I saw in private equity is really I see this as really a transformational time. I started doing advisory work with Southfield, one of its portfolio companies, for I guess almost five years ago now, and then, I joke no good deed goes unpunished and here we are.

It's been really great.

Sean Mooney: It's an amazing background. So much of it resonates, and it's interesting having the privilege of having these conversations with so many business builders like you. You start to see some patterns within kind of the mold in the private equity world, and one of them that I immediately picked up on was you mentioned having parents coming from an education and an engineering kind of backgrounds.

Those are pretty cornerstone [00:06:00] ways of being raised within this broader world. And you think about it like you have someone who's an educator who's teaching you things and like trying to break down problems and into the elements of things combined with engineering, which is really doing that, right?

It's just like, how do you deconstruct something and figure it out. Usually, it's one or the other in a family. You had both. Like you said, you're fixing stuff at the house and figuring out how to ways to solve problems from day one.

Bob Root: It's an interesting way to think about it, I've never thought it that way.

I was with my mom for Mother's Day, and I was joking with her, "Hey, Mom, whenever I'd come to you with a problem, I'd ask you a question. You'd ask me three more."

Sean Mooney: Yeah.

Bob Root: That's what educators do, is they teach you how to solve your own problems. Really thankful for all those experiences. I think now, I'm a parent of two young kids, and I think about my parents loading up four kids, and I've got two, and I think to myself, "How..."

We were camping all over the place. Just the logistics of that alone is amazing. But I'm super thankful for those experiences, obviously.

Sean Mooney: You [00:07:00] grew up with the Socratic method, it sounds like. It's like, you seek to understand in like your whole life, and that no doubt positions you well.

And I love, like, I have the visual in my mind of like Chevy Chase, Holiday Road, like getting in the truckster. And that's what we did as well. So I was one of six kids. My dad actually went to college in Toronto.

Bob Root: Oh.

Sean Mooney: But he grew up across the lake in Cleveland, so all of his friends are Canadian from college.

So I grew up with his Canadian friends coming down, and then we would go on these grand kind of like same thing, like get six kids in their van and just drive across the entire country. Yeah. In retrospect, you're like, what an amazing way to see it. Although I do think it highly tested the patience of my parents having six kids fighting for seventy percent of the time.

That was on us, not them.

Bob Root: Yeah.

Sean Mooney: But then what I really love also is like you went to-- Procter & Gamble is one of the iconic companies, and I was coming up, my dad was talking to the same thing. He's like, "Oh, you should go to like a Procter & [00:08:00] Gamble or a General Electric," where they were known to have these amazing kind of like management training and business-building tracks where they're going to take you around and give you different roles, and it's almost like going through an MBA, like a real-life applied MBA in these schools.

And then the other one you had was Microsoft, which is another one of like this like cornerstone iconic businesses in two different parts of maybe the largest parts of our economy today, like the consumer markets and then technology. And so, like what a great applied education that you had in real life to learn the art of building companies well.

Bob Root: I never thought about that. I thought about the first choice, obviously, of going to Procter & Gamble and the on-the-job training part. I was probably in my late twenties, and I went to my boss and I said, "Hey, should I go back and do my MBA?" And he looks at me and says, "Why?"

Sean Mooney: Yeah, you just had it.

Bob Root: Like you- you're in process of your MBA, and obviously as a son of an educator, I naturally had that [00:09:00] itch. P&G was such a great place, not only for the diversity of the jobs, but the locations. I think I've relocated ten times probably with P&G, and it's not only the difference of the work, but it's a difference of the location, the cultures, and that's really a big part of how to get things done.

It's not just the X's and O's, and that's part of the biggest things I took away from my time at Procter & Gamble.

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, they 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.

[00:10:00] So absolutely, you can use us as well. If you want to use the exact same resources that are trusted and being deployed and perfectly calibrated for your business needs, give us a call. Visit our website at Bluwave.net. Thanks. Back to the episode.

I think there's so much to unpack there, and one of the things though that I'd like to do before we jump into the meat of our conversation to come here, is maybe peel back the layer a little bit more, and one of the questions I like asking is, what would be one thing we would know you better if we knew this about you?

What might be one of those things?

Bob Root: I would say a tour through my garage. I have a diverse amount of interests. I'm learning new things, building things. I've been into gardening for a long period of time. I find that as a, like, a really restful place, but I've just recently got into hydroponic gardening and growing vegetables in the house, and so I'm really into the science of it, and so I have, like, [00:11:00] projects going on there.

I've got two or three car projects going at any given time. I've got an old car that I've-- working on restoring. I've got an electric car, and I've got a traditional gas car, and I always like to kind of keep on the cutting edge of what's happening with the technology, but also really enjoy the nostalgia and simplicity of, like, older cars.

I have house projects going all the time, and this is how I like to spend my time. And it's funny how history repeats itself. I grew up doing a lot of these things, and at the time I was like, "Oh, Mom, Dad, why do I have to do this sort of stuff? I want to be playing with my friends." And now I find myself doing the same thing with my kids. It's a great way to not only fill my bucket, but spend time with my kids too.

Sean Mooney: And no doubt pass the same kind of skills on and those type of things. The skills, the curiosity, the tenacity in growing things and bringing things to life, maybe it's a good metaphor for building a company, right? You've got to overcome a lot of odds. You've got to deal [00:12:00] with different variables. You have to make something bigger, better, stronger.

A lot of that happens while building companies as well. And no matter what you're doing and when you're doing it, very seldom in, at least in my life, have things just been straight up and to the right. And so one of the things that I think people in your field are really good at is dealing with the ups and downs and the twists and turns that almost inevitably present themselves in business and in life.

And so, Bob, I'd be curious maybe what would be one of those things that you've encountered in your past, and how did you take it on?

Bob Root: This one is a deeply personal thing, Sean, that impacted and still impacts me. I lost my older sister three years ago to a rare form of cancer, and she actually called me, it was within the first week of when I started at Southfield, and she passed away less than six months later.

My sister's super [00:13:00] close to me. Both my sisters are actually veterinarians. They'd built practices, and I'd gone on that journey with them, and my older sister was a mentor for me in many regards of my life. And so really that coinciding with the time I was starting at Southfield, where taking on a whole new challenge, and that's also coinciding with we were building a new house.

It was a custom house I'd worked with a friend of mine to design, so I was pretty involved in that as well. And I'm a dad to twin three-year-olds the same time at that time. It was just an incredibly-- everything at once, new job, the incredible emotion and ultimate loss of my sister. So how did I get through it?

Number one is, my wife is amazing. Through that, I guess if there's any silver lining here, our relationship's gotten really strong. From a business perspective, I learned to talk about these things, and it's not something I maybe would have done twenty years [00:14:00] ago, and started to share what I was going through.

And as I was onboarding with portfolio company leadership and CEOs, and obviously my partners-- the partners at Southfield have been amazing. The culture of the firm is amazing, and it was, always, "What can we do to help?" Because I would be in and out of the office, through that time, obviously.

But really I would summarize it by just talking about it, and help came from all sorts of places. But starting at home with my wife and then in concentric circles out there, and I'd say relationships with my siblings, my wife, my partners, and portfolio companies only got better out of that, and it was not obviously easy to talk to your spouse and your siblings.

But you start to get out of that ring, and it becomes a little bit harder when if you only view work as work and moving through that by just being honest about where I am and what help looks like.

Sean Mooney: Yeah. I'm so sorry to hear that, first of all. What you share [00:15:00] there, I think is so important. I think a lot of us, including myself, like the way I probably still deal with any adversity is I grab it, and I put it into like the tightest little ball I can squeeze it into, and then I just shove it down into the inner recesses of my soul. And then you're like, "Okay, it'll go away," and then you just keep on persevering, and I think that's probably what a lot of people do, and it's something that I've probably struggled with. I'm curious, how did you cross that path to where you got comfortable kind of talking with it, with others, and turning something profoundly sad and tragic into something that created something new and better in yours and other people's lives?

Bob Root: I'd say two things. One, I like to think I'm a pretty straightforward person, transparent, all of that, and reflecting on that compartmentalization that you've described is exactly how I would normally handle these things. And then in conversations with others in my life who've had similar [00:16:00] loss, seeking their counsel.

The counsel that I sought, some from my partners who've faced similar loss, but, again, my spouse, my, friends, et cetera, saying, "Bob just talk about it. This is life, and this is consistent with who you are." I'm always the guy cracking jokes. So working through that and starting to share, like people saying, "Hey, Bob, why can't you make this meeting on Friday?"

"Well, I'm going to see my sister, and here's why." Because I also pride myself on being roll up your sleeves, get things done, and when those two things in your life collide, you've got to be transparent about that reality. So yeah, just seeking advice.

Sean Mooney: It's A) an amazing piece of advice for everyone. If you have the audacity to, A) open up and then to others, and then, B) ask people for help, whenever I do that, I'm always amazed by how much people are willing and [00:17:00] find satisfaction in helping others, and it sounds like that maybe that was part of that path.

Bob Root: A hundred percent. We're all human, and it's a bit of take your own medicine. I always would coach people that work for me of just, "Hey, seek a mentor or seek advice for somebody if you don't want to call it a mentor." Who has ever asked for help and say no? People want to share their knowledge and their experiences.

Sean Mooney: If you've led a good life and you've given more than you've taken in life, it's amazing how often and how quick people are to jump in your court.

Bob Root: Of course, yeah. And loss, we're all going to face it, and many have, right? And that's just part of what you learn when you open yourself up, is you learn a lot about other people's stories as well. And part of that has built the relationships I mentioned a lot stronger, and it has built stronger relationships for me at Southfield, in my family, in my friends. [00:18:00]

Sean Mooney: I don't think there's any easy way to say this was a good thing, but good things came out of it.

And so it's inspirational to hear how that can be transformed into something positive for not just you, but a whole variety of people that are connected with you.

Hey, Karma School listeners, this is Sean with a quick aside. Virtually every day, I'm having conversation with private equity firm professionals and business operators, and we're talking about the same exact thing.

Where and how do we actually start with AI? The answer is you start with people who have already done it successfully for others. This is exactly what BluWave does. We have built a one-of-one, invitation-only network of trusted AI enablement providers that top private equity firms are using right now to create real value, private equity-grade quality pre-vetted by BluWave, ready to go at a moment's notice. And they're not just for PE. Whether you're a PE professional or an operating company [00:19:00] CEO, go to Bluwave.net. That's B-L-U-W-A-V-E. We'll get you to the right resources so you can start on your AI journey right now.

There's not a great segue to this part of the conversation because it's so important. We could probably have a much deeper conversation just on this topic alone. But I do think there is some kind of connections here into one of the things that we often will talk about. It's like, okay, then how do you in your firm then approach like helping others within your companies get better and give support to them?

And maybe, I don't know if this has even impacted the way that you think about helping the companies that you work with in a similar way, but realizing that in some ways this, the things that we're talking about now are in some ways trivial compared to the more profound things that we just talked about.

But I would be curious to say, like, how does that then translate [00:20:00] into kind of your business life? And then how does your firm kind of give and help those that you've made investments with?

Bob Root: I think there are parallels. The approach that we take as Southfield, and I guess me personally, is one of true partnership.

Now, I've learned that through my career, as we mentioned, doing all the different roles, you got to get in, learn it. But going through an experience like I just described with a loss, it actually puts a whole new meaning on that. And so for me, when going to talk with a new portfolio company CEO, understanding where they are in their life and what's important to them in their life is as important as what the opportunity is for the business and what the future holds for the business.

And that's something that as a firm, it was super attractive to me in coming to Southfield. Southfield is a culture first, [00:21:00] no ego, true partnership and alignment with the founder and the path forward. And I've got countless examples of how that plays out, where there's someone that will fall ill at one of our portfolio companies, the managing partner sits on a board of one of the large hospital institutions and he'll personally reach in and connect the employees with experts. There are a lot of parallels here that, again, have just been so great.

Sean Mooney: How do you then take that in practice? So you've made an investment with a company.

How do you all then jump in and start pulling on oars together as you make your way through the journey of each company? So what are the things that you do with your portfolio companies to help them get to that next best level for them and their stakeholders?

Bob Root: So from a value creation standpoint, I'll get involved or someone from my team will get involved really at the time of management [00:22:00] presentations to understand what's the vision for the business, what does the team look like, what are their hopes, dreams, all of that.

Go through diligence, all that normal stuff. But when it really comes to the first 100 days, what we work to do is do what we call the first day in the life within that first 100 days. And that is, again, not going to be a surprise given what we talked about, is we'll go on the ground and be in the business.

We will be trained up, like send us the training materials for X job and we'll show up on site. I'll show up on site and want to do those jobs and get elbow to then come back and have the conversation with leadership around, hey, here was the growth hypothesis that we had. Here's what I was seeing on the ground.

And a lot of that for the founders and CEOs is eye-opening, like, "Oh, wow, that's changed a little bit since I did it day one. Let's talk about [00:23:00] that." And we are collaborative all the way through. So if we have three or four planks of growth, we're not dead set on those are the only three or four that we're going to go after.

It's through working with the company that we change those based on What are the skills that we have in the company now? How do we supplement the team that's there? Are there other resources that we can bring? Are there things happening in the market that would cause us to reprioritize things? And it's a very collaborative approach and very no ego.

And with these small and mid-sized businesses, no different than working with my sisters on their veterinary businesses, you can't separate personal from professional. These founder-run businesses are the lives of the founders. And so spending that time to understand that intersection is where value gets unlocked and excitement gets unlocked.

Sean Mooney: Just listening to you, there's so many kind of [00:24:00] recurring themes in our conversation, and in some ways starts with when our original conversation, like: seek to understand. You grew up with like, ask one question, you get answered three more questions. You maybe have a hypothesis about what it's going to be like or what the opportunities are, but you're actually going in there and walking the walk with them right out of the gate so you can really understand and probably either validating or changing how you're thinking about things in real time, knowing that this company has been an extension of the founder's persona for so many years.

And then together you're able to walk and build something that's even better through the kind of combined knowledge and approaches of each.

Bob Root: A hundred percent. And when there's missteps, and there's going to be missteps, hopefully you've built a relationship where you get the phone call that, "Well, that didn't work out," and you can handle it in a lighthearted manner.

It's part of the process, not a separate [00:25:00] spike event.

Sean Mooney: Yeah. If everything's going perfectly right every time, you're probably not trying hard enough kind of a thing too.

Bob Root: That is exactly my approach, is to try to work with the portfolio company on where it is, and then pose the, "Well, why not this?" Or, "Why not faster?" Or, "Why not?" Et cetera, et cetera. And through that, you don't get it right all the time. From a baseball perspective, you're happy with a three hundred batting average. Obviously, in this line of work, you don't get away with a three hundred batting average. But the general point is, you're not going to win every single time at every single thing you try.

And having the humility to, with the portfolio company, to change as you go, getting that sort of spirit and trust incorporated in what you do makes it more fun.

Sean Mooney: Yeah. If you give people the opportunity to take a swing and miss on occasion, knowing you still have to get on base and you got to [00:26:00] still score runs, but you're going to miss a hundred percent of the pitches you don't swing at, right?

So you've got to do that, and then if you create that safe environment where you can try, fail a little bit, if you fall small, and then pick yourself up, and then you start racking up the runs, and it gets to be fun.

As you think about this, and now you're in the batter's box with them, what are some of the things that you all are maybe thematically engaging with your portfolio companies today that other business leaders should be thinking about as well?

Bob Root: We've been on a path of being technology-forward since I joined. Given some of the experiences I've shared, there's a huge opportunity now for small and medium-sized businesses. We invest in founder-run, lower-middle-market businesses. There's a huge opportunity for businesses of that size to really leapfrog, with technology, their much bigger competitors.

And we've, from a Southfield perspective, have been leaning in on this pretty heavily over the [00:27:00] past two or three years. I think, actually, it was how I think you and I had met. It was on a call. I was reaching out to you. I'm looking for a supplier that can help me on one of many digital transformation projects I was pushing.

We've since built a strong partnership with a company called Truegility, which does a lot of our data analytics. They're guys that used to work for me at Microsoft. They're fantastic. And then I guess eight, nine months ago, we completed the acquisition of Contextual.io. It's a full-service AI delivery business, I'll say that. They have a data platform, but then a full-service business that really focuses on building bespoke AI solutions or purpose-built AI solutions for companies.

The top-value creation opportunity, to answer your question, is really my advice for people to have a really strong point of view on [00:28:00] how AI can differentiate the moat for your business. And so what you see now in AI is, like, everything is AI. It's AI everywhere, blah, blah, blah, right? And the way I summarize the market is, you've got AI solutions built on top of existing software solutions, or you've got individual purpose-built solutions that aren't connected to an existing ERP or whatever that are solving a single problem.

And those are great. Those are driving efficiency in the work that you already do. But it's not a reimagining the work. What our push is to do here is really understand, hey, what's the unique sauce or the unique differentiation or value proposition of our businesses, and what is the resulting data moat, and how do we stretch our lead in that?

And this is really where Contextual really does a great job of getting into the business, really understanding what that moat is, and how do we build [00:29:00] additional services on top of that? So we've been really successful with this. We've launched a new business off of our existing portfolio companies, one a month for the last three months, and it's really with that focus.

So not looking at it through the lens of cost savings, looking at it through the lens of expanding your business, especially in the lower-middle market, where always one of your thesis is how do you expand your service in addition to expanding your geography or what have you.

Sean Mooney: All of that is so spot on, and I vividly remember that first conversation we had when you joined, and I was like, "He sees where the world is going to be."

And this was well before, like, agentic AI was out. You were on this early, early, and so I gave you a lot of credit about it that. And Bob and I were talking before this, like, Bob was wondering, like, what was one of the reasons you wanted to have a conversation with me, and I was like, "It was that first conversation we had." Because you saw the world and where it was going well before, I think, the vast majority [00:30:00] did, particularly through the lens of a small and medium-sized business. And I appreciate what you started off with in that I think a lot of people think AI is going to be the bastion of either tech companies that are native, or large companies.

But it is a playing field leveler for small and medium-sized businesses that enables you to, A) have one dollar go three to five times further, helps you double your speed of business or triple it in some cases, and then your limitations are really about your creativity and your imagination about what will be in this new now that is already kind of here and is evolving.

But I do think, I'd be curious on your take on this, I think eighty to ninety percent of companies right now are sleeping through this opportunity right now, and they're kind of hoping it or they're just not wanting to address it and probably through fear more than anything. But if they view it through the lens of [00:31:00] opportunity like you're portraying, it's the most exciting time to build a company, I think, in my entire business career.

Bob Root: I would generally agree with that. I get a bit of a window through this. Contextual is a business in its own right, and so we check in with them around, "Hey, where is adoption?" And I think there are three camps. There is A) "I have fear of it," so the late adopters, "I have fear of it."

There's the, "Hey, ChatGPT is really good at summarizing emails for me or helping me write emails as a personal productivity tool." That's obviously very pervasive now. And then the third bucket is really around just cost savings, and how do I do what I'm doing now more efficiently? And my advice to others is, like, there's a fourth rail here, which is how do you reimagine what you're doing in leveraging your data moat, leveraging the special sauce of that company as a growth [00:32:00] opportunity, because I would argue that cost savings isn't a strategy in itself, it's a means to an end.

Be clear on what your end is, and it can be really powerful. The other thing I would say, Sean, as part of going back to when we met or whatever, three years ago, and what's getting lost in this AI conversation is people think about it as LLMs, but there's a lot more to it. It preexisted this whole ChatGPT era. These are machine learn models, neural nets, et cetera. It's really the combination of all of these digital transformation tooling and machine learn models and the LLMs. It's not just the LLM.

Sean Mooney: A hundred percent. The couple things that you've said here, I think I want to double tap on for our listeners here.

One is you've mentioned multiple times your data moat. Don't sleep on your data. With these LLMs, you now have access to the sum total of publicly available human knowledge. But what your company has is something that [00:33:00] no one else has, is all your proprietary data. You combine those two, you can create something quite magical.

The other thing that you mentioned that I think is so important is you use the word 'and' a lot. It's a symphony of things. It's not just one tools that exist in their own, like, orbits unto themselves, right? They're all working together, and if you can get them to work together with your data moat, doing things in concert with each other, that is when really cool stuff gets going.

I look at our, like our skunk works here. We have a pretty advanced AI program. And like you, we've been building it since we started the company nine, ten years ago. And we have a gentleman who's a PhD, he leads our AI program, and he recently built something for our business that's going to have some pretty meaningful impact.

And I asked him, "How long would this have taken us, our entire tech team a year ago?" He did it in one week, by the way, he built this prototype tool that we're advancing now. And he goes, "Oh, it would've taken our entire team just a year [00:34:00] ago," when there were already big advances, he said, "Six months to never."

And he did it by himself in one week.

Bob Root: Yeah.

Sean Mooney: You have to be careful with these things too, don't get me wrong. Like some of these real advanced tools, they can go a little bit off the rails if you're not careful. But if you're precautious with it and you learn now, the things you can do are just striking.

Bob Root: A hundred percent. Most of these businesses don't have an IT team or an engineering team. And so really the opportunity to unlock it is finding a partner that can help them do that because you building the expertise, where do you need organized data? Where do you not need organized data? All of that, it's really helpful when you have a partner to guide you through it, and it can become turnkey.

That's, for us, a big motion and why the acquisition of Contextual has just been so helpful for us and many other companies. It's a great time.

Sean Mooney: I couldn't agree more. And like even through our lens here, right? We've [00:35:00] seen three hundred percent year-over-year increases in demand for AI enablement.

It's going, and I can just cannot double tap enough for our listeners here, like run towards this, and the world will be bountiful if you do it. And to your point, like bring in some people who can help. The way you get started is by taking one step. I think a lot of people are like, "Oh, I've got to have neural networks out of the gates."

Like, no, get your data organized. Like use Snowflake. Use an LLM and teach people actually how to use it, and so it's not just fancy Google. There's some things that they can do-- you, any company can do right now-- to get a huge bout of productivity, but then it just sets you into motion to do this really cool enterprise-grade stuff like you all are doing.

Bob Root: And building it into a system. The other thing to think about here is as you build these systems with LLMs, with machine learn models, et cetera, is to be mindful of where the world's going as it relates to the hyperscalers. My advice is don't [00:36:00] invest all in one hyperscaler because of reliability. What if they're down?

You put a highly dependent process in there. Having a system that's got fallback, it's got security considerations is super important as you start to build these at enterprise grade. A lot different than you and I just banging away on ChatGPT to summarize an email. And that's where people have a hard time going from, "Hey, help me summarize a mail," to, "How do I build this into a end-to-end system?"

Sean Mooney: And I think you are, once again, so spot on, on your point where you said like, don't put all your eggs in one basket, because this is the era of Claude right now, right? But ChatGPT is counterpunching, and Gemini is counterpunching. And what I fear really about going all-in on one is, I think there's this serendipitous time where they're giving away ten dollars worth of compute for one, but eventually that field [00:37:00] consolidates and/or people need to be profitable, and you're going to get charged all ten dollars.

Bob Root: A hundred percent.

Sean Mooney: And then rug pulled.

Bob Root: A hundred percent. It's no different than how Uber came in with Rideshare.

Sean Mooney: Part of my mandate is we're going to buy some servers, and we're going to start doing some things on some open source models just so we can learn it. And then if we have to go back to the future and finally use this closet that's pretty much empty that has like thirty-degree temperature air, we'll at least know how to do it when we get rug pulled, just like happened like in the 2001-2002, after the internet kind of consolidated.

Bob Root: A hundred percent, and that is what we are building on the contextual platform as well. We've got fallback, the ability to switch to different models, but are also starting to leverage local models for cost and security.

Sean Mooney: Yeah, ding, ding. You're hitting all the right notes here.

Bob Root: Well, I don't know. Who knows? Maybe we'll be proved wrong in six weeks. The pace that this is moving is another reality. The other thing, going back to what we see [00:38:00] in the, with PE or just companies in general, is paranoia. Like, there's a little bit of AI paranoia.

Sean Mooney: But only the paranoid survive. It's just that Intel forgot to keep on reading their book. And so Andy Grove, right? The legendary book. People should read that.

Maybe as we bring our conversation full circle here, Bob, we've talked, I think, a lot about really kind of foundational advice-driven topics here. But if you were to maybe go back in the way-back machine or even project yourself forward, right, what might be a piece of advice that you would give yourself that you wish you knew then that you think might have made this path forward in life a little more easy, smooth, and/or serendipitous?

Bob Root: I would say learning on the job is a feature, not a bug. When I had started when I was twenty-two, I'd mentioned I started at Procter & Gamble as a plan [00:39:00] accounting manager, and somehow I felt this sense of responsibility. I was like, "Oh, this is my first, like, professional job. I-- Like, I'm supposed to know things."

And everyone has a bit of imposter syndrome. I think that's healthy. But as a twenty-two-year-old, I found it a little bit crippling for the first five years-ish of my career. And then as Procter & Gamble moved me from job to, to job, it was like, "Wait a second, I can't survive by..." Every day when I was twenty-two, I would have my notes of all the things I didn't understand, and then I would go research them on my own time rather than just saying, "Stop. What does that acronym mean? Like, I don't understand that. Can you explain that to me?" I was afraid to ask the dumb questions, and so now my partners laugh at me. They say I probably err on the other side, which is I always assume that I don't know and say, "Hey, like, explain this to me and how you view it."

And having that approach, especially, Sean, just the conversation we're just having on AI, this is more relevant today than it's ever been. Things [00:40:00] are moving so, so fast, that assuming you have the answer for something, you can make a lot of big mistakes. And so my advice is just for my twenty-two-year-old self is: I should've listened to my mom when she was asking me the questions, I should've been asking the questions, and I didn't. And it's because, hey, you thought you should know. There's an element of pride. There's an element of, like, push it down and grit it out. There's no need to do that. And I don't think that's uncommon for people early in their career.

Sean Mooney: Once again, I think you were looking over my shoulder as I was coming up and like the imposter syndrome, the constantly feeling like I had to know everything and then secretly learning it as fast as I could was just a constant in my life, and then eventually, I think, you start off with being smart, and then you start capturing knowledge, but wisdom usually takes some time.

And it took me some time to kind of figure these things out. And that's why I love this question so much is because, it gives the opportunity where everyone doesn't have to, like, recreate these wheels. [00:41:00] And so the wisdom here that you shared, I think not only in this part of our conversation but throughout has been tremendously generous. So thank you for sharing all of this.

Bob Root: Oh, no, Sean, thanks for having me. It's always great to talk to you, and it's always a pleasure.

Sean Mooney: Absolutely. Well, we appreciate the opportunity to see business building done well, and humanely, and in partnership with others. And so we absolutely don't take lightly the opportunity to interact and work with you all and see how it's done in a great way.

So once again, thanks so much for taking time. I know you have-- you don't have a lot of it, so carving out some time for us is something extremely appreciated.

Bob Root: No problem, Sean. A real pleasure.

Sean Mooney: That's all we have for today. Special thanks to Bob for joining. If you'd like to learn more about Bob Root and Southfield Capital, please see [00:42:00] the episode notes for links. Please continue to look for the Karma School of Business podcast anywhere you find your favorite podcasts.

We truly appreciate your support. If you like what you hear, please follow, five-star rate, review, and share. This is a free way to support the show, and it really helps us when you do this, so thank you in advance. 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, AI enablement resources, that are deployed and trusted by the best business builders in the world, including many hundreds of top PE firms and thousands of their portfolio companies, and you can do the same whether or not you're in the PE world, give us a call or visit our website at Bluwave.net. That's B-L-U-W-A-V-E, and we'll support your success. Onward.

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, [00:43:00] financial, legal, tax, or other advice are made herein.

Consult your advisors regarding any topics discussed during this episode.

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

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