Private Equity Value Creation with Clarion Jon Haas

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 an awesome conversation with Jon Haas, Managing Director of Portfolio Transformation with Clarion Capital.

Enjoy.

I am super excited to be here with Jon Haas from Clarion Capital. Jon, thanks for joining us.

Jon Haas: Sean, great to be here.

Sean Mooney: This is a good one. I'm really excited that Jon is joining us. I've wanted Jon to join us for a long time. I was trying to think before this, like how long have we known each other? I think it goes way back, certainly to the earlier days of when we were around, but I'm trying to think, did it even go further?

Jon Haas: Yeah. I think we first met actually right around the time that you were getting going with BluWave. [00:01:00]

Sean Mooney: You were probably questioning me. At that time, it was generally regarded to be the worst midlife crisis in East Coast private equity history. But ... But we made it. So it's been a long time. So I'm looking forward to this conversation.

I think it'll be a fun one and a really interesting and informative one. And so as we get into our conversation here, Jon, let's start back by even going further back. So can you tell our listeners and share a little bit more about yourself, where you grew up, kind of college, some of these early formative experiences?

Jon Haas: Sure. Happy to. Not sure how interesting it is, but I grew up in Armonk, New York, about 40 minutes north of the city. At the time, I didn't realize what most of my friends' parents did for a living, but looking back, many were in commercial real estate, law, or worked on Wall Street. There was also a group of dads, we used to joke, who worked in the construction industry. No one really knew what they did and no one asked.

I'd say one of the most important turning points in my life actually happened in middle [00:02:00] school. I was running with the wrong crowd, so my parents encouraged me to transfer to private school. I went to Rye Country Day. And looking back, I'd say that decision ended up having an enormous impact on my career.

One of my closest friend's father was a partner at Warburg Pincus, and through that friendship, my dad actually got to know him as well. My father had been a senior executive at Time Warner, but after Jerry Levin, who completed the infamous AOL acquisition, took over as CEO, he brought in a new CFO, and my dad took an early retirement.

But through that relationship I mentioned with my friend, he was connected with Warburg Pincus. He joined a couple of boards of their portfolio companies, and watching my dad work with those companies gave me my first exposure to private equity. He saw firsthand the impact investors could have, not just financially, but operationally, and he encouraged me to consider the industry someday.

Sean Mooney: It's an amazing background for people who get the opportunity to [00:03:00] grow up in the New York City kind of metro area. So I grew up in Austin, Texas, so, we had none of that. But we had different things. So I grew up in a family business working on the back of manufacturing plants. But then when I went to college, all my roommates were like these New York City metro areas, and their dads all grew up in this area.

And so, their family business in many ways was this growing up in the investment world, and they were almost, whether they knew it or not, they were trained to think like investors since being a kid, because that was the world that they lived in. And so, as I think about this through the lens of your childhood, you didn't know it, but you had this great opportunity to osmotically breathe in your future job.

Jon Haas: Absolutely.

But I would say my path was anything but direct. So went to college up in New Hampshire, at Dartmouth. When I graduated, I followed my heart and moved to Washington, D.C. to be near my college girlfriend. About a month later, she broke up with me. It wasn't exactly the career plan I had envisioned. I actually started at a small consulting firm, but it quickly became clear [00:04:00] that it wasn't the right fit.

The firm claimed they were doing benchMarcing. To me, it felt more like corporate espionage. Fortunately, though, through an introduction from a family friend, I joined A.T. Kearney. That turned out to be a great experience. I worked across industries ranging from media and financial services and packaging and paper, and helping companies think through strategy and operations, and I really enjoyed the work.

But after a couple of years, I looked at the senior partners who spent most of their lives on airplanes and realized that wasn't how I wanted to spend my career, and I decided to go back to business school, build my finance skills, and thought, really, the combination of consulting and investment banking would maybe position me in the future for something in private equity.

So off I went to business school, graduating Kellogg in 1998, just before the internet boom occurred, and I joined Credit Suisse First Boston and landed in the East Coast group, which covered what were considered the [00:05:00] less glamorous industries like steel and packaging and transportation. Shortly after I joined the firm, they recruited Frank Quattrone, who was the tech banker of the era.

To me, it felt like all the excitement was happening somewhere else at the firm. He was printing IPOs and doing all these high-profile M&A trades. In the year 2000, many of my classmates were leaving banking and consulting to join startups in Silicon Valley like Pets.com and Cupid.com, which by the way, didn't end so well.

And watching all that unfold made me realize that if there was ever a time to take more career risk, this was it. And so that's when a really interesting opportunity came my way, in an unexpected way as well. My brother-in-law worked at Wasserstein Perella, and he knew Marc Utay, Clarion's Founder, was leaving to start a new private equity firm after he led two very successful investments in the Wasserstein fund, IMAX, the large screen theater company, and All-Clad, the high-end cookware [00:06:00] company.

And so my brother-in-law went into Marc's office one day and asked if he was hiring, and Marc explained to him that he was going to be staying on as a senior advisor at Wasserstein, and as a result, he agreed with Bruce not to hire any one of the firm's employees. In a moment of brilliance, my brother-in-law responded, "Well, if you can't hire me, you should hire my brother-in-law."

So Marc and I met. We immediately connected over sports and business and investing. He offered me an opportunity, and I took the leap. And so when I first joined Clarion, we didn't even have a fund. We had two initial investments and a plan, and the strategy was actually to sell IMAX, and the two co-CEOs, who were former Drexel Burnham partners and Marc, were going to join us, and then we were going to raise our first institutional fund.

But then reality intervened. So five of the six largest movie theater chains, who were IMAX's biggest customers, all filed for bankruptcy right after the process was launched to sell [00:07:00] IMAX. So the sale process stopped. The co-CEOs had to basically go back and run IMAX, and our fundraising plans had to be completely rethought.

But instead of giving up, we found an alternative path. We secured backing from a hedge fund that specialized in seeding emerging managers, and we continued investing, built the team, and eventually raised our first institutional fund several years later. Since then, I'd say we've been fortunate to build one successful fund after another, grow the firm into what it is today, and we've had some pretty impressive results along the way.

Looking back, every stage of this journey, from changing schools, to a breakup, to missing the internet boom, to almost not getting our firm off the ground, felt like a setback in the moment, but each one ended up opening a door that otherwise wouldn't have existed. So today we're investing out of our fourth fund, and I like to joke we're a twenty-five-year overnight success.

Sean Mooney: That's usually how success works, and I think a [00:08:00] lot of people miss that. It's the hard work, it's the tenacity, the grit that matters. Life is never up and to the right. It's a sine curve at an angle at best. I love so much of your background, and because I think so many people think that you have to be on this linear, logical path to get into PE, and very often what it is, it's a serendipitous journey that gets there.

And what I really like about your background as well is you started off with consulting, then you found your way into investment banking, and then you went into private equity, and what seems maybe like a direct path, but it was... I'm sure there was a lot of like moments of opportunity and grabbing them when they came.

When I started, somewhat similar and different things, I was in Houlihan Lokey's restructuring group in the 90s. A lot of people forget that the 90s were tumultuous. And so... yeah. The experience they were giving me as a twenty-two-year-old kid was almost like grossly negligent. But, so I think the statute of limitations have passed then.

It was just kind of an amazing time. [00:09:00] We were competitors with Wasserstein Perella. Those were two of the groups, and then Blackstone were all kind of the founders of the restructuring industry. You had this moment where they grabbed you, but I went from investment banking to a PE firm where one of the managing directors that I worked with grabbed me and took me out to Greenwich, Connecticut.

But what I didn't have, which I then subsequently appreciated, the next PE firm I worked with was they hired a lot of consultants, and I was really good at modeling and writing things in Microsoft Word, and they were really good at like understanding the levers of value and PowerPoint. And if I were to play it all over again, I was like, "Oh, man, I think that consulting skillset was more valuable than me knowing how to make a model in 30 seconds."

And not that that wasn't valuable too, but I was always just: maybe it's grass is greener. I was always jealous of the kids who did what you did because they had that framework to think through: is this a good business? The skills I got I think were very valuable in their own right, but I was always grass is always greener on that side.

Jon Haas: Well, it's interesting, because [00:10:00] AI may make both of those career paths less important to become a private equity investor too.

Sean Mooney: Yeah. It all comes down to judgment now.

Jon Haas: It's all about judgment. Critical thinking.

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.

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.[00:11:00]

We'll delve more into some of these topics in a second here, but the one thing I like to do before we get into too much serious stuff is tell me a little bit about yourself, something that we'd know you better if we knew this about you. So what might one of those things be?

Jon Haas: So look, if you could have seen me when I had hair, I had a helmet of curly hair, which I would say served me well in my college rugby days, but I haven't missed it so much since.

Sean Mooney: I like that, and I empathize with that. But you wear now also the look well, whereas at one point, I gave myself a, in college, right before I knew I was going to have to interview for jobs, I was like, "This is the only time I'm going to be able to give myself a to-the-skin buzz cut," and it would be very bad for me.

But I am, I would say, follicly challenged for sure. I had the added benefit of going gray at age 30, and so I think that was like a gift that the private equity industry gave to me.

Jon Haas: Yeah. It ages you fast, but I think it's a [00:12:00] dignified look now. You've got Dwayne The Rock Johnson out there making bald men look good.

Sean Mooney: It's a good look. It's a strong look, so...

You hinted on this. There's a couple things that I consistently see, through the privilege of these conversations, and people who are successful like you in private equity, which is almost like a hunger games of a career, because you have to go through all these phase gates, where it just continues to have people either take the off-ramp or shown the off-ramp out of the industry, because it's really hard.

The table stakes is: you have to be smart enough. The world's full of smart enough. But I think the differentiator in this industry, particularly and maybe more so than most, is this sense of tenacity and grit, and constantly overcoming challenges, and you're constantly thrown curve balls in PE, particularly across a portfolio.

And so I'm curious, what are maybe some of the things that you've encountered in business, particularly through a host of deals over time, that you had to overcome? Do you have a story of that where you had to say, to be [00:13:00] clear and candid, "Every one of my deals was up and to the right, and there were never any problems?"

No. Actually, none of them turned out the way the deck said. But I'd be curious, do you have one of those?

Jon Haas: Yeah. Absolutely. So one of the toughest experience I've had over the past five years was an investment that at one point seemed like almost everything that could go wrong did. So at Clarion, we often look for businesses with fixable flaws, or companies operating in out-of-favor industries, where operational improvements, including digital transformation, can create significant value.

One investment I led was in the accounts receivable management industry, which most people simply call collections. It's not the most glamorous industry. I think it's actually the second oldest industry in the world. I'll let you guess at what the oldest one is. But we believed it was actually on the verge of a major transformation.

So at the time we were looking at the business, the Consumer Finance Protection Bureau, the [00:14:00] CFPB, was developing something called Regulation F, which for the first time would allow collection agencies to communicate with consumers through email and text instead of relying almost exclusively on letters and phone calls.

And that represented a dramatic cost reduction because a text or an email costs two or three cents versus a letter with postage was probably 75, 80 cents. And most importantly, it was an opportunity to fundamentally change how the business operated. So the company that we were going to invest in had very limited data analytics, and so our thesis was that, by investing in analytics, we could determine the next best action to contact each of our customers' debtors, and prioritize those with the highest propensity to pay and transform the business from an analog operation into a digital one. Then, as all good plans go awry, or, everyone has a plan until you get [00:15:00] punched in the face, as Mike Tyson said, COVID hit, and almost overnight we had to furlough about a third of the workforce and transition hundreds of employees from call centers to working remotely.

Elective surgeries stopped, which was reducing our healthcare division's collections. Government clients slowed dramatically during the lockdown, so that was another big part of our business. We lost a couple of important customers, and then the founder, who was also the CEO, told me that about a year and a half into the deal, that he wanted to retire.

It was basically a perfect storm. We recruited a first-time CEO who embraced the transformation strategy, but despite making meaningful progress, the financial results deteriorated before they improved. At the same time, a couple years into his stint, he had a significant family tragedy, and ultimately decided to step away from the [00:16:00] business, and thought he would be better served going back into the corporate world, which would be a little bit less pressure for him.

So at that point, it would've been easy to conclude the original investment thesis was wrong. Instead, we asked ourselves a different question, which was, "Has this investment thesis changed, or have the circumstance changed?" We still believed the long-term opportunity was intact. The fundamentals of digital communication and analytics hadn't changed. We simply had to navigate through a pretty extraordinary series of events.

So we promoted the company's number two executive to CEO, and he proved to be an exceptional leader. We continued to invest in analytics rather than pulling back. We completed a couple of strategic acquisitions, and we stayed focused on executing the original vision.

And then another unexpected catalyst arrived: artificial intelligence. I won't pretend that we predicted the AI revolution when we made this investment. We didn't. But because we [00:17:00] already digitized the business and had built a strong analytics platform, we were in a great position to capitalize on it far more quickly than many competitors.

So today, roughly 90% of our customer interactions occur through digital channels, so email, text, ringless voicemail, which compares to virtually none when we acquired the business. We're now using conversational AI to improve customer engagement, while we're growing revenue without adding significant headcount.

So I'd say the biggest lesson for me on this deal wasn't about collections or even technology, it was about conviction. As investors, you constantly have to distinguish between a thesis that's broken, and a business that's simply going through an exceptionally difficult period. If you can't tell the difference, you'll often abandon your best investments at precisely the wrong time.

Sean Mooney: The story as you're telling it, I could feel my heart rate picking up, because I'm getting triggered for the similar experience. I think every private equity investor who listens to this is probably [00:18:00] nodding as they're listening, because everyone's had that happen at least multiple times in the differences in how you react.

There's a metaphor that I always latched onto when I was in PE. In PE, you have to be a buffalo. And so people who know like nature, buffalos are very unique, in that when a storm comes, most animals will seek shelter and furl down. And what buffalos do is they start running towards the storm and just go straight through it.

It's some genetic imprinting knowing that you get out of the storm faster. It's like first you could just go through shock, but then what I heard was like, "No, we're not going to just sit here and wait for time to pass and heal the wounds." You just started taking action and charging through it versus waiting for the storm to go by.

Jon Haas: I love that. And here I was always thinking be a goldfish, right? Yeah. So you have no memory. But I like the buffalo analogy. I'm going to use that one.

Sean Mooney: It's such a good one. And then by taking action, inevitably, like during that time, so many people just circled the wagons, and then [00:19:00] you just said like "Load it up," and you ran towards digital transformation, and then another opportunity come in.

It's amazing how you find opportunities when you're in motion. You have eyes forward versus like eyes down and waiting it out.

Hey, Karma School listeners. This is Sean with a quick aside. Virtually every day,

I'm having conversations 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?

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And they're not just for PE. Whether you're a PE professional, or an operating company CEO, go to BluWave.net. That's [00:20:00] 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.

Jon, you've got an interesting vantage, I think almost solely or very uniquely in private equity, in that the first chapter of your career was on the deal side. And then similar as you think about like, things change, situations change, you made a decision because of the evolution of the industry, to grab the helm and say that you're going to then provide firm leadership on value creation.

Can you tell us about that journey, and then tie in what's your vision for and what are you doing within the value creation elements of your firm now?

Jon Haas: Sure. Happy to. So I think the biggest change in private equity over the course of my career is that value creation has gone from being a differentiator to being the business [00:21:00] itself.

When I entered the industry over twenty-five years ago, there was far more room to create returns through financial engineering. Valuation multiples were lower, leverage was more readily available, and simply buying well could generate outstanding outcomes. I'd say today it's a very different environment.

High-quality businesses regularly trade at double-digit EBITDA multiples. Equity checks are significantly larger, and every sponsor has access to sophisticated financing and advisors, and those advantages have largely been competed away. We often joke at Clarion that lenders have taken the L out of LBO.

Operational improvement is one of the very few sustainable sources of alpha that remain, and recognizing that shift at the end of last year, my partner and Clarion's Private Equity President, David Regens, asked me to lead our portfolio transformation and value creation efforts. Rather than trying to [00:22:00] build a large consulting organization inside the firm, we started by asking a simple question: Where can we consistently help our companies become more valuable?

So we identified eight areas where we think we can make the biggest difference. Those include commercial excellence, digital transformation and AI, technology implementation, operational excellence, organizational alignment and culture, human capital, finance and KPI development, M&A, and corporate development.

And our goal isn't to tell management teams how to run their businesses. It's to provide them with resources, expertise, and proven playbooks that help them accelerate initiatives that they already know are important. I'd say one thing we've learned is that we don't have to build every capability ourselves.

We've developed relationships with specialists who are world-class in areas like pricing optimization, AI implementation, generative engine optimization. [00:23:00] And I'd say BluWave, to make a little plug here, has been a terrific partner in helping us identify those resources quickly, so our management teams can access the right expertise at the right time.

So you and Rob Onslow and Jeremy Yonder and other members of the BluWave team have been great in helping us find the right resource for the right opportunity or challenge.

Sean Mooney: And I appreciate the shout-out there. To be fair, as long as we've known each other, I've always appreciated how you and Clarion are so forward-looking, right?

You're not afraid to zig when others zag. It's this idea that the world is going to change, but you're going to find the opportunity in it versus stew over the change. And so that's something that we've consistently seen in you all, is like identifying elements of value and then the levers that you can pull with them.

And I really also admire the approach that you've taken where you're saying like, "Hey, we're going to create this kind of symbiotic whole, and you're going to get one of the deal partners to then take over [00:24:00] the value creation side so it fits together really well." And you all have a lot of thoughtfulness in terms of how you're approaching it.

As you're describing it to me, I was like once again getting heart palpitations as the industry's matured. Because it's like I always felt like I was getting Econ 101. Supply and demand, competitive intersection, and you can just let the surplus get skimmed, or you can take some action. And what I've consistently heard from you is: we're not going to just be victim to a trend, we're going to bend it to our will. And that's what you're doing and what you're articulating here.

So you're in the alpha game, and I appreciate the position particularly that your firm and you take to go get it versus just saying, "Well, no, it's a competitive Marcet." Because I hear that from a lot of particularly younger professionals in PE who are like, "Oh, it's so much harder." Well, it's always been hard.

So what matters is what you do about it. I don't mean to uncomfortably flatter you, but I've always appreciated that approach that you and your firm take in that regard.

Jon Haas: Oh, I appreciate that. We're actively debating now, [00:25:00] and I think other private equity firms may be too, how much value creation should be standardized, versus how much should be customized. About 80% of our investments are founder or family-led businesses, and in most cases, we're the first institutional investor they've ever worked with.

We're very proud that we've been recognized multiple times by Inc. Magazine as a founder-friendly investor, because we believe founders build successful businesses for a reason, and our job isn't to replace their vision, it's to help them realize it. But that also means striking a balance between introducing best practices and preserving what makes the business successful in the first place.

And so for us, value creation isn't about imposing a one-size-fits-all operating manual. It's about partnering with management to institutionalize the business, build capabilities that endure long after we're gone, and position the business to be attractive to the broadest possible universe of buyers. The fact that roughly two-thirds of our [00:26:00] exits have been to strategic acquirers tells us that the approach has worked pretty well.

And I think ultimately, the firms that will outperform over the next decade won't necessarily be the ones that find the best deals. They'll be the ones that become the best partners to management teams after the deal closes.

Sean Mooney: And I appreciate that perspective. And we started PE in the same time or era, if you will.

In the early days, it was, "Here, we're going to invest in based on what the company is," right? And then we're going to maybe do a kitchen or a bathroom. And then today it's about what the company can or will or should be. So it's a transformation game, and that has profound implications on the types of companies you invest in, how you invest, how you price, and manage risk and opportunity.

Given your perspectives that we've already talked about, one thing I'd love to pick your brain on here, Jon, is: how did limited partners today, what is their lens through the type [00:27:00] of risks, the type of returns, the variability, the consistency, the amplitude? What is their kind of lens on PE today? And then how does that maybe impact how PE at large is reacting to the missives that they're sharing?

Jon Haas: I think one of the most interesting questions in private equity today is whether our incentives are unintentionally pushing us towards average outcomes. Ask any LP what they want and the answer is straightforward: top decile returns. But if you ask what characteristics they reward during manager selection and re-ups, the answer is often very different.

Exceptional winners are appreciated, but losses tend to receive far more scrutiny. In other words, we celebrate upside less than we penalize downside, and that creates an interesting tension. At Clarion, we've historically looked for investments with asymmetric risk-reward profiles, not because we enjoy taking risk, [00:28:00] but because we believe that's where outsized returns come from.

The reality is: that approach doesn't produce a portfolio where every investment is a success, and we've certainly had investments that didn't work. But we've also had a handful of businesses that have generated an extraordinary share of our overall return, and those runners are what create alpha. I sometimes wonder whether our industry has become uncomfortable with that reality.

Private equity isn't baseball, where batting averages tells the story. It's more similar, I think, in some respects, to venture capital, or at least in one respect, which is a relatively small number of investments often drive a disproportionate share of return. And so if every investment in a fund is a modest success, there's a reasonable chance the overall fund will also be modest.

And I think this has implications beyond LPs. It also affects investment committees. The danger I'd say there isn't [00:29:00] disagreement, it's optimizing for decisions that carry the least career risk. So consensus can become more valuable than conviction, and sophisticated financial models can often overshadow first principle questions like, "Is this the right CEO?"

Or, "Does this business have a competitive advantage that others are underestimating?" It's often easier to approve the 20th roll-up in a well-established industry than back a company with an unconventional business model, or one that has customer concentration, or a thesis that doesn't fit neatly in a spreadsheet.

Yet those are often the investments with the potential to generate truly differentiated returns. And the challenge is becoming even greater, because AI is accelerating the pace of change. It's increasingly difficult to predict what an industry or a competitive advantage will look like 5 years from now, let alone 10 years from now, when the next owner's planning to exit.

And I [00:30:00] think that uncertainty doesn't mean we should become more conservative. It means we need to become better at distinguishing between intelligent risk and unnecessary risk. So to me, this is where value creation becomes the differentiator. The firms that outperform won't simply identify promising businesses, they'll build organizations that can adapt faster, adopt new technology sooner, create value through execution, rather than relying on financial engineering alone. And ultimately, I think the industry's biggest challenge isn't finding higher return opportunities, it's making sure our incentives don't discourage us from pursuing them.

Sean Mooney: I love that perspective. It goes back to not being afraid to zig when others say zag in an industry where most people are doing follow the leader because of exactly that. It would drive me insane, when I was in your shoes, because it's like we would spend, and I would spend so much of my time focusing on the [00:31:00] losers.

And frankly, like, not giving nearly enough love to the winners, we would always debate, it's "Hey, we're spending 80% of our time trying to get back to an arbitrary zero, like money back." It's like, "What is the point? Why don't we just clip this thing?" And the ultimate answer was always like, "Don't hate the player, hate the game, like the LPs will kill us." But the intellectually honest answer that we should have said is like, "Let's clip this thing, and let's focus on quadrupling the winners, and not like having to sell our best investment because we're fundraising too early on."

And it would just drive me nuts. And so, what you're saying there, I think, is once again, so true, and ultimately it's: if the industry at large is going to be successful, it's like that intellectual courage to say "We're going to have to change as we do."

There's a Mikey Life cereal commercial. It's like from the 80s. Mom brought back a new cereal, and the three brothers don't want to try it, and they're like, "Well, we're not going to try it. We're going to have a younger brother, Mikey, try it first." And Mikey tries it. Mikey likes it, and they're like, "He likes it!" And then they all eat it, and [00:32:00] then Life cereal became the most popular cereal in childhood.

Almost in some ways, there's parables for the PE industry, it's like I always said to others: "We're not fast followers, but we're fast followers of fast followers." And I think it's what you're articulating is like, in what you're doing at Clarion is like the PE industry probably needs to be moving, not even have to be early adopters, but probably more fast followers versus fast followers of fast followers, and have the courage to zig in an industry that typically follows zag.

And I think you're doing a great job of articulating how you all are doing that, and you're probably, my sense, is going to extraordinarily benefit it by doing so.

So one of the things that I think that we all love here is talking about other people's lessons learned, right? In some ways, that's the purpose of this podcast is: let's teach people about ways to do business better. Let's humanize people in this industry who are really good and trying to do good things to create better businesses.

But I think a lot of people who are successful learn a lot through reading the [00:33:00] wisdom of others. And one of the favorite questions I get to ask on this is, are there any books that you've read, or have had an impact on you, that others you think should know about as well?

Jon Haas: Yeah, I love that question. So one of my favorite business books is Red Notice by Bill Browder. It's one of those rare books that's part investing story, part geopolitical thriller, and part lesson in courage. So Browder was one of the earliest Western investors in post-Soviet Russia. He built a firm called Hermitage Capital into the largest foreign investment firm in the country by buying deeply undervalued business that everyone else was afraid to own.

So when Russia was privatizing industries in the 1990s following Glasnost, he was buying shares from workers who were given ownership in old line industrial businesses that they thought were worthless. And he wasn't simply chasing cheap assets, he was looking for situations where the Marcet [00:34:00] had dramatically overestimated the risk or underestimated the opportunity.

And of course, the story takes an extraordinary turn. So after exposing corruption inside Russia, and this is a true story, Browder was expelled from the country, his companies were seized, and his lawyer, whose name was Sergei Magnitsky, uncovered a massive tax fraud perpetrated by Russian officials. So his lawyer was imprisoned, denied medical care, ultimately died in custody after exposing the corruption.

And Browder then reinvented himself from investor to human rights activist, and he advocated for the Magnitsky Act, which has become the model for sanctions legislation in multiple countries. It's also alleged that Browder's still high on Putin's list of people he would like to eliminate. It's an incredible story, but the investing lesson there stayed with me, which is [00:35:00] the best investments aren't necessarily the one with the fewest risks. They're often the ones where everyone sees the same risks, but only a few investors correctly understand which risks actually matter. And that lesson actually influenced me in one of my favorite investments.

So about 10 years ago, I led an investment at Clarion in a software localization company that was based in Brno in the Czech Republic. And on paper, there were plenty of reasons to walk away. The business had meaningful customer concentration. It was headquartered halfway around the world in a city most people couldn't find on a map. And many people believed that machine translation would eventually eliminate the need for human translators.

So almost every advisor we spoke with focused on those risks. But our diligence uncovered something different, which was: Microsoft had recently selected the companies to support its cloud and enterprise division. Growth from other [00:36:00] customers like Apple, Google, Facebook, and Amazon was accelerating. And the company's role was evolving beyond translation into a broader set of managed technology services.

And so we concluded that the Marcet was focused on risks that were visible while overlooking opportunities that weren't yet reflected in the financials. And so three years later, after we bought the business, EBITDA tripled. We ultimately were able to sell the business to a company called RWS, which is publicly traded in the UK, and made eight times our money.

Clarion received the Buyouts Insider International Deal of the Year Award in March of 2018 for the Moravia transaction. And so looking back, we were also a little fortunate with our timing. Shortly after our exit, the industry faced some pretty meaningful challenges, first from COVID and then more recently from the rapid advancement of AI.

That's another lesson I think Red Notice reinforced in me, which is great [00:37:00] investing isn't about finding businesses with no uncertainty. It's about developing a point of view that's different from the Marcets and being right often enough that the winners more than compensate for the inevitable mistakes.

Sean Mooney: Well, I'm going to one-click that book. First of all, because probably both of us being around during that kind of era where it was changing, it was just the drama and the theater of that whole time in life will be fun. But, I also love the consistency of our conversation here, Jon, where it's just this constant: don't be in the herd.

The herd will keep you safe, but you're going to get average returns, you're going to get average outcomes, and it's the audacious ones who maybe take a step forward and go to the front that kind of benefit. Whether it's software in the Czech Republic, or it's a debt collection firm, the easiest word in the English language is to say "No."

It's two letters, right? There's some... I forget what the parable is the word 'yes' requires all these muscles in your mouth, and so I think the consistency that I've gotten from our conversation here is: don't be [00:38:00] afraid to go out, look at things differently. The herd is safe, but not necessarily the best place to be. When there's a storm run through it.

And that book not only personifies, I think, our conversation, but also a lot of the way that you and your firm approach investing. And so I'm going to definitely take all of this conversation to bear. Also, just, I think everyday CEOs like myself get a lot of that. It's so easy to play it safe. In some ways, playing it safe is a lot more dangerous, particularly in times like now where it's moving fast.

So I've learned all sorts of things today that I wish I knew before, Jon, and I appreciate you taking the time out of your busy schedule to share a lot of lessons that I'm going to take to heart here.

Jon Haas: It's been a lot of fun, Sean. Appreciate all your support over the years, and looking forward to working together for many more.

Sean Mooney: That's all we have for today. Special thanks to Jon for joining. [00:39:00] If you'd like to learn more about Jon Haas and Clarion Capital, please see 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 advisors, AI tools, that are deployed and trusted by the best business builders in the world, including many hundreds of the 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.

Clarion Capital Partners received the Inc. Magazine’s 2024 and 2025 Founder-Friendly Investors List awards on October 29, 2024 and October 28, [00:40:00] 2025, respectively. In addition, Clarion received the Buyouts Insider’s International Deal of the Year award on March 19, 2018. Clarion paid no compensation in connection with these awards other than the application fee. For more information about these awards, please visit https://www.clarion-capital.com/disclaimer/ and https://www.clarion-capital.com/news/international-deal-of-the-year-clarion-capital-partners-moravia/.

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 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.