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Graham Weaver on Private Equity · Masters in Business

0:02
Speaker 1: This is Mesters in Business with Very Results on Bloomberg Radio.
0:09
Speaker 1: This week on the podcast, I have an extra special guest.
0:12
Speaker 1: Graham Weaver is founder and partner at Alpine Investors, a
0:16
Speaker 1: private equity firm focusing on software and services. Graham has
0:22
Speaker 1: a really interesting background, both engineering at Princeton and essentially
0:28
Speaker 1: launching a PE firm while he was a graduate student
0:31
Speaker 1: at Stanford. Everybody knows the story about Michael Dell launching
0:35
Speaker 1: a computer business out of his dorm room in Texas.
0:39
Speaker 1: This could be the first PE firm I'm familiar with
0:43
Speaker 1: that got started in a dorm room. What makes Graham
0:46
Speaker 1: so interesting is while everybody else in the world of
0:50
Speaker 1: private equity is focused on the analytics and crunching numbers
0:55
Speaker 1: and creating econometric models that will tell you way to
0:58
Speaker 1: invest I think they've found a very different model that
1:03
Speaker 1: has been extremely successful for them, where the key focus
1:08
Speaker 1: is on talent. How do we find the best talent,
1:11
Speaker 1: put them in place running our investment companies, and allow
1:16
Speaker 1: them to generate the sort of returns UH that you
1:20
Speaker 1: don't really generate by just looking at a model. I
1:23
Speaker 1: found our conversation absolutely fascinating, and I think you will
1:27
Speaker 1: also with no further ado my discussion with Alpine Investors.
1:31
Speaker 1: Graham Weaver, let's jump right into this, starting with your background.
1:36
Speaker 1: When I hear someone has an engineering degree, I tend
1:40
Speaker 1: to think of venture capital, not private equity. Tell us
1:44
Speaker 1: a little bit, how you went the PE route instead
1:47
Speaker 1: of the VC route. Well, I actually started in private
1:51
Speaker 1: equity right out of undergrad. I really didn't know the
1:54
Speaker 1: difference between private equity or consulting or anything. I had
1:58
Speaker 1: zero knowledge of at and I was fortunate to end
2:01
Speaker 1: up in Morgan Stanley's private equity group. I loved it,
2:04
Speaker 1: and I've kind of been at it ever since. Really
2:07
Speaker 1: really interesting. So is it from Princeton to Morgan Stanley, uh,
2:11
Speaker 1: and then Stanford or am I getting the order? Yeah?
2:15
Speaker 1: I when I was at Princeton, then I went to
2:17
Speaker 1: Morgan Stanley and their private equity. Then I worked at
2:18
Speaker 1: it from called American Securities for a couple of years,
2:21
Speaker 1: and then went to went to business school after that.
2:23
Speaker 1: And somewhere in the middle of this, there's a pig
2:26
Speaker 1: farm in Missouri that I'm having a hard time figuring
2:30
Speaker 1: out what a pig farm has to do with with
2:32
Speaker 1: private acts. So the very first deal I worked on.
2:36
Speaker 1: So I come out of school, I'm wearing my cross
2:39
Speaker 1: pen and my lapel, and I'm like wearing a tie
2:42
Speaker 1: and well buttoned down exactly, and I think I'm a
2:45
Speaker 1: big shot being on Wall Street. And I get shipped
2:47
Speaker 1: out to this pig farm in Missouri, which was a
2:49
Speaker 1: deal Morgan Stanley had invested in. They'd invested a total
2:53
Speaker 1: of a billion almost a billion dollars of debt and equity,
2:57
Speaker 1: and it, suffice to say was not going well. So
3:01
Speaker 1: not that I was going to go save it as
3:02
Speaker 1: a twenty two year old analyst, but I got shipped out.
3:05
Speaker 1: I lived in the CFOs basement for about five months
3:09
Speaker 1: and we did everything we could, but it turned out
3:12
Speaker 1: not to not to be a great investment. So there's
3:14
Speaker 1: not big money and pigs. Well, it turns out hog
3:17
Speaker 1: prices are wildly cyclical. And you know there's the expression,
3:22
Speaker 1: how does uh six footman drown drowned in a river
3:25
Speaker 1: that averages five ft? You know it's because there's parts
3:28
Speaker 1: of the river that are deeper. Will you know, we
3:30
Speaker 1: build our whole model on hog prices being forty seven
3:32
Speaker 1: dollars and when we with that's what they average. But
3:37
Speaker 1: that doesn't tell you how much they swing up. And
3:39
Speaker 1: it turns out, yeah, they were. They went to eighteen
3:41
Speaker 1: dollars and we had seven hundred million a debt and
3:45
Speaker 1: that didn't that that didn't go well. So that's the
3:48
Speaker 1: that's the old joke. It's not the price, it's the
3:50
Speaker 1: volatility that it was. Yeah, it was rough, but it
3:53
Speaker 1: was a That was my introduction to the glamorous business
3:56
Speaker 1: of private equity. And you didn't turn around and say,
3:58
Speaker 1: I want nothing to do. I had the time of
4:00
Speaker 1: my life. It was so fun. Um, how is sleeping
4:05
Speaker 1: in the CFOs basement? What was his house on the
4:09
Speaker 1: it was it was the whole entire town smelled like
4:13
Speaker 1: a pig farm, and which was not especially delightful. It's not. No,
4:17
Speaker 1: it turns out and every and pretty much everyone in
4:19
Speaker 1: the town worked and had some affiliation with the pig farm.
4:23
Speaker 1: The CFO was also a Morgan Stanley guy, and he
4:26
Speaker 1: was probably twenty seven. So neither of us years of experience, you,
4:31
Speaker 1: neither of us had any clue what we were doing.
4:33
Speaker 1: And uh, but but it really wouldn't have mattered. When
4:37
Speaker 1: your revenue gets cut by like eight percent, there's just
4:39
Speaker 1: not a lot not a lot you're gonna do to
4:41
Speaker 1: turn that around. So so there's a cliche about tech
4:44
Speaker 1: firms being started in dorm rooms. How does a private
4:47
Speaker 1: equity firm start in a dorm room? So I I
4:50
Speaker 1: show up at Stanford and I'm in my first week
4:53
Speaker 1: of class, and then, similar as today, you have to
4:56
Speaker 1: take these core classes your first year, which are just
4:58
Speaker 1: not that you know there, just fundamental. They're they're not
5:01
Speaker 1: that exciting. So the first class, I sit down and
5:04
Speaker 1: there's this this twenty five year old who's never worked
5:06
Speaker 1: today in his life. He's a PhD student, he's never
5:09
Speaker 1: taught before, and he's kind of just reciting out of
5:11
Speaker 1: this strategy book. And I just thought to myself, Oh
5:14
Speaker 1: my god, what have I signed up for. So I
5:18
Speaker 1: had this idea that I was going to go try
5:20
Speaker 1: to buy a business, and I had you know, in
5:23
Speaker 1: your first three years as an analyst, you basically build
5:26
Speaker 1: a financial model. But I had the confidence of someone
5:29
Speaker 1: I thought I was much more, much better than I was.
5:32
Speaker 1: So I I convinced h an owner. I started cold
5:36
Speaker 1: calling companies in a sector that I had looked at previously,
5:39
Speaker 1: and I convinced this this owner to sell me his business,
5:43
Speaker 1: and and then I had to go raise the money,
5:45
Speaker 1: most of which was debt and the little bit of
5:47
Speaker 1: equity that was needed I financed with credit cards, right,
5:51
Speaker 1: So that was literally how I started, not your typical
5:54
Speaker 1: private equity founding story. How did that initial PE transaction
5:59
Speaker 1: work out? I did a total of uh three label
6:05
Speaker 1: deals with some add ons, lost money on one, made
6:09
Speaker 1: money on or made you know, lost a little bit
6:11
Speaker 1: of money on, lost made a little bit of money
6:13
Speaker 1: on the second one, and the third one. Third one
6:16
Speaker 1: was a total home run which actually just sold uh
6:19
Speaker 1: this year, twenty years later, so that that one turned out,
6:22
Speaker 1: well twenty years that's impressive. That's not the typical private
6:26
Speaker 1: equity holding period. Yeah, well it was just me. I
6:28
Speaker 1: was the it was just mine, so you could afford
6:31
Speaker 1: to be patient, and it was It was awesome. It
6:33
Speaker 1: was a great that one. What what what space was
6:36
Speaker 1: that it was? We had these companies that made these
6:38
Speaker 1: little labels that went on products like, for example, in
6:41
Speaker 1: Trader Joe's Trader Joe's Private labels things. We made all
6:45
Speaker 1: those labels. It's a totally unsexy business, but it was
6:48
Speaker 1: very consistent and it's profitable. It was really profitable, and
6:52
Speaker 1: no one wakes up and says, you know, I'm gonna
6:54
Speaker 1: be a hero because I'm gonna save half a cent
6:56
Speaker 1: on my label. So it tends to kind of like
6:59
Speaker 1: just clip along like a bond. So it turned out,
7:01
Speaker 1: it turned out well. But I mean I had absolutely
7:04
Speaker 1: no idea what I was doing, and uh, and so
7:06
Speaker 1: I made I made every mistake you can imagine, and
7:08
Speaker 1: it still worked out. When you launched in two thousand
7:12
Speaker 1: and one, you started with fifty million dollars something like that,
7:16
Speaker 1: and now it's up to eight billion, of course, eight funds,
7:19
Speaker 1: and your most recent fund just closed about two billion
7:24
Speaker 1: dollars more or less about two and two point four,
7:27
Speaker 1: all right, so that's that's real money two point four.
7:30
Speaker 1: Obviously you're doing something right. The track record has to
7:33
Speaker 1: be attractive. Is it the same investors rolling over or
7:38
Speaker 1: or new and different investors. Who's the clientele for this?
7:42
Speaker 1: In the very early days, it was a number of
7:45
Speaker 1: individuals because no institution was going to back at well.
7:48
Speaker 1: You have to have a certain track record, be around
7:50
Speaker 1: for certain length of period, be able to check all
7:53
Speaker 1: of their due diligence boxes, and that takes time money,
7:57
Speaker 1: And I checked zero of those boxes store room, check
8:00
Speaker 1: what else? What else we got? Check exactly? I checked
8:06
Speaker 1: no boxes. And that took me like almost a year
8:09
Speaker 1: to figure out. I went to all these institutions and
8:10
Speaker 1: I never got past the first meeting anywhere. And then
8:13
Speaker 1: I found a number two really two individuals who thank
8:18
Speaker 1: god there I still owe everything to these these two.
8:21
Speaker 1: UM one, I don't know if I can, you could
8:24
Speaker 1: say whatever. So UM one was Tom Styer who ran
8:27
Speaker 1: for president. Um he was one of the early ones.
8:29
Speaker 1: And then Doug Martin from the Stevens family, And they
8:32
Speaker 1: were just the two best investors you could ever have.
8:34
Speaker 1: And um they were supportive and most importantly they were
8:38
Speaker 1: supportive after Fund one, which was not a good fund.
8:40
Speaker 1: So that's the reason we're still in business. Why not
8:42
Speaker 1: a good fund? Just performance wise? Or was it because
8:46
Speaker 1: when you launch, you know, one, we're still in the
8:49
Speaker 1: early days of a massive downfall in technology, media, internet,
8:55
Speaker 1: straight across the board. Not you know, it's not unless
8:58
Speaker 1: it's a distress fund, that's not the ideal time to launch. Yeah.
9:01
Speaker 1: I would love to say that it was the market,
9:03
Speaker 1: but it wasn't. It was self inflicted. It was me
9:07
Speaker 1: making a lot of dumb mistakes, being overconfident, you know,
9:12
Speaker 1: and and just investing in companies that looked great in
9:15
Speaker 1: a spreadsheet and didn't. What looks great in a spreadsheet
9:19
Speaker 1: is low purchase price and a lot of leverage. That
9:21
Speaker 1: looks always looks good in a spreadsheet. But the the
9:24
Speaker 1: problem the qualitative, Yeah, the leverage is the problem. And
9:26
Speaker 1: the qualitative things about is it a quality business? Those
9:28
Speaker 1: things you can't model in a spreadsheet. And so I
9:31
Speaker 1: just made a lot of dumb mistakes and we will
9:33
Speaker 1: actually the whole fund overall loss money. I would highly
9:37
Speaker 1: bury not recommend having your first fund when you launched
9:40
Speaker 1: to lose money. It was probably not the best strategy.
9:44
Speaker 1: It was an anchor around our neck for pretty much
9:47
Speaker 1: a decade. So that raises the question, if the first
9:51
Speaker 1: fund was a bit of a stiff, how did you
9:53
Speaker 1: raise money for the second film? Well, thankfully, we were
9:56
Speaker 1: really I really communicated a lot with Doug and Tom,
9:59
Speaker 1: and they understood they could see us getting better, you know,
10:02
Speaker 1: they could see us making a lot of improvements, fixing
10:05
Speaker 1: a lot of things that we got wrong. And both
10:08
Speaker 1: both of them were pretty seasoned investors. Both of them
10:11
Speaker 1: had had mistakes they'd made before and so they you know,
10:14
Speaker 1: thank god, we're really supportive. And then and then it
10:17
Speaker 1: wasn't like immediately we started knocking out of the park either,
10:20
Speaker 1: but we started getting better and better and and and
10:23
Speaker 1: then and then really around the time of the recession
10:26
Speaker 1: was when we really completely transformed and became kind of
10:30
Speaker 1: the business that we are today. And it's a little
10:33
Speaker 1: bit of a cliche. They're not so much investing in
10:36
Speaker 1: a fund as they're investing in you as the manager.
10:39
Speaker 1: Obviously they saw something that was, hey, needs a little seasoning,
10:43
Speaker 1: but there's a lot of potential here. Yeah. They saw
10:45
Speaker 1: someone who was willing to literally run through walls and
10:49
Speaker 1: run through a burning building to make it work. And
10:52
Speaker 1: and I almost literally did. I mean it was it
10:55
Speaker 1: was that um we were and not just me but
10:58
Speaker 1: our whole team was was really committed to trying to
11:00
Speaker 1: try and make it work. And I think they saw
11:02
Speaker 1: that quite quite interesting. I have to talk a little
11:05
Speaker 1: bit about your growth rate. You began with fifty four
11:09
Speaker 1: million dollars all in your eight billion in assets totally
11:14
Speaker 1: Obviously a lot of that is not just growth but
11:18
Speaker 1: new investors coming along. But still that's a as a
11:21
Speaker 1: as an pe company Alpine has really seen quite a
11:26
Speaker 1: corporate growth trajectory. Tell us what led to this success rate. Yeah,
11:32
Speaker 1: So when when the recession hit, we were, uh in
11:36
Speaker 1: we're not well positioned. We didn't. Now, when you say recession,
11:38
Speaker 1: because some of our audiences, you know, older than twenty five,
11:43
Speaker 1: I'm assuming you mean oh, eight o nine crisis, Okay,
11:46
Speaker 1: not the one in not the one that maybe happens
11:50
Speaker 1: sometime in two and certainly not two thousands. So the
11:54
Speaker 1: great financial crisis. So great financial crisis happens. We were
11:59
Speaker 1: we invested the last dollar from our third fund two
12:02
Speaker 1: weeks before h two weeks before Lehman Brothers blew up,
12:06
Speaker 1: and so we were out of money and we had
12:09
Speaker 1: it took us forever to raise the next fund. But
12:11
Speaker 1: that period where we didn't have any money turned out
12:14
Speaker 1: to be the most important period for us. Why because
12:17
Speaker 1: we started deciding we were going to look at our
12:19
Speaker 1: own business, you know, kind of like, rather than working
12:22
Speaker 1: in the business, We're going to start working on our business.
12:25
Speaker 1: So I hired an executive coach, um and he helped.
12:30
Speaker 1: He he really helped me kind of redefined the business
12:34
Speaker 1: that I truly was in which I'll come back to
12:35
Speaker 1: we hired a consulting and coaching firm for our whole organization,
12:39
Speaker 1: and so we really started doing some soul searching for
12:42
Speaker 1: lack of a better word. And then and and from
12:45
Speaker 1: that we really you know, changed our strategy and developed
12:48
Speaker 1: kind of a new playbook. Um, so let me interrupt
12:51
Speaker 1: you there, because that you raised something that I'm fascinated by.
12:54
Speaker 1: So first, what leads you to say we need a
12:57
Speaker 1: pro to come in and show us how to do this?
13:00
Speaker 1: And second, how do you even go about finding an
13:02
Speaker 1: executive coach that sounds like man, that's a consulting field
13:08
Speaker 1: fraught with you know, let's polite and just say high risks. Yeah,
13:13
Speaker 1: it's it's it's a great question. And I am a
13:16
Speaker 1: huge fan of executive coaching. I have had a coach
13:21
Speaker 1: since two thousand and nine. I've talked to a coach
13:23
Speaker 1: every week or every other week since oh nine, No, Kidd,
13:26
Speaker 1: and we at Alpine have twenty three coaches that are
13:30
Speaker 1: part of our There their ten ninety nine folks, but
13:33
Speaker 1: they're part of our ecosystem that's available to our people
13:35
Speaker 1: at Alpine and our executives. So I'm I'm just a
13:38
Speaker 1: huge fan of coaching and Basically, what I love about
13:41
Speaker 1: coaching is you you create space away from the business
13:45
Speaker 1: of the day to day and you ask yourself a
13:47
Speaker 1: bunch of really important questions. You know, what do I want?
13:51
Speaker 1: What success look like? What do I want to you know,
13:54
Speaker 1: what's a five year plan look like? And you actually
13:57
Speaker 1: have to really burn some energy into thinking time thinking
14:01
Speaker 1: about um those answers, which are really hard answers, which
14:05
Speaker 1: most of us never spend time thinking about. What was
14:08
Speaker 1: it just in the midst of the crash and recession
14:12
Speaker 1: that you said, hey, maybe we just need a little help.
14:14
Speaker 1: We're not we we don't have the professional background to
14:18
Speaker 1: run the business. We know the investing side, but the
14:21
Speaker 1: business side is something very different. How do you get
14:25
Speaker 1: I mean, I think one of the benefits of face
14:29
Speaker 1: planning in your first fund is that you get some
14:32
Speaker 1: humility and you I've always just been open to learning
14:37
Speaker 1: from people that are smarter and better than I am,
14:39
Speaker 1: and so coaching was an extra back then in two
14:42
Speaker 1: thousand nine, it was not very well known, and it
14:44
Speaker 1: was definitely an exercise in humility of saying I think
14:47
Speaker 1: I need some help. That that's the old joke. Experiences
14:50
Speaker 1: what you get when you don't get what you want right, Yeah, exactly.
14:53
Speaker 1: So once you make the decision, Hey, we want to
14:56
Speaker 1: bring in a professional to show us ways to improve
14:59
Speaker 1: our busines, the methods. How does one go about finding
15:03
Speaker 1: a business coach? So I had an introduction from a
15:07
Speaker 1: friend and then we had a number of lunches, and
15:10
Speaker 1: his business wasn't going well in oh nine either. As
15:12
Speaker 1: you can imagine, who other than people doing distress debt
15:17
Speaker 1: investing whose business was going great knowing, yeah exactly nobody.
15:21
Speaker 1: So in short sellers, everybody else was in trouble. So
15:24
Speaker 1: we had this awesome conversation. I can still it's one
15:27
Speaker 1: of these conversations you can still remember where you are
15:29
Speaker 1: and which you know exactly the moment. So we had
15:32
Speaker 1: this is actually after I brought him on. We have
15:35
Speaker 1: this awesome conversation where I said, hey, I have to
15:38
Speaker 1: his name's JP Flam, and I said, hey, I have
15:40
Speaker 1: to cancel our our coaching engagement. I'm just too busy,
15:42
Speaker 1: which was like we'd already decided ahead of time that
15:44
Speaker 1: there was that was no go. I had to stick
15:46
Speaker 1: with it, like that agreement. So he he text back
15:48
Speaker 1: immediately says, no, we're having it. So I get on
15:51
Speaker 1: the phone. He says, well, what's you know, what's so
15:53
Speaker 1: crazy that you're so stressed? Oh my god, JP, you know,
15:55
Speaker 1: I gotta fly to Dallas and fix this. And then
15:58
Speaker 1: I gotta, you know, we gotta deal we're to lose.
16:00
Speaker 1: And then we lost a huge customer in Chicago. Then
16:02
Speaker 1: I got into d C, and then you know, I'm
16:04
Speaker 1: going on and on, and he said, okay, well, let's
16:06
Speaker 1: let's kind of slow down and chill out. Let's talk
16:07
Speaker 1: about Dallas. What's going on there? Well, we you know,
16:10
Speaker 1: we just missed our bank projections the second time. And
16:12
Speaker 1: I'm going on and on, and he starts saying, well,
16:14
Speaker 1: tell me about the CEO and Dallas. I'm like, what
16:17
Speaker 1: does that have to do with anything, you know, in
16:18
Speaker 1: the middle of the Great recession, like blah blah blah.
16:20
Speaker 1: But you know it's not it's you know, it's a
16:21
Speaker 1: markets or whatever. Anyway, he it comes to the point
16:25
Speaker 1: he says, well, eventually he says, well, how would you
16:27
Speaker 1: how would you rate that that CEO? You know, a
16:29
Speaker 1: B C. I was like, oh, you know, probably a B.
16:32
Speaker 1: He said, Well, Graham, at the one of our engagements,
16:34
Speaker 1: you said you wanted to build the greatest private ely
16:35
Speaker 1: from of all time. Are you gonna Are you gonna
16:37
Speaker 1: do that with a b CEO? And I just like
16:40
Speaker 1: hit me between the eyes. And then he asked me
16:41
Speaker 1: another question. He said, and Graham, if you're someone who
16:44
Speaker 1: keeps a b CEO, what does it make you? How
16:46
Speaker 1: would you rate yourself as a CEO? And I just
16:49
Speaker 1: I like, its stopped me dead in my tracks. And
16:52
Speaker 1: that was really this light bulb that went off that
16:55
Speaker 1: ended up having us having me realize I'm actually in
16:59
Speaker 1: the talent business us that's the fundamental business that I'm
17:02
Speaker 1: really in. And that was like oh nine that we
17:05
Speaker 1: came to that realization and then started completely redesigning our
17:09
Speaker 1: our firm to like build our companies around talent, build
17:13
Speaker 1: our firm around talent, build our investment strategy around talent.
17:16
Speaker 1: So that that was just a huge turning point. So
17:18
Speaker 1: so let's talk about that, because all of your investments
17:24
Speaker 1: eventually get a CEO that's been trained at Alpine and
17:30
Speaker 1: has the benefit of all of this coaching, all of
17:33
Speaker 1: this training, all of this expertise. It's not that you're
17:37
Speaker 1: just looking for attractive balance sheets. It's where can we
17:42
Speaker 1: put someone in charge to move the needle by taking
17:46
Speaker 1: our expertise and applying it to this business model. Is
17:49
Speaker 1: that what you mean by when you say you're in
17:52
Speaker 1: the talent business? Yeah, I think that's what I mean.
17:54
Speaker 1: There's two parts of it. One is our investment strategy,
17:57
Speaker 1: which is what you describe, the others how we run
17:59
Speaker 1: our own firm. But sticking with what you were talking
18:01
Speaker 1: about bury the investment strategy, we found that the single
18:06
Speaker 1: most important investment decision we make is the management team.
18:10
Speaker 1: And it's more important than the price we pay. It's
18:12
Speaker 1: more important than the leverage levels, it's more important than
18:14
Speaker 1: the prior growth rate. And so we just said, well,
18:17
Speaker 1: if that's really the most correlated, most effective, our most
18:21
Speaker 1: important criteria, you know, let's make sure we get that right.
18:25
Speaker 1: And so let's actually kind of build our own CEOs
18:28
Speaker 1: and and and and put our own CEOs in so
18:31
Speaker 1: that we can make sure that we're getting a world
18:34
Speaker 1: class person to run each one of our companies. So so,
18:37
Speaker 1: in some ways this is almost parallel in the public
18:40
Speaker 1: markets to activist investing, where they identify a very attractive
18:45
Speaker 1: business that isn't quite living up to potential, right, and
18:50
Speaker 1: they say, hey, with a few management changes, we can
18:52
Speaker 1: turn this into a really good business. On the private
18:54
Speaker 1: equity side, I'm assuming the conversation is something like, we
18:59
Speaker 1: want to either buy your business or your entire business,
19:03
Speaker 1: but regardless, we want one of our professionals to come
19:05
Speaker 1: in and manage it. Yeah, that's right. A lot of
19:07
Speaker 1: the companies were buying don't have management. You know, might
19:10
Speaker 1: be a corporate carve out, it might be a management
19:12
Speaker 1: team that wants to retire or exit, and and that's great.
19:16
Speaker 1: So there's never any conflict. We're totally transparent. We're not
19:18
Speaker 1: doing hostile deals, nothing like that. It's always the transaction
19:21
Speaker 1: that the seller wants to do is they want to retire,
19:24
Speaker 1: so it's always very friendly. But we there aren't a
19:27
Speaker 1: lot of private equity firms that want to go through
19:30
Speaker 1: the process of changing management because it's very very hard
19:33
Speaker 1: to do. And that's the value add that you guys,
19:35
Speaker 1: that's a big part of it. Yeah, that's really quite fascinating.
19:38
Speaker 1: So there's a quote of yours I have to lead
19:41
Speaker 1: with which I find really intriguing. Quote. People create returns,
19:46
Speaker 1: not deals, not price. That's a that's a huge statement
19:51
Speaker 1: considering most of the analyst community, especially private equity is
19:55
Speaker 1: so analytical and modern driven. You're saying, this is a
20:00
Speaker 1: people business. Barry Um. I think that if you want
20:04
Speaker 1: to do something different than people, you have to have
20:06
Speaker 1: some fundamental belief that's different than what other people believe.
20:09
Speaker 1: And our belief is that returns come from from people,
20:12
Speaker 1: they come from talent and and and I think maybe
20:15
Speaker 1: one of the reasons why people shy away from that
20:18
Speaker 1: is it's hard to analyze, it doesn't fit in a spreadsheet,
20:22
Speaker 1: and it's incredibly hard to manage. So it's a lot
20:26
Speaker 1: easier to manage the the hard numbers that the financial
20:30
Speaker 1: statements and things than it is to, you know, really
20:33
Speaker 1: manage a team of people. So we were talking earlier
20:36
Speaker 1: that you appoint a CEO at these these purchased businesses
20:39
Speaker 1: that you've trained Um yourself, tell us a little bit
20:43
Speaker 1: about what that in house training looks like. So a
20:48
Speaker 1: lot of the CEOs we're hiring, we're bringing right out
20:51
Speaker 1: of NBA programs, and they have five years of experience
20:56
Speaker 1: typically before they go into business school, and that could
20:59
Speaker 1: be anything that could be there in the military, they
21:01
Speaker 1: could have been a consulting firm, they could have been
21:03
Speaker 1: investment banking and we have success with any of those
21:06
Speaker 1: back any and all those backgrounds. So and they've just
21:09
Speaker 1: been in two years of business school, so we don't
21:11
Speaker 1: want to put them back in business school. But what
21:12
Speaker 1: we're really teaching them, the fundamental thing we're teaching them
21:15
Speaker 1: is how to hire, how to build their team, how
21:18
Speaker 1: to set a vision, how to create priorities, how to
21:21
Speaker 1: get everyone in their organization excited and aligned behind what
21:25
Speaker 1: they're trying to do. Those are things that not a
21:28
Speaker 1: lot of business schools um teach. It's one of the
21:31
Speaker 1: things I try to teach in my class, but it's
21:32
Speaker 1: something that we bring in. It's the biggest thing we
21:35
Speaker 1: bring in that in that training program that we do.
21:37
Speaker 1: Hiring has been described as the most difficult aspect of
21:42
Speaker 1: building a company versus everything else. How do you teach
21:46
Speaker 1: good hiring? You can actually, to some extent, make hiring
21:51
Speaker 1: a science. UM and the simple I could talk for you.
21:55
Speaker 1: I could talk for three hours about this, but I'll
21:58
Speaker 1: try to do it in about two minutes, which is,
22:02
Speaker 1: you build a scorecard for what you want that role
22:06
Speaker 1: in that role, a specific list of outcomes you want
22:08
Speaker 1: that role to do. And then as you're assessing a candidate.
22:12
Speaker 1: You're looking for very specific evidence that they're going to
22:15
Speaker 1: be able to perform against that scorecard. And you have
22:19
Speaker 1: two things you're looking for, attributes and experience. Those are
22:22
Speaker 1: the two different parts of the interview process. Well, we
22:25
Speaker 1: all know what experiences define what attributes me. So attributes
22:29
Speaker 1: is about who somebody is versus what they've done. So
22:32
Speaker 1: an example for us, when we're hiring young people to
22:35
Speaker 1: become CEOs, we're looking at, you know, do they have
22:38
Speaker 1: a will to win? Do they have emotional intelligence and
22:42
Speaker 1: self awareness that they can get along with people? And
22:44
Speaker 1: then do they have grit? Can they Are they going
22:47
Speaker 1: to be able to see things through after getting kicked
22:49
Speaker 1: in the teeth, because they're gonna get kicked in the teeth.
22:52
Speaker 1: So those are the three attributes that we're looking for.
22:55
Speaker 1: Those are wildly more important than experience because they'll get
22:59
Speaker 1: experienced quickly, and you can teach experience. You can't teach
23:04
Speaker 1: those three things. You can't teach you know, the will
23:06
Speaker 1: to win, Um, they're kind of coming to us with
23:09
Speaker 1: that or they're not. That's a that's an intrinsic aspect
23:11
Speaker 1: of the personality. You either have it or you don't.
23:13
Speaker 1: There's no way you're gonna learn that, not in a
23:16
Speaker 1: period of time, or we don't know how to teach
23:19
Speaker 1: it if it is sable, really really interesting. So so
23:23
Speaker 1: you mentioned your class, let's let's talk about the management
23:26
Speaker 1: course that seems to be related to that CEOs and
23:30
Speaker 1: Training to tell us about that. Yeah, so the CEO
23:33
Speaker 1: and Training is the that's the name for the people
23:35
Speaker 1: that were hiring. Did you want to talk about that
23:36
Speaker 1: or the class itself? All right? So, um, the CEO
23:41
Speaker 1: and Training is the name we give to those people
23:42
Speaker 1: were hiring right out of business school. We're giving them
23:44
Speaker 1: that experience training that I mentioned, and then we're putting
23:47
Speaker 1: them right in. Um a lot of them are CEOs
23:50
Speaker 1: on day one of add on acquisitions and they get
23:52
Speaker 1: the reins and they're you know, they're off to the races. Um.
23:56
Speaker 1: And and you know, there aren't a lot of positions
23:59
Speaker 1: out of business school that you can become a CEO within,
24:02
Speaker 1: you know, right when you graduate. So we're we've designed
24:06
Speaker 1: that and it's been it's been a home run. We
24:09
Speaker 1: I underestimated how amazing these students would do and the
24:13
Speaker 1: roles that they've done, and uh, and it's it's it's
24:15
Speaker 1: been fantastic. Do you end up hiring people right out
24:18
Speaker 1: of your classes or yeah? I mean this is really
24:22
Speaker 1: as recruitment. I don't interview anybody from Stanford period. I
24:28
Speaker 1: don't even know if they applied. I keep a wall
24:30
Speaker 1: between you know, my teaching and um and and recruiting.
24:35
Speaker 1: But I will say probably teaching there has helped the
24:37
Speaker 1: Alpine brand, uh and and help me and more importantly
24:41
Speaker 1: helped me understand what students are capable of, which is
24:44
Speaker 1: a lot, and what they want, which is they want
24:47
Speaker 1: to be the boss right away. And I think so
24:50
Speaker 1: it's helped. It's helped me learn a little bit more
24:52
Speaker 1: about how to build a program that the students want
24:54
Speaker 1: to actually do. So one of the things the c
24:57
Speaker 1: I T program does is to try and increase underrepresented
25:01
Speaker 1: individuals and pe tell us a little bit about what
25:04
Speaker 1: diversity does for your business. Yeah, well it is. It's
25:09
Speaker 1: it's awesome what we can do if you The great
25:11
Speaker 1: thing about hiring for attributes over experience is that we
25:15
Speaker 1: can actually have a huge impact on diversity. So, for example,
25:19
Speaker 1: if I said we're hiring a CEO to run a
25:21
Speaker 1: healthcare software business, and our criteria is they have to
25:24
Speaker 1: have done it for twenty years. Then I'm that that
25:27
Speaker 1: battle has been won or lost twenty years ago. And yeah,
25:30
Speaker 1: I could hire someone who's a diverse candidate from one
25:32
Speaker 1: of my competitors, but I haven't really created any value
25:35
Speaker 1: if I hire someone right out of business school. Let's
25:39
Speaker 1: just use women as an example, and and and and
25:42
Speaker 1: and that woman wouldn't have necessarily seen a path to
25:44
Speaker 1: become a CEO, and I can provide her a clear path,
25:48
Speaker 1: then I can actually increase the number of women that
25:50
Speaker 1: become CEOs, which is exactly what we've done. We have
25:53
Speaker 1: over fifty of our CEOs and training that we've hired
25:56
Speaker 1: have been women, About thirty have been underrepresented minorities, and
26:02
Speaker 1: so we have we can have a we can really
26:04
Speaker 1: move the dial on creating more you know, diversity and
26:08
Speaker 1: CEO ranks. That that's really kind of interesting. Uh, let's
26:12
Speaker 1: talk a little bit about software and services. Why focus
26:15
Speaker 1: on those areas in particular. So one of the things
26:19
Speaker 1: that we figured out, which probably took us way too
26:22
Speaker 1: long to figure out, is if you if you buy
26:24
Speaker 1: recurring revenue, there's just a lot fewer things that go wrong.
26:28
Speaker 1: So we're not unique and focusing on um recurring revenue.
26:32
Speaker 1: But that we we turned the dial in and around
26:35
Speaker 1: that great recession time and decided that was all you
26:37
Speaker 1: were going to do. And so it's less focused on
26:39
Speaker 1: winning that one big sale and it's more about building
26:42
Speaker 1: a business that has a fairly steady revenue stream. That's right.
26:46
Speaker 1: And then if you marry that with what I was
26:48
Speaker 1: saying before about putting young people to run them, recurring
26:51
Speaker 1: revenues really helpful because in the first year they have
26:54
Speaker 1: a big learning curve and you you know, they we
26:57
Speaker 1: need them to have a little bit of a cushion
26:58
Speaker 1: for them to get up the speeds. Recurring revenue helps
27:01
Speaker 1: a ton because it does take them a little while
27:03
Speaker 1: to learn how to be a CEO. That's really interesting.
27:06
Speaker 1: Software obviously has been really hot over the past couple
27:11
Speaker 1: of years. Any chance that that changes or slows down
27:15
Speaker 1: or is software just the driver of the future. I mean,
27:21
Speaker 1: I think software is the driver of the future. And
27:25
Speaker 1: I think anything, even the driver of the future, can
27:28
Speaker 1: get overpriced, and you can overpay for any asset. And
27:32
Speaker 1: I think in the last few years, you know, people
27:35
Speaker 1: have have gotten a little ahead of themselves with some
27:37
Speaker 1: of the multiples that were paid. But I don't think
27:40
Speaker 1: that changes is fundamentally that I think sufferers. You know,
27:43
Speaker 1: softwers here for a long time, and it's and it's
27:45
Speaker 1: got a lot of really exciting trends. I'm gonna ask
27:49
Speaker 1: a question. I'm gonna have you put this back earlier
27:51
Speaker 1: in the hiring discussion, because I missed something and I
27:54
Speaker 1: want to come back to it. You've discussed episodic versus
27:59
Speaker 1: program matic hiring. Explain the difference between the two. Yeah,
28:03
Speaker 1: great questions. So I might have made up those two terms,
28:07
Speaker 1: but well, that's why it jumped out at me. I'm like,
28:10
Speaker 1: I don't know what I think. I think I did
28:13
Speaker 1: make them up. But um, so, episodic hiring is what
28:16
Speaker 1: everyone does. Okay, we need to seven opening fill this.
28:20
Speaker 1: Go to LinkedIn and ad get me somebody here exactly,
28:24
Speaker 1: or or yeah, we'll hire Russell Reynolds to get us
28:27
Speaker 1: a CFO whatever. That's that's how everyone hires. Um. That
28:31
Speaker 1: is two problems, a number of problems. One is its slow, uh,
28:36
Speaker 1: and two is it's expensive, and three is it actually
28:40
Speaker 1: doesn't even work that well. Like the higher the hit
28:42
Speaker 1: rate is pretty low. Hit rate across the board and
28:44
Speaker 1: hiring statistically is about fifty, but that's measured as are
28:47
Speaker 1: they still there in three years, not did they were
28:49
Speaker 1: they successful? So it's even worse than that. So that's
28:52
Speaker 1: a problem with episodic hiring. So programmatic hiring is you're
28:56
Speaker 1: going to hire the same role a lot, and so
28:59
Speaker 1: how do you make that more of a program. So
29:01
Speaker 1: for example, you know, we're hiring seventeen people from business
29:05
Speaker 1: schools that start next month, or we're hiring seven undergrads
29:11
Speaker 1: to be interns who will matriculate into full time roles,
29:15
Speaker 1: and and then so there's a group of people that
29:17
Speaker 1: are graduating, you can kind of have a class of folks.
29:20
Speaker 1: You can give them way more training, you can build
29:22
Speaker 1: a whole program using the pro you know, to use
29:24
Speaker 1: the programmatic term around that, and it's just a lot
29:27
Speaker 1: more effective. That's two roles that we do at Alpine,
29:30
Speaker 1: the CEOs and training and the and then the analysts.
29:32
Speaker 1: But then in our companies, you know, in some cases
29:34
Speaker 1: that's engineers technicians where that's they're recurring higher that they're
29:39
Speaker 1: doing and we're helping them build programs to to start
29:43
Speaker 1: with people who don't know how to do those functions
29:46
Speaker 1: and bring them up. You know, through training to to
29:49
Speaker 1: to learn those really really quite interesting and you can excale.
29:52
Speaker 1: You can just scale a lot better and you have
29:54
Speaker 1: a way higher hit rate. So you're constantly maintaining a
29:58
Speaker 1: pool of either potential hires or actual employees that you're
30:02
Speaker 1: waiting to promote. Absolutely. Yeah, before we get into the
30:06
Speaker 1: current market environment for private equity, I have to circle
30:11
Speaker 1: back to you. Teaching at Stanford at the graduate school,
30:16
Speaker 1: tell us a little bit about the courses you teach
30:19
Speaker 1: and what students learned. So I I teach two courses there.
30:23
Speaker 1: I teach. They're both they're both basically similar. One is
30:26
Speaker 1: for first years and one is for second years, but
30:28
Speaker 1: they're both centered around entrepreneurship. And the idea of the
30:32
Speaker 1: courses is that there's lots of classes on analysis and
30:36
Speaker 1: accounting and finance, and there aren't a lot of classes
30:39
Speaker 1: around how to actually manage people, lead people. And I'm
30:44
Speaker 1: talking the nitty gritty stuff of literally like what to
30:46
Speaker 1: say if you have to fire someone. My students have
30:49
Speaker 1: to rule that. My students will say, oh, I would
30:51
Speaker 1: just fire that person. I said, okay, great, I'll be
30:52
Speaker 1: them and fire me. And then they have to do it,
30:55
Speaker 1: and they it's allow harder than it looks. So they'll say,
30:58
Speaker 1: that's why people just cheat and send emails. Yeah, that
31:02
Speaker 1: would not be uh, something we teach. We do not.
31:06
Speaker 1: We do not teach people this. So tell us about
31:08
Speaker 1: the role playing. What is that? So so we so
31:09
Speaker 1: the student will actually play the protagonist in the case,
31:13
Speaker 1: and I'll play the antagonist, for lack of a better word,
31:15
Speaker 1: of the other characters. And then they'll fire me, or
31:18
Speaker 1: they'll have to demote me, or they'll have to tell
31:20
Speaker 1: me that they no longer want to be my partner
31:22
Speaker 1: or whatever the situation is that they're trying to get through.
31:24
Speaker 1: And then we'll play around with it and they'll realize,
31:26
Speaker 1: you know, some things they do right, some things they
31:28
Speaker 1: do poorly. And then the entrepreneur about whom we've written
31:32
Speaker 1: the case is in the class, and so then they'll
31:34
Speaker 1: chime in and say, well, wow, this is you did
31:37
Speaker 1: this this way, This is why I didn't do that,
31:39
Speaker 1: or I wish I would have done it that way
31:41
Speaker 1: instead I did this. Um. So it's a really it's
31:43
Speaker 1: a really really fun class. It's uh and and it's
31:47
Speaker 1: something that they don't get anywhere else where. They actually
31:49
Speaker 1: have to kind of implement the stuff they're talking about.
31:51
Speaker 1: So aside from firing, what else do you teach them everything?
31:54
Speaker 1: We we actually teach a lot on hiring. UM. We
31:57
Speaker 1: have a whole uh modules and playbooks and video and
32:00
Speaker 1: things I've made, and we do a class on that,
32:02
Speaker 1: which is really important. We talk about uh complex partnership issues,
32:07
Speaker 1: things with your board. They have to sell stuff, they
32:10
Speaker 1: have the fund raise, UM, how to how to make
32:13
Speaker 1: an offense and defense deck, to sell, to sell something,
32:16
Speaker 1: and in a whole list of basically things that entrepreneurs
32:19
Speaker 1: are gonna have to face in their life. Really intriguing.
32:22
Speaker 1: I have to imagine having been a graduate student at Stanford,
32:26
Speaker 1: it's deeply satisfying teaching there. It's a blast. UM. I
32:30
Speaker 1: started off as a case guest where they wrote a
32:33
Speaker 1: case about me buying stuff in my dorm room. And
32:36
Speaker 1: I was a case guest and I kept I would
32:37
Speaker 1: come home all energized, and it was my favorite day
32:41
Speaker 1: of the year. And then when the orv. Grossbeck, who
32:44
Speaker 1: wrote the case about me, who's a legend at Stanford,
32:47
Speaker 1: when he called me one day and said, hey, you
32:49
Speaker 1: know I'm gonna stop teaching this class. Would you want
32:51
Speaker 1: to teach it. And and my first response was, um, no,
32:55
Speaker 1: I have a job, you know, and I can. But
32:57
Speaker 1: I didn't say that. I said, hey, I'll think about it.
33:00
Speaker 1: And then thankfully everyone I was around was like, Graham,
33:03
Speaker 1: you have to do this, and it's your favorite thing
33:05
Speaker 1: you do, and and we we've figured out a way
33:07
Speaker 1: to make it work. So it's it's a blast. That
33:10
Speaker 1: sounds like that sounds like it's a lot of fun.
33:12
Speaker 1: One more thing I would just add is, um, what
33:15
Speaker 1: I realized that for a few years is I'll teach
33:16
Speaker 1: students all about entrepreneurship and we have this great class,
33:20
Speaker 1: and then they go take a job, you know, and
33:22
Speaker 1: consulting or you know, investor making. They never become entrepreneurs,
33:26
Speaker 1: even though that was what they wrote their essay about
33:28
Speaker 1: and that was what they were excited about. So I
33:29
Speaker 1: added to the class a whole part on Okay, wait
33:33
Speaker 1: a second, what is it you really want to do
33:34
Speaker 1: with your life? You know, what's holding you back? How
33:38
Speaker 1: would you make a plan to go do that? What
33:39
Speaker 1: are your limiting beliefs, what are the things? What are
33:41
Speaker 1: your fears? So we have a whole thread probably of
33:46
Speaker 1: the class is on those things. Because I'm like, what's
33:50
Speaker 1: the point of teaching people to be entrepreneurs if they
33:52
Speaker 1: don't become entrepreneurs. So so I've I've invested a lot
33:55
Speaker 1: into like personal growth and uh and that's a really
33:58
Speaker 1: really fun part. Well us too. Are any of those
34:01
Speaker 1: skill sets transferable to consultants who are they'll be working
34:06
Speaker 1: with other entrepreneurs and maybe haven't been exposed percent. It
34:09
Speaker 1: wasn't so much that I have anything against consulting. It
34:12
Speaker 1: was just that the student at the beginning of the
34:13
Speaker 1: class said, my goal is to do X, and then
34:16
Speaker 1: they don't do X. That was all. So tell us
34:18
Speaker 1: a little bit about your approach. What's your process like
34:21
Speaker 1: to finding a potential acquisition target? And since we look
34:26
Speaker 1: at both private and public markets, what do you think
34:29
Speaker 1: of in terms of valuation? How do you come up
34:31
Speaker 1: with a number? Yeah, great questions. We we have a
34:37
Speaker 1: large team that that looks for potential companies. We have
34:40
Speaker 1: actually fifty two people at Alpine and in the in
34:43
Speaker 1: our portfolio companies they are looking for deals. Um, so
34:48
Speaker 1: that's a lot of people. How big is a firm overall?
34:51
Speaker 1: Overall if you include the CEOs and training and um,
34:55
Speaker 1: we have in your ten consultants. We probably have roughly two,
35:00
Speaker 1: all right, So that's a that's a decent size. The
35:02
Speaker 1: fifty two also includes a number of people that are
35:04
Speaker 1: working at the company's doing sourcing, but they're doing the
35:07
Speaker 1: same thing. They're calling companies looking for investments. So we
35:10
Speaker 1: have fifty two people looking for deals and then a
35:13
Speaker 1: lot of those conversations are directly with founders. And what
35:17
Speaker 1: we're trying to do is figure out. The way we
35:19
Speaker 1: think about it is we can pay a price that
35:22
Speaker 1: we can hit our target returns, which I can't talk
35:24
Speaker 1: about on you know, but we can hit our so
35:29
Speaker 1: we we we can pay a price that we can
35:31
Speaker 1: hit our target returns with like a seventy base case,
35:34
Speaker 1: and then we need there to be a lot more
35:37
Speaker 1: upside to that than downside. So we want there to
35:40
Speaker 1: be like a case where we could hit many multiples
35:42
Speaker 1: of our target returns, and so based on that we
35:45
Speaker 1: kind of back into a price. And then where we
35:46
Speaker 1: get in trouble or where things get turned down at
35:50
Speaker 1: investment committee is when everything in the world has to
35:54
Speaker 1: go perfectly to hit that target. Because I've I've been
35:57
Speaker 1: in this business for twenty eight years, and when you
35:59
Speaker 1: start pricing in perfection, that's a time when you realize
36:04
Speaker 1: you're overpaying. So that that's that's it's that seventy probability
36:09
Speaker 1: and lots of marginals safety thing that you really, as
36:12
Speaker 1: someone who's like a little bit more senior at our firm,
36:15
Speaker 1: I have to bring that to the to the discussions. Yeah,
36:18
Speaker 1: that that perfect ten stuck the landing. Those are the
36:21
Speaker 1: outliers you certainly can't rely on exactly. You can't underwrite
36:24
Speaker 1: to that for sure. So when you look at this
36:26
Speaker 1: macro environment, it seems to be pretty supportive of economic
36:30
Speaker 1: expansion generally. How closely do you pay attention to things like, hey,
36:34
Speaker 1: the Fed is raising rates pretty rapidly, maybe they're going
36:38
Speaker 1: to cause a recession next year. We pay um attention
36:41
Speaker 1: to it to some extent. If you go back to
36:44
Speaker 1: the O eight crisis, Now that's a recession. Yeah, and
36:47
Speaker 1: we're we're just in a very different position. Um. I
36:50
Speaker 1: think we're way underbuilt on housing. So you know, I
36:52
Speaker 1: don't while the underbuilt on housing, so I don't see
36:56
Speaker 1: you know, I don't see things happen, you know, crashing there.
36:59
Speaker 1: I think we have the consumer isn't as leverage as
37:02
Speaker 1: they were back in two thousand eight, businesses aren't as
37:05
Speaker 1: leverage as they were. I just think it's a lot healthier.
37:08
Speaker 1: On the flip side, we also don't have the FED
37:10
Speaker 1: can't print money like they did in O A because
37:13
Speaker 1: of inflation. But I think generally it just feels like
37:15
Speaker 1: we're a lot healthier than we were back then. You're
37:18
Speaker 1: you're singing my song. I'm in the exact same place. I'm.
37:20
Speaker 1: I'm kind of perplexed by all the recession chatter. I mean,
37:24
Speaker 1: what are we two seven to eight million new jobs
37:27
Speaker 1: in this year? That's not what usually see, although, to
37:30
Speaker 1: be fair some past recessions, we were creating jobs right
37:35
Speaker 1: until the moment it stopped and and the bottom dropped out.
37:39
Speaker 1: But you know, it really depends on how aggressive the
37:43
Speaker 1: powers that you're going to get about inflation. So here's
37:47
Speaker 1: the question related to that, and oh eight oh nine,
37:50
Speaker 1: Let's say the naysayers are are right and the end
37:54
Speaker 1: of this year or we see something more than just
37:58
Speaker 1: a mile sheallow recession, we see a real recession. How
38:01
Speaker 1: does that affect the companies you look at and do
38:05
Speaker 1: you start doing, for lack of a better phrase, distress
38:08
Speaker 1: private equity invest Now you know, I think that what
38:11
Speaker 1: we've been trying to do over the last fourteen years
38:14
Speaker 1: is under age companies that would do well in a recession. Um,
38:18
Speaker 1: So hopefully we're gonna our companies will hold up well
38:21
Speaker 1: in that time in terms of what we look for.
38:24
Speaker 1: It does open up the door when you know, when
38:27
Speaker 1: there is a recession, there's a lot more different things
38:29
Speaker 1: that are for sale at different prices. And I think
38:32
Speaker 1: one of the great assets is if you have the
38:35
Speaker 1: whole team of managers that you can put into run
38:37
Speaker 1: distress things, you have a lot of options open to
38:39
Speaker 1: what you can look at. So there, you know, there
38:41
Speaker 1: will be a lot more interesting things to do with
38:44
Speaker 1: you know, if that happens, certainly don't wish that on
38:45
Speaker 1: the on the economy, on anybody else. And then finally
38:49
Speaker 1: I have to ask about the way you score software
38:53
Speaker 1: companies and services companies use a metric. I really am
38:56
Speaker 1: not familiar with e NPS. Can you tell us a
38:59
Speaker 1: little bit about Yeah, So, I think in general that
39:03
Speaker 1: there are leading indicators and lagging indicators. Lagging indicator is revenue.
39:10
Speaker 1: Those are lagging indicators. But yet a lot of managers
39:13
Speaker 1: they try to manage to lagging indicators, it's like and that,
39:16
Speaker 1: and that's just not very effective. So what we've tried
39:19
Speaker 1: to do is develop what are the leading indicators that
39:21
Speaker 1: are going to predict success. And the number one most
39:24
Speaker 1: important leading indicator you're not going to be surprising to
39:27
Speaker 1: hear me say, is talent. So if you tell me
39:29
Speaker 1: I'm on the board of your business and and we're
39:32
Speaker 1: starting to build the world class management team, I can
39:35
Speaker 1: tell you in two years we'll have a home run investment.
39:38
Speaker 1: So one of those leading two of those leading indicators
39:41
Speaker 1: related to talent are employee net Promoter score, which is
39:44
Speaker 1: the NPS, meaning how employees rate them exactly, would would
39:48
Speaker 1: they would they recommend this company to a friend, um,
39:51
Speaker 1: And we we measure that every quarter for every one
39:54
Speaker 1: of our companies. We measure at Alpine, we measure it
39:56
Speaker 1: for a whole bunch of different groups within Alpine. And
39:59
Speaker 1: then retention is the other big one. So if we
40:01
Speaker 1: can be managing those and getting those right, those are
40:03
Speaker 1: leading indicators that are gonna help us set up you know,
40:06
Speaker 1: the revenue E but dota come later, and those are
40:09
Speaker 1: hard things to manage. Getting those those metrics right takes
40:13
Speaker 1: a lot of work. That's Actually, where I spend most
40:16
Speaker 1: of my time at out and believe it or not,
40:17
Speaker 1: is making sure that we're creating an environment where the
40:21
Speaker 1: best people want to be and stay. And most people,
40:23
Speaker 1: again in the finance world, they don't think about kind
40:25
Speaker 1: of squishy soft metrics like that, but they should be
40:29
Speaker 1: well because they have a really outsize impact on the
40:31
Speaker 1: performance of a company. Absolutely, that's my view is they
40:35
Speaker 1: have they have the biggest impact. And my last question
40:38
Speaker 1: before I get to our favorite questions we ask all
40:41
Speaker 1: our guests. It's a little bit of a curve ball.
40:44
Speaker 1: You were a captain on a national championship rowing team,
40:47
Speaker 1: and so you look like you wrote so I uh,
40:53
Speaker 1: I came to college not even knowing anything about rowing.
40:56
Speaker 1: I didn't even know that the boats went backwards until
40:58
Speaker 1: I got in a boat. Well, it's not that exactly.
41:03
Speaker 1: I didn't even know that, um so I started as
41:06
Speaker 1: a novice. I walk on the team and it seemed
41:11
Speaker 1: like everyone else on the team had rowed before. So
41:14
Speaker 1: I was horrible, absolutely horrible, got cut and then just
41:17
Speaker 1: kept kind of and and so there's this funny story
41:20
Speaker 1: where the coach says, Okay, these are the people who
41:22
Speaker 1: go into boats. The rest of you are quote land warriors,
41:25
Speaker 1: and your land warrior means you go on the rowing machines.
41:28
Speaker 1: And so that that night when he kind of posted
41:31
Speaker 1: the boats and I wasn't in the boat, he said,
41:32
Speaker 1: all right, you know, so I did this calculus, and
41:35
Speaker 1: I'm like, okay, well, gosh, all the land warriors gonna
41:37
Speaker 1: show up before class. You know, classes first classes at nine,
41:41
Speaker 1: so they're gonna show up at eight. But so I
41:42
Speaker 1: gotta show up at seven. No, no, no, everyone's gonna
41:44
Speaker 1: think that. So I'll show up at six. So I
41:45
Speaker 1: show up the next morning, zero people, and one of
41:49
Speaker 1: the guys like, hey, idiot. Land warrior is another way
41:51
Speaker 1: to say you got cut, you know. But I still
41:54
Speaker 1: stayed as a land warrior and kept getting better at
41:57
Speaker 1: getting my Earth times better and better over time, and
42:00
Speaker 1: it was one of the greatest things I ever did.
42:01
Speaker 1: I I had, I had a great time. And and
42:04
Speaker 1: when were the national champions my senior year, I was
42:09
Speaker 1: so by then you're on the team. By yeah, by
42:11
Speaker 1: my Syria, I was pulling one of the best times
42:14
Speaker 1: in the nation. And rowing machine on the concept to
42:17
Speaker 1: rowing machine that you see in the gym to actually
42:19
Speaker 1: have a standard test which is two thousand meters that
42:21
Speaker 1: which you submit, you know nationally, And by my senior year,
42:26
Speaker 1: I had one of it maybe a few times, the
42:28
Speaker 1: number one time in the country. And and I was
42:31
Speaker 1: elected captain by my teammates of our team. And then
42:36
Speaker 1: that year we were supposed to have a rebuilding year
42:39
Speaker 1: because we lost all these seniors, and we actually won
42:41
Speaker 1: the whole thing. It was awesome. Wow, that's really amazing.
42:44
Speaker 1: Let's jump to our favorite questions that we ask all
42:47
Speaker 1: of our guests, starting with what kept you entertained during
42:51
Speaker 1: the pandemic lockdown? Tell us what you were streaming? Um.
42:56
Speaker 1: I went on this whole Buddhist thing during the pandemic,
43:00
Speaker 1: and I started reading a lot about Buddhism and streaming Buddhism,
43:04
Speaker 1: and it was it was amazing meditating or meditating and
43:09
Speaker 1: just kind of learning about Buddhism and you know, why
43:13
Speaker 1: we all suffer and how to you know, how all
43:16
Speaker 1: these thoughts we have in our head, our our own imagination.
43:19
Speaker 1: And I went on this whole kick during the pandemic,
43:22
Speaker 1: which was phenomenal, highly recommended. Uh and And basically the
43:26
Speaker 1: concept is that your reality is going through a filter
43:30
Speaker 1: and and everything that's happened externally, you're telling yourself a
43:33
Speaker 1: story about what that means and whether that's good or
43:36
Speaker 1: whether that's bad, and that that's really your reality isn't
43:39
Speaker 1: what's happening, it's the story you're telling yourself, and that
43:42
Speaker 1: you have complete control over that story. That's the classic narrative.
43:47
Speaker 1: That's yeah, that's the narrative fallacy. And that's kind of
43:49
Speaker 1: the fundamental premise of of Buddhism, which is your suffering
43:52
Speaker 1: is coming not from what's happening, but the story you're
43:55
Speaker 1: telling yourself. So I went on this long you know,
43:58
Speaker 1: meditating and and eating and kind of journaling about that,
44:01
Speaker 1: and that was that was a lot of fun. So
44:03
Speaker 1: so that we had this whole joke about um. We
44:05
Speaker 1: had a softball team here over in Central Park and
44:09
Speaker 1: we had the Buddhists playing the Stoics and the game
44:13
Speaker 1: never finished. Everybody just sat down and started having a
44:16
Speaker 1: long conversation. But I'm right there with you. You mentioned
44:21
Speaker 1: your UM two of your mentors who were some of
44:24
Speaker 1: your earliest investors. Are there anybody else you want to
44:27
Speaker 1: mention as mentors? The professor at Stanford you referred to us. Yeah,
44:31
Speaker 1: I'll both of those, Tom, Tom Styer, Doug Martin, and
44:35
Speaker 1: Irv Grosspec were super important in my life. I'll talk
44:39
Speaker 1: about Irv. He is probably probably if you had there's
44:43
Speaker 1: probably literally very a hundred people you could have on
44:46
Speaker 1: this con on this podcast that would list Irv as
44:48
Speaker 1: one of their most important real he was. He's a
44:52
Speaker 1: professor at Stanford and just uh, you know, makes time
44:55
Speaker 1: for folks. He built an incredible business and he just
44:58
Speaker 1: has this you know, unwavering moral code. Um. He was
45:03
Speaker 1: an early investor. He's the one who asked me to
45:05
Speaker 1: teach at Stanford, and I just I just find the
45:08
Speaker 1: way he's set up his life and his uh, just
45:12
Speaker 1: just the way he treats other people. Um, you're always
45:15
Speaker 1: the most important person in the world when you're with him.
45:18
Speaker 1: And so I've I've I've definitely learned learned a lot
45:20
Speaker 1: from him. Really interesting. Let's talk about books. What are
45:23
Speaker 1: some of your favorites and what are you reading currently? Um,
45:28
Speaker 1: I it's funny I end up rereading like the same
45:32
Speaker 1: ten books. Uh. In terms of my favorites I read,
45:35
Speaker 1: I have some I read currently too, but good too,
45:38
Speaker 1: great Warren Buffett's biography, Snowball, Steve Jobs Biography by Isaacs
45:43
Speaker 1: and Walt Disney's Biography by Neil Gabbler. UH Switch by
45:46
Speaker 1: Danna chip Heath, Made to Stick Dana chip Heath buffets
45:50
Speaker 1: annual letters like those are like I'm I reread those
45:53
Speaker 1: and and every time I reread them, I get kind
45:55
Speaker 1: of re energized. And We've modeled a lot of our
45:59
Speaker 1: business and a lot of my life around some of
46:02
Speaker 1: the things I learned in some of those books, and
46:04
Speaker 1: a lot of those are required reading an Alpine I
46:06
Speaker 1: can imagine what are you reading currently? And and right
46:09
Speaker 1: now I started getting on this burnet brown kick. I
46:12
Speaker 1: don't know if you've read some of her stuff, but
46:14
Speaker 1: the The Gifts of Imperfection I'm reading right now, which
46:18
Speaker 1: is just phenomenal. She is I actually download on an
46:21
Speaker 1: audible so I get to hear her talk about it.
46:24
Speaker 1: But she has um just this incredible way of talking
46:28
Speaker 1: about UH about things that other people don't talk about,
46:32
Speaker 1: like shame and how to um how to deal with
46:35
Speaker 1: the things you're not good at, and how to be
46:37
Speaker 1: intellectually honest and and admit when you don't know things.
46:40
Speaker 1: And she's I love I love her work. What's the
46:43
Speaker 1: title of the book. You're reading The Gift of Imperfection.
46:45
Speaker 1: It sounds really it's phenomenal. It's phenomenal. Um before I
46:49
Speaker 1: forget just as an aside, and you could edit this out.
46:52
Speaker 1: So I went to law school with a guy named
46:55
Speaker 1: Lawrence Cunningham who was the first person who recognized, Hey,
47:00
Speaker 1: all these letters from Warren Buffett. They're really fascinating deep stuff.
47:05
Speaker 1: He bound them. Yeah, I bought that book. I owned
47:07
Speaker 1: that book. That book has been like a perennial bestseller.
47:11
Speaker 1: And it's a you know, the old joke about the
47:13
Speaker 1: two economists walking down the street. One says, is that
47:16
Speaker 1: a hundred dollar bill on the floor, and the other says, no,
47:19
Speaker 1: if it was a hundred dollar bills, someone would have
47:21
Speaker 1: picked it up. It's the same. Yeah, these have been
47:26
Speaker 1: around for literally, I mean I think he first started
47:29
Speaker 1: in like ninety or nine two, something like that. And
47:33
Speaker 1: Buffett had been around for thirty years. By an a radio,
47:35
Speaker 1: twenty five years nobody had thought of doing. And you
47:37
Speaker 1: know what, like it doesn't matter if it's crypto or
47:40
Speaker 1: software valuations or the internet. The stuff but Buffett writes
47:45
Speaker 1: about is still the right stuff. Fundamental sense to discount
47:51
Speaker 1: the cash flows back and decide what you can pay.
47:54
Speaker 1: You're gonna put a premium on the discount rate if
47:56
Speaker 1: the stuff is a lot more uncertain. It's this is
48:00
Speaker 1: exactly the right formula today, and it was fifty years ago,
48:04
Speaker 1: and it will be fifty years from now. And any
48:06
Speaker 1: time that there's something new where people says this time
48:08
Speaker 1: it's different, you should be really skeptical. Alright, our final
48:12
Speaker 1: two questions, what sort of advice would you give to
48:15
Speaker 1: a recent college or business school graduate interested in a
48:19
Speaker 1: career in private equity. Well, I'll start with the first
48:22
Speaker 1: part just general advice, um, and then I'll go to the
48:25
Speaker 1: the private equity. But you know, as you can imagine,
48:27
Speaker 1: actually give this advice all the time teaching. But the
48:31
Speaker 1: the first thing that I think a lot of people
48:33
Speaker 1: graduating don't ask is like what they what do I want?
48:37
Speaker 1: What is five years from now, ten years from now?
48:40
Speaker 1: If I could, if I knew I wasn't going to fail,
48:43
Speaker 1: what would I want to do with my life? And
48:46
Speaker 1: they and start with that question and then start working
48:50
Speaker 1: backwards from that about what job you should take now
48:54
Speaker 1: and next year in five years from now. Instead, a
48:56
Speaker 1: lot of people just think, oh, these firms are interviewing
48:59
Speaker 1: on campus and I'll go here, I'll go here, and
49:02
Speaker 1: that's okay. But if you know where you want to
49:04
Speaker 1: be ten years from now, it'll inform which firm you
49:07
Speaker 1: go to work and what skills you're trying to acquire.
49:09
Speaker 1: So I think I think that would be My advice
49:11
Speaker 1: is like, in ten years you will you can do
49:16
Speaker 1: almost anything you set your mind to, and so give
49:18
Speaker 1: yourself permission to really answer that question, what do I
49:22
Speaker 1: want to do in ten years? Why does it matter
49:24
Speaker 1: if you quote know you're you wouldn't fail, Yeah, just
49:28
Speaker 1: to open the set of possibilities, or because yeah, I
49:33
Speaker 1: always frame it as if you knew you wouldn't fail,
49:35
Speaker 1: what would you do? Because without that people already jump
49:40
Speaker 1: to I can't do this, like subconsciously in the big
49:45
Speaker 1: fear failure so powerful even amongst really high performing talent.
49:50
Speaker 1: I think it's I mean, Stanford graduate students, I have
49:52
Speaker 1: to think that's the cross. In some ways, it's almost
49:56
Speaker 1: more prevalent because they have had so much success and
50:01
Speaker 1: they don't you know, they have this incredible track record.
50:04
Speaker 1: But I would say the number one thing that Stanford
50:06
Speaker 1: Business School students are are really just about anyone in
50:09
Speaker 1: the world. It's the same thing, which is they they
50:13
Speaker 1: they there, Their subconscious mind defaults to fear and fear
50:18
Speaker 1: of failure. That's fascinating because when I have discussions like
50:22
Speaker 1: this with colleagues or friends in Europe, the thing or
50:26
Speaker 1: even Asia, The thing that makes the United States so
50:29
Speaker 1: unique in the developed economy world is that failure isn't
50:34
Speaker 1: a scarlet letter. Especially in Silicon Valley. It's almost a
50:38
Speaker 1: badge of honor. Look at all the vcs that list all, Hey,
50:41
Speaker 1: we missed Apple and Cisco, we invested money in pets
50:44
Speaker 1: dot com. Look how terrible we are except for our
50:47
Speaker 1: compounded returns. It's a badge of honor to say we
50:50
Speaker 1: tried this, face planted, brushed yourself off, and moved on.
50:54
Speaker 1: But when you're starting out your career and you don't
50:57
Speaker 1: have anything to fall back on, and you haven't yet
51:01
Speaker 1: had the success that you can look back, it's really
51:03
Speaker 1: scary for people. And the thing that they miss is
51:07
Speaker 1: they underestimate what they could really do in in ten years,
51:10
Speaker 1: and they underestimate themselves. They forgot what got them that
51:14
Speaker 1: seat at Stanford Business School, and they compare themselves to
51:17
Speaker 1: you know, their roommate or their classmate or something. So
51:20
Speaker 1: the other half of the question, um, advice about private equity. Yeah,
51:25
Speaker 1: I would say I would say if if someone is
51:27
Speaker 1: interested in a career in private equity, I would I
51:29
Speaker 1: would say, all private equities not created equal, and there
51:32
Speaker 1: are literally, like probably a thousand different models and figure out,
51:37
Speaker 1: you know, go talk to a bunch of companies that
51:39
Speaker 1: are doing private equity a whole bunch of different ways,
51:42
Speaker 1: and figure out what resonates with you and your interests
51:45
Speaker 1: and your superpowers and where are you going to line
51:47
Speaker 1: up because it's it's a very diverse industry and you know, um,
51:51
Speaker 1: there are some firms that are making their money based
51:53
Speaker 1: on you know, hardcore fundamental analysis. You know, are we're
51:56
Speaker 1: making our money on talent. There's others that are, um,
51:59
Speaker 1: you know, doing us cutting. There's a whole bunch of
52:01
Speaker 1: different ways, and one or more of those is going
52:03
Speaker 1: to line up a lot better with what you're excited about.
52:06
Speaker 1: And our final question, what do you know about the
52:09
Speaker 1: world of software services in private equity today that you
52:13
Speaker 1: wish you knew twenty eight years or so ago when
52:16
Speaker 1: you were first getting started. Well, two things. The first
52:19
Speaker 1: thing is I wish I knew that it was going
52:21
Speaker 1: to work out fine, you know, so I was so
52:24
Speaker 1: stressed and put so much pressure on myself that I
52:29
Speaker 1: wish if I could go back and tell myself anything,
52:31
Speaker 1: it would be like, hey, Graham, you know it's gonna
52:33
Speaker 1: be okay because I went through a lot. That's a
52:36
Speaker 1: really interest. That's a really interesting answer, because you know,
52:39
Speaker 1: we just don't realize how much we freak ourselves out
52:44
Speaker 1: and and very often unnecessarily. What's the second thing? The
52:49
Speaker 1: second thing would be, I would be I would if
52:52
Speaker 1: I could have realized earlier on just how important the
52:55
Speaker 1: world of talent is and how that was really the
52:57
Speaker 1: thing that drove drove formans, because that that would have
53:01
Speaker 1: saved me a a decade. Sounds really like, um, You've
53:06
Speaker 1: honed in on exactly what makes your business work and
53:09
Speaker 1: really quite fascinating. Graham, Thank you for being so generous
53:13
Speaker 1: with your time. We have been speaking with Graham Weaver,
53:16
Speaker 1: founder and partner at Alpine Investors. If you enjoyed this conversation,
53:20
Speaker 1: well be sure and check out any of our previous
53:23
Speaker 1: four hundred discussions that we've had over the past eight
53:26
Speaker 1: and a half years. You can find those at iTunes. Spotify,
53:32
Speaker 1: wherever you feed your podcast fix. We love your comments, feedback,
53:36
Speaker 1: end suggestions right to us at m IB podcast at
53:40
Speaker 1: Bloomberg dot net. Sign up for my daily reading list
53:43
Speaker 1: at rid Halts dot com. You can follow me on
53:45
Speaker 1: Twitter at rid Halts. I would be remiss if I
53:49
Speaker 1: did not thank the crack team that helps put these
53:51
Speaker 1: conversations together each week. Robert Bragg is my audio engineer.
53:56
Speaker 1: Atika Valbrun is my project manager. Sean So runs all
54:00
Speaker 1: of our research. Paris Wald is my producer. I'm Barry Ritolts.
54:05
Speaker 1: You've been listening to Masters in Business on Bloomberg radioa