What We Can Learn From Private Equity (And What We Can't)

I'll admit it. I was blown away.

Justin Ishbia did an interview on one of my favorite podcasts: Invest Like The Best. 

Shore Capital is one of the highest-performing private equity firms in the world. They complete deals at breathtaking speeds, roll up industries quickly, then exit to larger firms.

Justin and the Shore Capital team have cracked the code on systems to unlock performance and make a pile of money for their partners. I got some great takeaways

1. Moats around systems. Promise the process, not the outcomes.

2. Build your board like a basketball team. Seven directors — find seasoned executives ages 55-75 who are experienced and still want to be in the game.

3. Shared Services Arbitrage: Provide billion-dollar infrastructure to million-dollar companies so customer-facing teams aren't slowed down by the back office: finance, IT, marketing, etc.

The interview was impressive. But it was all about fast growth and big exits. 

(We can learn from those playing a different game, but we can't try to play their game if we're building for decades upon decades.)

Two timeless truths give me pause for those of us building family businesses for generations:

1. Greatness takes time. Justin’s companies return big profits in very short time horizons repeatedly. (What corners are being cut? Or is it all genius?)

2. Greatness is boring. Justin’s interview made the experience seem sexy and fast. He highlighted that his organizations are great for young, hungry: “early career energy.”

Everything has tradeoffs. At what expense is the performance attained?

He mentioned that “a smart, young CEO can learn 90% of the business in 18 months.”

That gives me pause. 

(It took me a decade for some people to trust me at the organization I serve.)

From my experience in business thus far, I think it takes decades to learn about yourself and the people who make a business great. 

I got really excited listening to this interview. Family business can meaningfully counter position to fast moving organizations with extra capital from institutional investors.

PE Backed competitors have institutional capital to grow fast. We have retained earnings and something they can’t buy: trust. 

Building trust year after year. With our team. With our customers. With our vendors.

Consistency trumps intensity. 

The great Charlie Munger pointed out that trust is one of the greatest economic forces on earth. 

Onward,

Matt