My guest today is Brent Beshore, Founder and CEO of Permanent Equity, a private investment firm that invests in Founder-owned private companies. Permanent Equity is a long-term investor that typically intends to hold portfolio companies indefinitely, often without the use of any leverage.
In addition to his role as an investor, Brent is also a prolific writer: He is a regular contributor to Forbes, and also publishes and releases materials for free on Permanent Equity’s website, spanning topics like operating, selling, and investing in SMBs, among others. Brent is also the author of The Messy Marketplace, a book that aims to demystify the process of selling a company.
Brent founded Permanent Equity in 2007 and leads the firm as CEO, working closely with investors and operators, and evaluating new investment opportunities.
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Specific Questions and When They’re Asked
- (3:39) Please walk us through the arc of your career, what led you to Permanent Equity, and what Permanent Equity does?
- (5:10) What types of businesses does Permanent Equity acquire? You have a unique stance as it relates to hold periods, so please tell us more about that as well.
Brent the Operator
- (7:33) Your early career included several stints as a Founder and operator. What did you find most difficult or surprising about navigating the transition from operator to investor?
- (9:12) In your role as an operator at Permanent Equity, do you ever not practice what you preach in your role as an investor? Do you ever make the same mistakes or fall victim to the same blind spots that you steer your portfolio company CEOs away from?
- (14:00) Given the pattern recognition and context that you have developed as an investor, has a small part of you ever considered being an operator again?
- (16:27) Do you think great operators necessarily make great investors? Do you think great investors make great operators?
Brent the Investor
- (19:58) What lessons have you learned related to experienced CEOs running portfolio companies versus first-time CEOs doing the same? Are there businesses or industries that lend themselves towards one type of leader but not the other?
- (23:48) Is now a good time for an entrepreneur to acquire a SMB? How does the current macroeconomic climate help or a hinder one’s chances of finding a quality business at a fair price?
- (26:22) Does Permanent Equity have a “playbook” that you tend to execute on within the first 12-24 months of acquiring a new business? What are some of the most common changes or initiatives contained within that “playbook”?
- (31:50) How do you think about how quickly to move in implementing that playbook after closing? What are the merits and risks of moving too quickly vs. too slowly?
- (35:15) How do you handle early communication with the employees of the companies that you acquire? How do you alleviate worries, but avoid making promises that you may not be able to keep?
- (40:32) How do you navigate situations in which there is an otherwise attractive company for sale, but the CEO is receiving bad advice from an inexperienced or unsophisticated broker/lawyer?
- (45:05) What have you learned about granting equity or stock options to the management teams of your portfolio companies? Are they as motivating as the finance textbooks tend to suggest?
- (48:48) What what types of incentives have you found to be most valuable in your businesses, particularly given that you might be holding it for 20+ years?
- (51:07) Over the past two years, employees (particularly “blue collar” ones) have been particularly difficult to attract and retain. How has this changed, if at all, how you think about investing in “old economy” or “blue collar” companies?
- (55:11) You’ve previously referred to software as the world’s best business model, yet Permanent Equity doesn’t have many software investments. Can you please reconcile this for us?
- (58:27) How do you think about buying a non-software business for 4x cash flow versus buying a software company for 4x revenue?
- (1:01:01) A very common investment thesis for those purchasing SMBs revolves around building out a sales and marketing function, where neither have really existed in the past. Though this can work, it tends to be harder and take longer than most investment memos would suggest. What has been your experience in this regard?
- (1:04:06) What have you learned with respect to the realities of running a high growth business that the external observer just might not appreciate?
Brent the Person
- (1:09:49) How would you advise a prospective entrepreneur who is debating between pursuing entrepreneurship through founding a new company from scratch, versus pursuing entrepreneurship through acquisition?
- (1:15:06) Can you think of any examples of generally accepted wisdom within the lower-middle-market PE ecosystem that you completely disagree with?
- (1:19:24) When was the last time that you felt insecure, uncertain, like an imposter, or were otherwise just struggling with something meaningful? How did you work through it?
- (1:24:14) Are there any tools or practices or rituals or routines that you employ to help you navigate the ups and downs of the entrepreneurial journey?
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