John Kirk, Tuckerman Capital | The Key to Modern Private Equity and Business Growth: People

I am so pleased to have John Kirk here with us today. John, thanks for joining.

It was like a typical board meeting, you know?

And while I was at Tuck, I met Nick, who's now the managing partner at Tuckerman Capital, and we hit it off. I decided to do an internship with him.

One of his portfolio companies navigated a supply chain crisis. Nick's great. The internship was fantastic, and when I graduated, I decided to go to 3M instead. I just wanted to see how the big guys did it.

I wanted to see what it looked like in one of the iconic companies of our time, and I consulted across their businesses. I worked in corporate strategy, I led their BDN strategy for their billion-dollar home care business. You know, the green and blue sponges that sit on every mom's sink, yeah?

Those were ours. No way. I love this. Yeah, I learned a lot.

But what I realized was that I missed getting my hands dirty, I missed the speed, impactfulness of working on small organizations. And I needed to jump, I needed to get out of there, so I got back in touch with Nick.

And we agreed that it was time to work together again. So I started acting as an operating advisor across the portfolio of companies, and now I have more of a hybrid role. Where somewhere between the deal team, operating team and the portfolio company's leadership team. So that's how I got into private equity.

But it's the number one trend. And so I think your background is actually perfect for for coming in. And in helping these businesses achieve something that they probably didn't think was achievable.

I mean, it's it's people at the end of the day that that make businesses.

Or, how do you get the most out of talent? And you name the sector?

Like, five ways to do it. I was like, Oh, this is, this is really interesting. And I did another sector and they said the exact same thing. In some ways, that's right, people are people.

And again, you're just you're dealing with humans, and how do you work with them, how do you communicate, how do you relate?

But there's also just so much nuance that something like Chat GPT can't capture.

Totally. And so one of the questions I love to ask. John is kind of this idea of we would know you better if we knew this about you. What is one way that we would know better about John?

We decided to take the five months and hike the Appalachian Trail.

This was down in North Carolina still, and on the way down, I pulled my calf. Oh, geez, yeah, I could barely walk.

And we made it to the bottom. There's a little restaurant down there at the river. And I remember looking at this map, it was like this two meter high map. And we had done six inches and I couldn't walk. And I mean, I was devastated, I was a wreck.

And that night, I just, I remember going to sleep, and I just couldn't sleep. I was so afraid that I was going to fail, or that I had failed already, and I was afraid I was going to let Jess down. I was afraid I was going to have to tell everybody back home who was watching us and following us, that we just didn't do it. And in the morning, thankfully, I was with Jess and she walked me back off the ledge and said, Whoa, whoa, whoa. Let's, let's take a day before we make any decisions here.

And the next day, I limped five miles out of the gorge and four or five months later, we finished.

First, I think that everyone's human inclination is like, there's no way I can do this. But then you take a step and then you take another step and you go down the obstacle, or above it, or below it. And it's just you can chunk it into one step at a time versus, you know, two meters of map.

Get big, get small. I don't know, there's a black bear, a brown bear.

And they didn't say anything. They go away and five minutes later, they walk by another side of our tent.

Apparently they were looking for their hunting dogs they had escaped.

Hopefully they found them, but that, I mean, that got scary.

I know.

That's a, you know, it's a huge kind of advantage and amazing perspective to have because you get to see, you know, from a pattern recognition. This is what I'm going to do. It equals, you know, an attractive company, or what could become an attractive company if you do something. And so as you start looking at companies that become involved with Tuckerman, what's kind of your yardstick? What do you say? Like? Here are the things that I look for in a company in terms of what is a really good business, or what could become a really good business. You know, with more care, attention, resource, and kind of nurturing of the company.

There's three areas of focus that I typically look for, some of them are softer, some of them are more. I think standard across private equity groups that you would talk to. The first one would be a growth mindset of the team, the second one would be alignment to secular trends.

And the third one would be an identifiable differentiation that folks are willing to pay for. I couldn't think of a shorter word, I guess, but the first thing is growth mindset of the team, that matters more than anything. I hate being around people who just can't understand that there are other ways to do things and can't see past their own perspective of being right.

I'm wrong all the time.

I would much rather any day of the week work with a team that's rough around the edges and has that growth mindset than a team of your traditional eight players. I guess my eight players, they have to have a growth mindset. The second one would be alignment to secular trends. If this were the days of the gold rush, we'd be looking for the companies that make the picks and the shovels. I mean, today it's aging populations and energy transition.

I mean, recently we've made investments into a company that made orthotic footwear that was really attractive to the aging population. As people age, mobility and mobility becomes more and more important, and if you have good quality footwear, that helps. The company that I currently focus most of my time on is focused on maintenance and repair of gas turbines. And natural gas is going to be the long-term bridge between the dirtier sources of energy like coal. And the sources of energy that we all want to move towards that are more renewable.

So, I mean, in a world of.

I like to think of bodies of water, and I mean, we're looking for that fast moving river, because even a raft moves quickly down a fast moving river. The third one would be that identifiable differentiation that people are willing to pay for. We look for companies that have a service or a product that customers really care about. That typically aligns with some sort of outlier unit economics and profitability.

And those products and services tend to sell at a premium, a justifiable premium. So you marry that with a lean philosophy, and you start to. Again. Going back to those bodies of water, you find that right boat for the chosen river.

You're just plowing. And so we've spent a lot of time when we're starting thinking about what are our cultures and values. And one of the four things that we hire to and nurture are people with a growth mindset. It's this idea. We want to learn, we want to question, we want to be curious, and you never a finished product, and you can learn through other people.

And very candidly. If our business were up to me and whatever's trapped in my steel, rusty trap up here, we would be in a lot of trouble. So it's just the idea of you bring in people who are smart and curious and have this kind of perspective of kind of like you. Something gets in your way, you're going to take a step ahead. And so I love all of those. But that mindset, I think, is so essential, really, anything to anything, but particularly this multivariable kind of creature.

And it was really insightful. It's, oh, it's really easy. It's typically it's the BS and the C plus students that are really, like, really tenacious and gritty and clever. And like, don't think they know all the answers? And they're the ones that have, like, the buildings named after them. And so I think, to your point, is like, you know, we work with, and certainly in PE. I work with people regularly who are much smarter than us and who are also very successful. But they, but they also were clever and tenacious and had that growth mindset. And but if it were up to my IQ alone, I'd be toast. And so I 100 appreciate, you know, that mindset of just like, be open to the world and listen to it and learn from others.

And that that'll take you really far.

And so it's something that's, you know, attracts a lot of money, and so what that means is it's getting more competitive. And the great thing about PE, we talk about growth, mindset, there's a tenacity, the grit. You all don't just let the gravity of an increasingly competitive industry impact what your returns are. And so like, we're just going to figure out more things. And so you've had this evolution.

Where now there's, I like to say, is there's like this symphony of motion between deal teams, operating teams, portfolio company, leadership teams. And they're all working together to achieve this common goal. And that can be hard when you have all these different, there's common goals, but there's different things that have to kind of work together. Almost like a motion offense on.

So I'd say within those groups, it should be simple. In theory, I mean, it's you all want the same thing, you want a successful, growing, profitable business. Because investors make more money, employees leadership should also make more money and have additional opportunities. In practice, it's a lot messier. Alignment is hard.

And I think the problems start to appear when you assume that alignment is there, and I think that's where you early and often. And what we do at Tuckerman is. I mean, from even before a deal closes, we're establishing that alignment, we're setting expectations, and even more beyond that. It's not just setting expectation, it's starting to build trust, respect, that human connection that we were talking about earlier. Because you have to start off on the right foot. Once the deal closes, then we start to focus on strategy and strategic alignment.

Like, our first pages of the playbook are all related to what are we going to do, how are we going to do it? And I mean, when I look at it, I start with, why does this organization exist, why do these people work there?

We then get into core values. Human at Tuckerman is one of ours there, but core values and just where we want this organization to go and what it's good at. Strategic intent. After we get that defined, we move into three to five years out. Where do we want to be? If you're going to get somewhere in three to five years, you better get some place in a year. So what are your objectives for the next year?

What are the priorities, three to five things that you're going to be focusing on, and what are those key initiatives that you have to execute in order to be able to be successful? And throughout this process, it's not the operating partner and the leadership that are defining this. This is the whole team because you have to have those different perspectives from throughout the organization. To be able to really build something that's robust and that's going to be effective and if you use the whole team, if the company's employees are involved, they're going to be bought in, they're going to execute it.

It's not just a piece of paper that you look at and stays on the shelf, it actually gets done. I'd say that the only couple of things past that would be you better align compensation to that. I mean, at the organization I'm currently working with, we do bonuses based on something that's effectively cash flow.

And it's a percentage of cash flow for the entire organization, so that you're not capped out on some percentage of salary where everybody's pretty well off. But those who make the most are those who are leadership or in the fund, and then beyond that. It's communication and just transparency, whether it's through performance reviews, whether it's through quarterly updates. I mean, all those stakeholders need different types of communication. But it's being transparent, it's letting them know when things are rough, it's naming things that are struggles.

It's celebrating the successes and it's being consistent with them.

But that's so true, it's just it takes a lot of different constituencies to build a great company. And I think if I looked at maybe the older days of PE and years past, it was more of. We're going to give you the money, you guys figure it out, and if you don't figure it out, there's going to be changes.

And what you're articulating is this, we're in this together, we're going to come, and we have perspectives, you have perspectives. Let's make a greater whole, let's hold each other accountable, and then let's align incentives so everyone succeeds and not just a few. And so I think that's a really smart way to do it.

And I'm sure it enhances outcomes, but it also increases the likelihood of success, the expected value, like outcome times probability. Right, yeah.

Like, the sauce got on the ceiling.

And she had terror in her eyes, and she goes, No, that's my favorite pot, you're not going to use this. I'm like, honey, stop micromanaging me. This is going to be great.

I'm not going to hurt your pot, sure enough. I totally destroyed the pot the next day. I was like, If I destroy your pot, you get a brand new pot. The next day, there was a brand new pot. Somehow, I managed to break this thing that is unbreakable in a cast iron pot.

So we have a brand new pot, it's really nice. I'm not allowed to play with it anymore. That's a long way of segue into. You can, you know? As you're building these companies, there are businesses that kind of differentially succeed and those that don't. What are some of those difference makers between, you know, those differentially successful companies?

Full stop. All businesses are people, businesses, and those who get the most out of their people will win. I think that goes back to starting with growth mindset, that starts with that alignment. But it also goes to thoughtful investment in talent and getting the most out of those folks.

So we hit on a couple of those earlier. But from an investing in an organization's talent, there is so much unlocked potential in the organizations that we work with. I think we as operators, are often far too fast to start looking outside the organization as opposed to inside the organization, which is great for job placement. Don't get me wrong, it's a very important role that some of those organizations play. But there's just so much potential that we are not getting the most out of within any given team.

So what I like to do is to focus more of my energy towards that area because I do think that's what makes a difference. And within that area, it's identifying that, if this were a Venn diagram. An overlap between what an organization needs, like the role gaps that are preventing you from getting to the next level, and the talent within the organization. The skill sets, the strengths and weaknesses, the ambitions of people. And if you can identify again that Venn diagram that overlap, that's where you invest. So I use a couple of processes or tools to do that. We use something I call a role gap analysis, as well as just a very strong performance review process.

A role gap analysis is, as the name suggests, you're identifying gaps and roles within an organization. And what is their cause? What is the severity of these? You marry that with that strong performance review process, where you're consistent, you're radically candid, you're growth-focused. And you can then, as a leader, work with an individual to create goals that both address those role gaps, as well as help to achieve ambitions. And once you have that growth plan, that's where you invest within an organization. And when I say investment, I don't just mean money. I mean that could be reading a professional development book with the team.

It could be sitting in on a dry run of a presentation with a leader that's working on public speaking, and sometimes it does cost money. It could be coaching or classes on Excel and financial analysis. But it's a more targeted approach to investment that I've seen just have outsized returns at the end of the day. So that no matter the economy, no matter the situation, you're going to be successful.

I was around, but I wasn't like a real person at that point. But it's really interesting and I perceive the world through reading things and looking at data. And that's a strength, but also a weakness if you ask people about my untouchedness with humanity at times.

And so the best business builders in the world, how are they acting? how are they getting through this? And the narrative might be that, oh, they cut costs and they have access to more liquidity and they wait it out. And what we see when we look at the data is they do get liquidity. Because the number one thing that makes a company go out of business is you run out of fuel, so that's absolutely true.

And we saw, you know, next, they gather information to enact a plan. But when we looked at Covid, it was they got liquidity, they got data, and then they surged into action at the height of Covid. And the first thing we saw the industry doing was hire tons of people. Bring in expert resources, start doing employee organizational assessments and voice of the employee studies. Like, how do we make this team more empowered and more successful during this really tough time? And that was the number one thing.

And today, we've been in this washing machine economy really since then. Still, the number one area that we're seeing you all spend time on is people. It's bringing in droves of net new people with unique skills, it's doing coaching, like you mentioned, it's doing organizational effectiveness and improvement assessments.

So where you talk to all your employees, like, what can we do to be better? It's also, you know, at times it's bringing in wartime generals. It's just people with very unique skill sets that haven't been needed since 2008. And so what you're saying, I think, is spot on. And it's really counterintuitive because I think most people when they think about economy, it's circle, the wagons and fire.

But the opposite is from what we see, and what exactly what you're saying is completely the truth.

And people start to be more creative and more curious, and start to think about solutions, as opposed to, oh, what do I do when I lose my job? And it's just a different mindset. And those organizations succeed faster. When you see Covid, you see this big drop in the economy and all of a sudden it bounced back. And I do think that part of that is just that.

Hopefully people are learning that if we go through this together and we are not just like chop chop, chop chop, that we react and we succeed faster.

You can sit there, right? It's like Covid was terrifying. I mean, I think for all of us, for a number of reasons. You can sit in the tent and wait to things will happen, you can get out of it.

Or you're hurt. You can take one step at a time and you do that with people. And so I think your perspectives there are a thousand percent spot on. And I think for any business builder, business leader out there, there are lessons that not only they can do as leaders, but also inspire their employees to do.

My dad used to always use this word onward every time because it's this idea. When something's tough, it's like, take a step you don't have to take, don't think about 50 steps, take one and then something gets your way. Go left or right kind of a thing. And so that's something that I use a lot as well. At Arkham, it's like, let's just keep on going forward.

It doesn't mean you can't pause and gather information about what's going on. And look into that tunnel and say, is that a train or is that a light?

Learning and growth, and reacting and taking action is so important. I really like that. So I think that's a really good mindset that every business builder that listens to this should think about and can do something about, which is important. So one of the things that I love working with people like you, John, is you get to learn from all these people. And like we've said, and I definitely probably overly share on this, if life were up to me, I'd be in a lot of trouble.

But I try to have the humility to be self-aware about that. And so I like to read a lot and take little pieces, and I'm certainly a dabbler on reading where I'll read, you know, I have like 10 books on my shelf.

Decimals matter. I love to be factually correct, but people aren't spreadsheets.

We have feelings and we do dumb things all the time, like we've talked about, and we're perfectly imperfect. I think that's beautiful. And to be successful as a couple, and to be successful within any relationship, you have to be willing to put the collective before the individual. And that means listening more, talking less, it means really trying to understand the other person's feelings, as opposed to, like, being right.

And if you can do that, you work through things. Both people end up being happier, and once feelings are addressed, you typically end up having better outcomes and getting to better solutions as well. And this is something that, again, going back to business, business is really, in my eyes, not much more than a series of relationships. So I often say to folks, again, some version of the same thing, Would you rather be married to me? or right?

I'm like an M.L.B. baseball hitter, I'm more like in the 300s, but I keep on swinging, I'm at 250, I think so. I'm definitely going to read that book and add it to my bedside pile, but I want to read it first so I can be more right when I share it with my wife.

Wait.

I'm an imperfect person. There's a great point and a great life lesson that I think, particularly people that are in this world are such high achievers. And they've been successful because they bet on their hunches. And so it's not always a natural inclination to do that, but it's so incredibly important. And this is all tying right into this whole conversation where you said, this whole growth mindset.

You're never always going to be right, and if you are, there's been very few people in this world who have always been right. And actually, I can't name one. So I think that's a great way to kind of wrap this up. In terms of particularly the now that we live in, and really the always that we live in. It's this idea that it's a collaboration.

It's a relationship and if you have this idea that you're always going to be right, you're wrong.

Thank you for sharing the time with us and your perspective and insights.

I mean, learning from those bite-sized pieces and just moving forward onward.

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