Matt Cole, SBJ Capital | No One Gets Through Life Unscathed: A Guide to Private Equity Problem Solving
2023-09-13 00:29:09
Private equity insights for and with top business builders, including investors, operators, executives and industry thought leaders. The Karma School of Business Podcast goes behind the scenes of PE, talking about business best practices and real-time industry trends. You'll learn from leading professionals and visionary business executives who will help you take action and enhance your life, whether you’re at a PE firm, a portco or a private or public company. BluWave Founder & CEO Sean Mooney hosts the Private Equity Karma School of Business Podcast. BluWave is the business builders’ network for private equity grade due diligence and value creation needs. To learn more, visit: https://bit.ly/3oPBjs8
Welcome to the Karma School of Business podcast. In this episode, we have an awesome conversation with Matt Cole, Managing Director with SBJ Capital. This episode is brought to you today by Blue Wave. I'm Sean Mooney, Blue Wave's founder and CEO. Blue Wave is the go-to expert of those with expertise.
Blue Wave connects proactive business builders, including more than 500 of the world's leading private equity firms and thousands of proactive companies to the very best service providers for their critical variable, on-point and on-time business needs, enjoy.
Very excited to be here with my friend Matt Cole Matt, thanks for joining us, thanks for having me.
It's a pleasure to be here.
It's always exciting to see people in real life here, and so I'm very happy to see you.
It's a treat every time and I wish it would happen more often.
Absolutely, I think we're, you know, I've been saying this, too, shall pass for a number of years. And as it relates to IRL, as they say, I think that we're back in it.
Fully. I eagerly awaited it and am happy to be back in it, so it's good to see you.
This is great, so Matt. One of the things that I love to start these things off with is just a bit of the story of your own journey. And in particular as it relates to private equity, because I think so many people find different paths into the industry. And I'd love to hear what was your personal path into PE?
Yeah, yeah, I'm happy to, you know, mine is a bit circuitous. I feel like it's a more well-trodden path now and people have to take certain steps and so forth.
And that was definitely not the case for me to a certain extent. I started on the traditional path I went to, coming out of undergrad, I went into investment banking, had a great experience there. And I remember distinctly, at near the end of my second year, sitting down with the head of my group, who did not always take a lot of time to sit down with the analysts. But sitting down with them and them asking me what I wanted to do next. And he rattled off a handful of private equity funds that he could plug us into. And that made me think it's kind of easy, you just go ask someone and they get you a job. And for whatever reason at the time, I knew long-term investment banking wasn't for me, even though it was a great learning ground. I was particularly focused on operations and getting a better understanding of what it meant to make a company successful. Some of the pitfalls that we would see cause companies problems. As opposed to just working on spreadsheets and so forth, and some of the stuff that you do as a junior person.
So I went that route, never really thinking I'd come back to pure investing world or the buy side or PE. And I worked at a couple different companies in Corp, Dev and FP&A and Strategy, and was sort of a strategic buyer. And then it was opportunistic that I got into private equity and working at SVJ. Cause I had worked with my colleague Gus Spanos at an operating company, developed a great relationship. And through that, he was someone that had prior PE experience. He was starting to think about launching a new fund, and when he did, it was sort of the perfect time. It was the right combination of experience that I had to bring banking and operating set of experiences to PE. And somewhat entrepreneurial to be part of the founding team, help launch the firm and do everything from working on the fundraise and our first handful of investments to setting up the management company. And figuring out how to set up a printer and hire people and go through it all right, sort of my own entrepreneurial experience. And I was really fortunate to have done that and fortunate to have come into this industry. Working with people that I knew and had a good relationship with. And I think it's going to help us be sort of an enduring firm for the long term as a result.
Yeah, I think it's such a great history and path that you've taken, cause you've seen both sides, all sides of the equation. You've seen how the investment banking world works when they're bringing opportunities to market. You've actually worked in the operating companies and now you're in the private equity firm itself. How has all that kind of helped you as you grow and develop?
I mean, it's critical and it's a part of the story that we tell. Everything we do at SVJ is we're a first institutional capital investor, so these are family and founder owned businesses. They are not looking for someone with necessarily the shiny bulge bracket Wall Street resume to come in and tell them what the next opportunity is with their company. I think it makes a big difference, both in actual experience, to be able to say we've walked in your shoes. And in demeanor and approach for how we present ourselves to these companies, and we call them partner companies for a reason. We are looking to work with them to figure out the next phase of growth, the next opportunity with the businesses and having been an operator comes across. And the types of questions you ask and the empathy you have, the appreciation for what they've done and what they've accomplished. So it's part of our story, and I think it will continue to be a key part of, hopefully, what makes us successful.
It's a good lens into your background and why you've gotten to where you've gotten. One of the other questions I really like to ask is, in terms of the trivia, we would know you better if we knew this about you.
Yeah, I mean, the funny thing is, I think I am pretty much an open book for the most part, and I don't know what you see is what you get. So maybe that means there's not much depth to me because there's not too many tricks up my sleeve or something like that. But the thing that comes to mind, I guess, is that I think about my wife and I. And how we focus on getting outside with the kids, getting away from the devices. We do a lot of skiing, a lot of outdoor activities. Getting to know me is the same way I think we've thought about developing relationships with our kids. It's just getting away, riding a chairlift at a ski mountain, going out to the beach. That's when things come out, that's when conversations happen, fewer distractions. So anyone that's up for some Northern California surfing or golf or skiing, that's the way to do it.
So do you surf as well?
Not well. My 15-year-old son is already better than me, so I support him in his surfing endeavors. But I learned when I moved out to the West Coast in my 20s. It's not something that's easy to learn as an adult, and mostly I'm trying to stay out of the way of people that do know how to surf. But I like it and it's one of those things that it's meditative in a way where you have to be present. There is no sort of faking it with mother nature and the ocean, and I enjoy it for that aspect, even if I'm not sort of ripping down waves.
Even just sitting out there on the board, yeah, it's great. And the fact that you can at least periodically defy gravity on a piece of....
Very briefly, exceptionally briefly, at least for me, but those moments make it worth it.
Yeah, I occasionally get a little bit of guff. Because I moved from the New York area in a little coastal town to Nashville to start a company called Blue Wave. Right, right? so you occasionally see waves on the Cumberland River, but they're not blue, right, right?
Well, maybe we get out to one of these wave machine places and we can both give it a shot.
Absolutely, I'll try the boogie board.
Yeah, that sounds good.
So one of the things that I love talking with people like you about, and private equity people in general, is this. I think everyone in the industry is smart enough, everyone has a variety of skills. And almost kind of like a renaissance, where you got to be good at a lot of things. But one of the most, I think common indicators of success, is this concept of tenacity and grit and overcoming. And something gets in your way, you kind of figure out ways to go around it, above and below, et cetera. So I'd be curious, what is maybe one of the harder things that you've encountered in business or life, and how you've kind of took it on and overcome that?
Yeah, I mean, honestly, it's a long list and I don't know. It reminds me of this one saying that has stuck with me, that no one gets through life unscathed, and it's true. I think everyone learns that with time and with age. And from a business perspective, obviously, it's hard not to sort of think about the early days of Covid.
And obviously everyone had a lot that they were dealing with during that period, personally, professionally, et cetera. But we were a consumer-oriented fund, with site-based businesses, hair salons, gyms, restaurants, school uniforms, early education. We were hair on fire for a little while. And that was a pivotal moment that I think we solidified relationships with, certainly our management teams, to a certain extent our lenders at times. How do you support the team through that type of an experience?
And I know we weren't alone by any stretch through that. But it's still recent enough that it certainly bubbles up now, on the lighter side of things. Thinking about a personal example, I went through a house remodel recently.
That'll test the best of us.
I met my significant other's wife in college and we've been together a long time. We've grown together. We generally think we're pretty good at a lot of things in our relationship. Apparently, co-project managing something was a terrible idea, nearly destroyed us. But at the same time, to bring it back around a little bit to a business perspective, it's sort of. It was a great reminder to think about. When you are negotiating an outcome with someone that you're going to have a long-term relationship with a founder of a business, you can't be transactional.
You have to think about the big picture in the long term and what's important. And that was definitely that experience was a reminder and also that I'll never do that again.
So how do you? I'd be curious when, whether it's the home remodel, which in some ways sounds like the most terrifying experience. To this shock, where the world literally just shut down in, like, with two weeks notice, how do you even kind of find the grace and the calm to just kind of take something on and figure it out?
It's a good question, I don't think there's an easy answer. It's something that you always have to focus on, but just maintaining that long-term perspective, thinking about what's important. It's too easy to get hung up in day-to-day fire drills, piles of emails. What issue is around the corner?
And something like Covid in those early days with our businesses, it was just how can we support you? What can we do to help take some of these issues and mitigate them? Put some of these fires out and think about what you're trying to accomplish long-term, because that didn't change. Same with the house remodel.
Is your house done?
It is, it is, thank goodness, and we're going to leave it just as it is, yeah.
I mean, last home model.
That's it.
I've done one minor one myself. And we go through these series of buying a house that's perfect and ready to go to a fixer to perfect and ready to go. And we're more of a fixer now, right? We do it and then we stress our relationship, and then you forget, and then you forget the next one.
It's human nature to forget about that and then you get reminded again.
I think it's a great example of tenacity and grit. So one of the things that I think certainly is occurring in private equity, if not elsewhere, is the importance of value creation. And there's a number of things that we all know that's driving that. How does your firm approach value creation at SBJ, and what resources do you all bring to bear to support your portfolio company and their teams? To do this? Yeah.
It's super important, and, like I said, we're first institutional capital investors, everything's family and founder-owned, and so value creation is important to any investor. For us, you kind of distill it down to two things professionalization and then accelerating growth.
Now, the truth is, I'm not a huge fan of the word professionalization. It sort of suggests deficiencies or things that we have too much respect for. What these business owners have done to say that we're coming here to professionalize. We're coming to help solve problems that they probably know exist, we're bringing resources, people outside perspective, access to experts that they....
Not that they don't know they exist, but maybe they don't have time or just sort of financial resources or otherwise to go access. And that's what we're trying to bring, we work together to figure out the growth plan. Yes, when you're sort of going through diligence and especially in an auction deal or something like that, you see the bullets on the page and you think, you know. But these business owners know what the opportunities are. What we're there to help with is how are we going to ultimately execute on that.
It's how we got to know each other, bringing in third-party resources, partners, consultants that we get to know through Blue Wave, that's part of it. We brought in a full-time VP of Talent, our first full-time operating partner in a low mid-market fund. That is a well-known strategy, mid-market and up. But I don't think there's a ton of funds of our size that have full-time VP talent operating partners. Because we are constantly augmenting the teams that we invest behind. We've got this one stat that in our first fund, we brought in 40 C-level or heads of function people that were new roles to the companies.
Real estate heads or CFOS. Or a variety of things that are adding to the team that's there and bringing outside perspective, outside board members, etc. So we are bringing the resources to execute on the plan that I think we jointly know exists. So that the team is bought in, the management team is bought into what we're trying to accomplish and we can execute against.
I love your point about these entrepreneurs and family-owned businesses. And I think a lot of people, maybe not a lot, but certainly any, and substantially greater than one amount of people, think that these business owners, you know, let me show you the way the world works. And the reality is, they often do, but really, where they kind of struggle is a resources and then b allocation and prioritization. It's interesting. When I was in PE for like 20 years, I never really fully appreciated it because I never was an operator per se. But now, having started and built a company or building a company, you totally get it in ways that I never did before. Where you said, Yeah, I know we're going to get to that, but we just don't. We don't have the bandwidth.
Yeah, no, bandwidth is a huge part of it, and I think it is also part of our culture as a firm and how we present ourselves. That sure, we have ideas on sectors, we have theses on sectors. We do a lot of diligence to uncover things about some of these businesses that maybe, you know, they're not as focused on. But we'll never come in pretending to know more about that business after a few month diligence period than the people that have been there, you know, for extended periods of time or started that business themselves. And one, I just think it's just a fact, and two, I just think it would be incredibly arrogant to come in any other way. And I think that's also maybe part of the fact that we have been operators and have, you know, had too many things on the to-do list. Such that you're just trying to get through the day and you know where the opportunity is, and you know what you need to do, but you need some help.
And that's what we're trying to do.
Yeah, I think that is spot on. And you know, I always kind of joke if I were to ever go back into private equity, which I have no plans to do. I don't think you guys would take me back, but if I did, I was like, I'd be so much better.
Yeah, it's the lessons learned that you can apply for sure.
Absolutely so, as you think about your firm and you think about the opportunities that are out there. Sometimes it can be really, in times like now, where you're maybe in a recession, maybe not, who cares, you know? If you're growing 0.5 or declining 0.5, what's the real difference? But one of the things that's really important is, how do you kind of manage through it?
And so what are some of the thematic areas that you're engaging in with your portfolio companies that probably other companies and business leaders should be thinking about as well?
I mean, you know, the initial thought is just, there's been some obvious ones in the last couple of years where labor costs labor optimization, pricing strategy. You know, if you weren't having those conversations over the last couple of years, you know you're missing out on something. And I don't think that's novel. But that's certainly been a big theme, just as a result of the environment that we've been in. Fast forward to today, a new sort of a new banking crisis, there's always something that comes up, you know, the market's always changing. I think we're still trying to focus on the here and now. Like, how do you continue to be efficient and thoughtful about labor? And not just cost, but also recruiting retention, because there's a lot of hidden costs with turnover. And we're very mindful of that and we're having that conversation with our teams all the time. But also looking forward. And part of the value creation story that I didn't touch on as much before is the use of data.
And how are you using data? how are you implementing systems, especially as a small company? You know, what can you do? I'll mention this, not to get out over my skis. Like, obviously, AI has become a much bigger conversation this year. Not that it's new, it's sort of, you know, incremental innovation for the last, you know, 20 years or so. But arguably, you know, maybe there's a turning point with it in the near term and medium term. And it's an open question for us. You know, what does that mean for smaller business?
A variety of industries are going to be disrupted. But it's an opportunity for us to be having conversations with our companies, our partners, to say, what are we doing? How are we preparing ourselves for some of these things? That are, you know, seemingly inevitable, but even if they're not, just. How are we getting ready for potential technology disruptions and what are the opportunities for us? And, you know, again, with a small company, sometimes you got to walk before you run. And so we've been very focused on better use of data, implementing systems, scalability, managing with data, all the types of things. That then, to the extent there are opportunities with newer technologies, be it AI or something else, you're in a better position to take advantage of it. So it's that sort of readiness conversation that we've been having, and I expect we're going to be having more over the next 12, 18 months.
I think your perspective there is right on point in terms of, you know what we see. It's a lot of thoughtfulness around. We all want to be sprinters, but let's get that foundation. There's so much value in getting the data clean and visualizing it, and then analyzing that before you're building. You know, some cloud LLM that's proprietary, and there's just so much benefit you can get from doing those basics. And the tools are commercialized now such that any company can and should use them.
And so, you know, the smallest of the small companies should be using Snowflake and Tableau or Power Bi and get a part of the bundle. And they all can do it without too much expense, and it'll change fundamentally how they understand their business.
No, I totally agree. And look, part of it is also that transition from being founder, family owned and run, where there is a lot of institutional knowledge. And how do you ultimately go through that, you know, phase of growth? Where that knowledge in people's heads is being managed across an organization and managed with data? Which is ultimately the only way you're going to be able to scale, yeah, and so we're super focused on that, and, you know, our team certainly get it.
And it's not that we're trying to make them all use Chat GPT every day. But maybe there is an opportunity. And just using data in a more sophisticated way is will always be important.
And I imagine, correct me if I'm wrong here. But a lot of founder owner businesses, they kind of keep the information tight, right? very tight. And so a lot of times, the, you know, senior member of the teams don't even know the revenue of the business. Or, you know, certainly don't know the full P&L or the balance sheet or the income statement. I imagine if you're able to even just share those kinds of information. And then if, even if you can give it more regular, that in itself has got to be this.
A hundred percent and just having the regular cadence when you have those conversations and review things and go one step further and say. Every company, every industry, arguably, but certainly every company, has a few set of KPIS that really drive the business. And sometimes the ones that you think they're going to be going in aren't the ones that you're focused on a year or two later. And by leveraging data, by having cleaner data, you can get to the point where you can be really managing the business around just a few KPiS. And the more. Getting that information into all of the hands to your point, and all the people and the brains that need to be thinking about. It is an important part of this exercise of bringing in a private equity partner and thinking about how you're going to scale.
And I also really like your point about few KPis.
Keep it short.
It's interesting, and I kind of preached that before in prior lives. And then we had went even at Bluewave, went along that journey, where we were bringing all these data tools in. And we realized that tableau is named tableau for a reason, because it's like tableau of charts. That ends up looking like an impressionist painting up close, where it's just a bunch of dots, but you pull out and if you have fewer, you can actually see pictures.
And so I think that's another really good lesson learned for anyone building a business know the few things that matter, and that takes work.
It takes work, and you don't always know it. So our early education business. What we realized the key metric to be tracking was conversion of tour to enrollment, as in a family that comes in to tour the school. How many of them actually enroll? And there's a lot of things behind that.
How many people even came in to tour? Do you have the capacity and so forth? But if you really just focused on that and what that meant from a consumer experience perspective and customer service, and so forth. That was really going to drive the business forward. And we didn't know that on day one.
But as you get into it and you have the data that you can track, you see how important that is ultimately to the bottom line.
I think that's really insightful and as we were kind of talking to understand the three things that matter. It really requires you to think about and understand your business, and that's not easy. It's so much easier to have 50 tableau kind of things, but if it's like, no, you got three. So I think that's a great lesson for any business leader out there is take that time to know fewer things.
And that gives me anxiety and apprehension, even myself as a business leader, like, Oh.
I only have three.
I got to make decisions, so I think that's great. One of the things that I love, Matt about the opportunity to work with you and your colleagues at SBJ and others in PE is. You all are so in tune with the business world. And kind of, you figure things out just by virtue of who you are and what attract you to the industry. And so one of the things I love at Bluewave is getting to work with you all every day.
I'm like, I didn't know you could do that, why didn't I know that before? So I write this email what I wish I knew, and there's all these things that I wish I knew before. And just kind of like, I'm flabbergasted. So I'd be curious. If you were to go back to younger Matt, 22 years old, and kind of kind of go back and say, here's something I wish I knew then.
Right, right, what would one of those be?
You know, that's such a hard one for me because it's a great question and to be able to demonstrate sort of perspective. And what have you learned over the course of your career? And here I am, in my my mid forties. I've been at this for a while and as I think about it, I realized me at 22 I wouldn't have listened.
It would have fallen on deaf ears. And, you know, I mean, as I just think about my route to PE and to some extent, my somewhat non-traditional path to getting here. For me, it was just embracing the journey and the successes and failures and everything in between. You know, that's been the reality for me. And I think the best, or the biggest lesson learned for me is more than what I've been learning more recently. Is to just have accepted that because it wasn't a direct path. There were a lot of ups and downs, but it got me to this point.
And I think I'm at the right place. And I'm extremely excited about what I'm doing now, excited about the firm that I'm part of. And it was a journey getting there.
I think that is a great mindset to have and a really hard one. And you know, that's absolutely one that I wish I had as well. Because it's so easy to just to be, you know, put the blinders on and run and run and run. And I think I probably went through kind of an existential crisis because I had been working my entire life to become a partner at a really good PE firm. And then I got there and I said, Wait a minute, I don't even remember the journey here and I've been chasing this one thing.
And then you get it and you're like, looking left and right. Yeah, what do I do now? And I never took time to smell the roses, and part of that's probably just my DNA.
I can't help but just keep on pushing things. But boy do I wish I did that. And I'm trying to find the grace in my life to do that better now, and I still have a hard time.
It's a constant lesson, I won't sit here and pretend that it's all I've solved the riddle. It's a constant battle. So I completely appreciate where you're coming from. I had different visions of where my career was going to go a couple of times.
I'm really excited about where I'm at now. But it was not always obvious how this was going to go.
It's like this whole idea that life's a journey, not a destination. So even at Blue Wave, I try to tell folks. And so we have Libby, who runs our office operations, and she's like our ultimate utility glue person. And I just ask her, Libby, can you just remind me every once in a while? Like, give people hugs and say good job? Because I'm just such a hard time? It's not that I don't appreciate it, it's just the blinders are on.
Oh, you're 100, right? So you'll find this maybe a little bit amusing. I present myself as relatively relaxed. I think it's not always what's going on underneath the surface. And I'll have these periods where I'm really focused on something. And I'm staying up too late and working late into the night and not sleeping enough, and it catches up with me.
So I've gotten to the point now where I put on my email calendar at 1030. It's time to go to bed because otherwise I need something to pop up and say, you know, get up and keep going tomorrow. But yeah, slow down.
I like that idea, I'm going to start scheduling, you know, just kind of like my moments of humanity, it's just so easy.
Schedule the team hug. Yeah, there you go.
So I'm going to put that recurring every three weeks, I don't know if I could do every week, every three weeks. Say good job, right?
We get going and yeah, there's a lot of type A people running around and you need those reminders to keep some perspective.
I think it's a great lesson. I'm definitely borrowing the scheduling things too, because it helps, right? It's just not that people like you or me or others, we don't want to do those things, it's just you. Just life moves fast and you're just trying to keep up with it.
Right, right, well, Matt, I really appreciate you spending the time here with us. I've learned a ton and I know others will as well. So thanks once again and we appreciate you taking the time to be here with us.
It was a real pleasure. Thanks for having me along.
Special thanks to Matt for joining. If you'd like to learn more about Matt and SBJ Capital, please see the episode notes. That's all we have for today. For more information on this podcast and Blue Wave, go to bluewave..net Forward Slash podcast. That's b-l-u-w-a-v-e.
Please continue to look for us anywhere you find your favorite podcasts, including Apple, Google and Spotify. We truly appreciate your support. If you like what you hear, please follow, review and share. It really helps us when you do those things, so thank you in advance.
In the meantime, let us know if there's anything we can do to support your success onward.
v1.0.0.260408-1-a910ba6_os