Brit Yonge, Corsair Capital | An Expert Perspective on Strategy and Resilience in Private Equity

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So I'm very pleased to have Britt here to talk about his experiences in the private equity industry and his perspectives on business. And in some ways, kind of life, so a. It's great to be talking to people in real life, which I think we've all gone through this experience together. And now it's good to be back amongst humanity. And so one of the ways I love to start these things out is just to get a little bit more of a perspective on. Kind of the story of Britt. And so in particular, I'm sure, like many in PE, in the modern day PE industry, there's all these different paths. And so I'd love to hear a little bit more about your story and how you ended up in the private equity industry.

And that was a really great place to start my career. In the sense that it has a very strong culture and I think, like any company with a really strong culture, it can be a lot to react to. It makes you think about what kind of values you want in your work life and what kind of values maybe you don't want. And so I was able to really learn a lot about myself as someone that was now in business and taking off the uniform and putting on the suit so to speak. So I got very fortunate to work on some clients that were in the financial services industry and found that area, really, I think intellectually, was very stimulating to me.

Certainly, people in finance are very smart, and the things you're working on are largely rather collaborative. You're trying to make your customer happy so that you can make money. It's kind of the symbiosis of capitalism. And then I ended up starting my own company and selling that. And one of my friends was kind of asking me, Hey, do you want to help out this private equity firm with a deal or two?

And a deal or two became two or three. And then they said, Hey, do you want to come and be an operating partner here and do this for all of our work goes? So it's funny how you can stumble into these things in the life. I didn't even know what finance was at 27, 28, probably couldn't even know I could define the world with that word.

Didn't know what Silicon Valley was 24 25.

So it's funny how life can really just be a lot of fun if you just let it.

At least that's how I feel sometimes. So, yeah, I think there's a lot. The volatility is obviously stressful and it's terrible at the time, and it gives you ulcers and all that, but it also makes life really interesting.

And there's a lot of opportunities that are presented with volatility again, finance concept that has larger and deeper implications.

And that sent me in a different trajectory, where I went to a university that I worked really hard to get into. And then I went to investment banking, and then I went to private equity. And then I did the opposite of what 99 of my friends did, then I did a startup, which was crazy to all my friends.

I think it's kind of amazing to me that he lasted so long there, but during that time, he developed an incredibly strong opinion about what that industry needed. And then he left, and he started that. I don't want to do the math here, but the guy wasn't that young when he left. So I think that's the path of entrepreneurship that isn't talked about as much.

And I think in this part of the economic cycle, we're going to hear more of those stories. About people that have a little bit more maturity, a little bit more life, a little bit more understanding of accounting. Coming to doing business for formation and participating in these markets. And the cliches are going to be a little hard to challenge you with, I think.

She's like, We're going to do what?

To her credit, she was a saint. But yeah, that would have been helpful. But we can't turn the clock back.

So, Britt, we've heard a little bit on the tips of the ways of your career. One of the questions I'd like to ask is We'd know you better if we knew this about you?

But there are these formative years, you form these really important values and ways of working and dispositions, and that's the directness, the camaraderie, the shared mission. This idea of a true North, that we're all kind of marching in the same direction. Those things are part of who you are, it's an identity-forming experience.

Even what I do today, from a day-to-day perspective, has nothing to do with national security, has nothing to do with wearing the uniform serving the country.

Those values, they become a part of you. And I think it's something that. Even though there's a lot of distance between those years and those experiences and who I am today, that kind of formative experience sticks with you. And to be frank, in finance, there is a bit of a veteran mafia. When you find out somebody has served, there is a bit of camaraderie still.

I don't think it's been dropped. I think there's a real sense of I kind of know you without knowing you, or I didn't know you without having met you kind of thing. Yeah, I would say that's probably part of me. You can't just shake that.

And many times it is awesome, right? but sometimes it's not. And I think that how to be a constructive skeptic is something that I've learned in this service, and that's a tough thing to make. That's maybe not an obvious, you know? When people think about serving your country or whatever, that may not be an obvious lesson that you would think someone might learn.

But being constructively skeptical has helped me a lot in the world of private equity. Because people are going to make representations about the future and the present and the past. And being able to push back and pressure, test some of those assertions. To be able to examine facts in a way that's respectful but also firm. And being able to really test how much conviction someone has about the future or the current strategy. Those are all things I might have learned the hard way. And this time, you know, my legs aren't on the line. So it's a lot more fun and more lucrative.

But when you're in a large organization, or when you're in a different place with different cultural norms. There are very strong incentives at play, and being able to recognize those, and not all those incentives are always altruism. So I think that examination is the maturation process of growing up, so to speak, is understanding the incentives that are at play. And maybe getting more detached from some of the more rosy narratives of whatever the narratives are. When you're young and impressionable and you're reading some books about it.

And it might just not be that they're all evil and believing in some crazy ideology. There are some other incentives at play. There are very complex things happening here and developing that emotional boundary. I wouldn't go so far as to say empathy or whatever, but being able to relate to someone else's perspective. That's an interesting thing to do when you're 25. And I think this is oddly and incredibly useful in my own career.

When you're trying to get a deal together, even on your opposite side of the table, there's a way to make this work. Even if there's a lot of obstacles in the way.

Especially in the deal mechanics, too. deals are a rollercoaster, they're a rollercoaster, and then when things go not perfect in the portfolio, it's another....

You don't have to worry too much about the financials. Because the kids that come into this industry are so well-trained, they have a really incredible background. And it took me some time to catch up. I wouldn't say I've been totally caught up, but to get literate in that skill set, that analytical skill set.

So you don't have to look too hard there because those folks are going to do the work right. So the questions for me are things like, Really, the top one is product market today. It sounds ridiculous, but it's just do the customers like this product? do they enjoy using it? do they need the product?

Do they enjoy using the product? do they want to pay money for the product?

You can kind of go down and really dig deep in there and figure out what are the key things about the product or service that the customers love or need? And really understand that the company understands its own space. If that makes sense, that's probably the top. Most important thing is, does the product market fit? And if they're going to go and tell you about an adjacency or whatever, is there a credible story? And it almost always is right, because you're selling the company, but you're also selling the company with the hopes and the dreams that you have for tomorrow.

So there's going to be some story around, hey, we're going to expand, we're going to do some adjacency, whatever, so that product market fit now becomes a product market fit capability. Do we have somebody at the firm that understands this adjacency, this hopes and dreams that knows what right looks like? That has really an intuition around where they want the company to go, an intuition around this vision. Because that's not really something you can outsource, you can't, really....

You know, you can obviously hire management people in the firms and they'll do a great job of being very analytical. But day-to-day, week-to-week, someone has to make the thousand decisions to keep the company in the right direction. And that requires that person can't just always be checking their notes. MacKenzie said this.

That's not really a way to run a company, you can't outsource that, so it's that product market fit. And then the leader finding out who at the company is making the decisions on what's being built and who it's being built. For. Understanding how that secret sauce gets made, that's the whole goal.

And if people like your product and they think it fits what they need, it solves the problem and they're willing to pay for it. And so often it was just like the products, just they were great, and I used to invest in highly technical, highly engineered, highly over-engineered products.

Products in search of a market? And they were beautifully amazing, but no one wanted them. And if you can just build something that there's a need and demand for, and your customers will tell you they want, it becomes so much easier. And even as I personalized, when I had this reverse kind of entrepreneurial flow, where I would always look for that, and then I started Bluebit.

And when we started it, two of the three things they didn't want, and I broke my pick for months. I mean, it felt like a lifetime, but it was like six months. And then I finally had the audacity to ask our customers what they wanted and they told us.

And so I think it's just a great lesson for any business builder or any leader of a company. Have the audacity to ask your customers what they want. If you already don't know it, and they'll tell you, and then that's it and that lock and key.

That water just flows so much easier versus kind of like digging trenches to get them to go to where it's supposed to go. And as you'll appreciate from me mixing like 10 metaphors here, I grew up in Texas, and it's the only way I know how to speak.

You were keeping up.

It is wonderful when you have somebody who just comes from the industry. And they've been there for 25 years and they get it, and they know where it's going and they know where it's been. But if you're trying to scale that to a company culture, engineering team, or to a broader organization. It is nice to have someone who can be systematic in the way they think about product development and understanding who your customer is and the customer archetypes and all the buzzwords that you hear out of Silicon Valley. There's a lot of merit to those processes if they're done right, and they're done with much curiosity and genuine openness.

And then, not in a kind of a condescending way, but like a true curiosity around what does my customer want from me?

Getting that work done, that research done, getting it documented, getting that vocabulary, infiltrating the organization with that vocabulary is just huge. Because then at that point, everyone feels like they know the customer, even if they haven't spent as much time with the customer. And in those organizations, I do think in so many organizations, it really does help to have that customer interface.

All the executives have to work whatever it is, like three days a year. And I don't think it's a cliche. I think that's a genuine thing that consumer-facing companies do to keep themselves close to the problem and close to the customer.

They'll tell you and then the Walmart thing is really important. I have all these sayings just from the way I grew up and I call. A lot of what we do is just the Walmart form of innovation. Where it's like, get it out there, listen to your customers, see what other people are doing and put it together. And you don't have to recreate this wheel.

There's all these people who will tell you what that shape and form should be, and you'll get there a lot faster, with a lot more certainty. So I think those are really good points. One of the things as we look at kind of the modern, the current era of private equity, it's come a long way and so to date.

Myself, I started in private equity in the late 90s, where it was just guilty people. We were buying low in an inefficient market, and we would upgrade the accounting system at a salesperson, and then we would sell an inefficiently purchased price to an efficient process. And then spike the ball. And I thought I was a business genius and I saw the world in slow motion.

So little did I know. And now the industry has matured in a good way in that. Now, as I look at the modern era of PE, or the current era of PE anyways, it's a symphonic motion of skills and resources, and it's deal teams working together with operating teams, working together with corporate executives. So how does your firm think about that interplay between the three, and how do you all work together as you look to build these great companies?

I think I mean just the old school, like Raci Rapids framework, whatever you want to call it, where you have roles and responsibilities defined or at least alluded to. That's a tried and true one. I think it's super effective for making sure people know, hey, who's responsible for delivering this, who's heads on the line, who gets to contribute from the cheap seats? Their criticisms.

And then who else just needs to be kind of FYI informed? That's essentially the RAPID or RACI or whatever the business school framework is for these days. But that's an effective tool, that roles and responsibilities conversation is very effective.

And just helping people, because it's not like people wake up one day and go, you know what? I want to be really disruptive to this process, people want to do the right thing. People's incentives, We talked about incentives earlier, most everyone's incentives in this space are to create shareholder value.

So the friction where you do have friction is often just for lack of roles and responsibilities.

Maybe versus VC PE, they're making one to three times their money and a 10 investment fund. You need pretty much every deal to do well. So when you get into tough times like now, private equity races towards their portfolio companies, whereas maybe in venture capital.

Their kind of incentives in economics are more like we're going to get two or three out of the 10, but they're going to home run. And so we have to be right less often, but we have to be right in a more substantial way. And so in PE, it really means that all the incentives are aligned, but it doesn't mean that people always communicate well. And so, through that racy kind of construct you're talking about, if you can go through in a really precise way, explain the end goal and then how everyone's going to work together. It seems like to exactly what you said. It's going to end up much better for all. And candidly, as I think about my experience in private equity, the first word being private, I didn't use my word so well all the time.

It's not just like circle the wagons. It's like, No, we're putting slickers on and we're going to put stakes in the end and make a positive out of this. So as you think about your portfolio companies, how are you working with them, thematically or tactically? To say a, we've got to shore up safety and foundation, but where do we find these pockets of opportunity and tilt the lens?

You sell $10 bills for $20 or something. But look, I think in more charitable articulation of that, there's been companies that have been willing to pay a lot of money to acquire customers. And I'll let the Jim Chanows of the world decide whether or not that's economical or not economical. But that willingness has decreased. So now, for companies like ours, which need to be profitable, need to have positive economics. There's an opportunity to go into places and to customers and compete where we couldn't compete before. Just because our constraints are different than maybe a growth Equity fund or a VC fund's constraints.

And so there's just a lot of companies in so many spaces that are no longer spending as much on customer acquisition. And to some extent, servicing the customer in the back end. But I think most of that spend is probably on the acquisition side, and so that opens up. Those companies have done all this work to find the product market fit and to establish what the customer wants. Because typically, these entrepreneurs are incredibly good at the product side and the go-to-market side.

And so we can kind of take what they've done and what they've learned and now compete on that customer base. Where we really candidly, probably couldn't have two or three years ago. So I think that's one thing that's really interesting across our portfolio. There's always going to be a handful of startups that are just pouring cash to get customers and now we're able to compete for them. And then, tangentially or orthogonally, I guess there's also now. Some of those companies are now interesting acquisition targets, where they have different expectations around what their companies worth, and that can be a more interesting conversation.

Every engineer thinks their equity is worth a bajillion dollars. It's a much more grounded evaluation.

And I think when we look back on this, we'll say, man, we've got some pretty cool apps. I got to do some pretty cool things with ride-sharing. Not to call anyone out.

There's just an opportunity.

They're different stages, different sizes, and as we talk about here during these periods of transition, it opens opportunity for certain companies more than others. And it sounds like that you all, I think you pointed out a good one. During this kind of period of maybe pulling in, there's more constraints in the world, sure.

It provides opportunities for companies like yours, and it doesn't mean that these venture capital companies won't come right back.

It pays to be an optimist. I don't know many short sellers who are billionaires.

So one of the things I love about people like you and people in our industry is. I think most people are students of business and life and like to read a lot. And certainly, I'm, like the poster person for successful in spite of myself. Had I not been able to learn from everyone else and kind of copy-paste them into my life, I would have been in a lot of trouble. Are there any kind of books that you've read that have made an impact on you that you think are something that others should also consider?

But he's a psychologist and he kind of talks, it's a book about his life, but also about psychology. It's really just about the sovereignty of human choice and the empowerment of having agency, even in the smallest things. He has story after story of where you can take a circumstance which is truly dire and really articulate the empowerment of being able to make your own choice.

There's so much in the world, but certainly in the world of finance that we don't get to choose. We don't get to choose monetary policy, we don't get to vote. In any of that, there's a lot of exogenous everything to what's going on. You can spend a lot of time worrying about that and worrying about what the print was yesterday and what does it mean.

But fundamentally, we're a buyer shop, so we own these companies. There's a lot of agency for us to be exercised within the portfolio, within what we have in front of us. You can kind of tune out some of that noise, or maybe curate it, I would say, curate some of the noise. In the financial ecosystem, there's a lot to be empowered by within our day-to-day. There's a lot of choices that we do get to make.

Asset prices aren't always rational, and they're going to go in some directions. That doesn't change what we can do for our customers and our companies today.

Viktor Frankl was a very accomplished psychologist. He created a flavor of psychology that I think became behavioral therapy, which is probably the most effective and tested form of therapy out there. I think he's an incredible person to look to. And the mentality that can be constructive in the face of adversity, and in the face of adversity that you don't really sign up for. No one signs up for Covid.

There was a lot of diligences pre-2020 where people were talking about recession planning, and I remember those conversations pretty vividly. I don't remember anyone ever talking about a global pandemic. There's a lot of empowerment and security from understanding the choices that you do get to make.

It's just this whole idea of just take a step forward and take action. You're not just going there in perpetuity. You can take a left or a right, but just do something and own the outcomes. I think that's incredibly empowering for really anyone.

It's like the catcher in The Rye, where Colton is the character. That he can't accept the world the way it is. He's gnashing and he's not able to tell everything phony and everything fake. There is an upside and a downside to these choices, this choice between orthodoxy and heterodoxy, conformity and non-conformity. This tension is just so important, and you have to have people that are willing to do both. I think John Boyd was really an interesting guy in what he did, creating F-16 and Ooda Loop and all this stuff.

He did it within a system of the air Force, the military, the Pentagon, some of these really calcified institutions. He did it in a way that affected and touched a lot of people. He was this whole disciple of Boyd. I do think he articulated this really special way of being somebody who can do something. That's a choice that you have to make as a junior officer and as a person in your career.

He's a wonderful thinker, I wish he had written more, he lectured, but he never really committed to writing. I think a lot was lost.

People don't even know how old he was because he lied about his age to the academy. He was a 14-year-old. I think every time the story is told, he's younger and younger. He invented the nuclear navy, which is incredible, the audacity to do that.

The way he thought about building an organization that can function, with smart people doing the best they can underneath the water that can't be communicated with. He's an incredible—he's one of the only Singapore-like figures that has a lot of lore around him. Some of his essays are just incredible about thinking about safety and risk and holding people accountable. These are some special people.

BRITt This has been incredibly insightful and impactful. I've learned a ton from you today and I very much appreciate that. Thank you so much for taking the time to share your perspective and thoughts with us.

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