Episode 021
David Hellier, Bertram Capital | Harnessing Data to Innovate, Differentiate and Evolve
We're joined by David Hellier, a partner at Bertram Capital, to discuss:
1:31 - His background and what brought him to private equity
5:40 - How private equity is evolving
9:18 - David's story about throwing out the first pitch
11:09 - Overcoming adversity and being differentiated
16:23 - Running private equity like a business
22:37 - How data and AI will impact productivity
27:50 - Finding opportunity admidst uncertainty
34:08 - David's life hack
For more information on Bertram Capital, go to their website: bertramcapital.com
For more information about this podcast, go to bluwave.net/podcast
1:31 - His background and what brought him to private equity
5:40 - How private equity is evolving
9:18 - David's story about throwing out the first pitch
11:09 - Overcoming adversity and being differentiated
16:23 - Running private equity like a business
22:37 - How data and AI will impact productivity
27:50 - Finding opportunity admidst uncertainty
34:08 - David's life hack
For more information on Bertram Capital, go to their website: bertramcapital.com
For more information about this podcast, go to bluwave.net/podcast
EPISODE TRANSCRIPT
Sean Mooney:
Welcome to the Karma School of Business Podcast. In this episode, we have an awesome conversation with my longtime friend, David Hellier, Partner with Bertram Capital.
This episode is brought to you today by BluWave. I'm Sean Mooney, BluWave's Founder and CEO. BluWave is the go-to expert of those with expertise. BluWave 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.
I'm really excited to have my friend David Hellier on. David, it's great to see you in real life.
David Hellier:
It's great to see you in real life. I grew my hair out just for you.
Sean Mooney:
It's amazing. If only all of us could be so lucky to have your head of hair.
David Hellier:
Yeah.
Sean Mooney:
There's a lot of jealousy around town these days.
David Hellier:
Or pity. It could be pity too.
Sean Mooney:
I don't know. I'm in the jealousy camp. Any hair follicle I have is a good one.
David Hellier:
I appreciate that.
Sean Mooney:
So it's great having you here. We've known each other for a long time.
David Hellier:
Long time.
Sean Mooney:
More than we're going to date ourselves on.
David Hellier:
We have the gray hair to prove it.
Sean Mooney:
Exactly, exactly. We both appreciate that the gray ones are the loyal ones.
David Hellier:
I think that's well-said.
Sean Mooney:
The brown ones are traitors aside, nothing good to say about them.
I'm so glad you agreed to do this and what we're going to do is have just a great conversation about the PE industry, what's happening, what's changed. A little bit about you, and I'd love to start there. One of the things that I think everyone would be really interested in is understanding more about your background, what brought you into private equity, and a lot of people have different paths and that's the beauty of this industry. What was your journey into PE?
David Hellier:
So first, thank you. I appreciate the opportunity. It's always great hanging out. Given the distance now that we have, it's not always as easy, but it's always good being in the same place at the same time.
I had a very circuitous route. I finished my Masters in Economics at the University of Florida, go Gators, in 1988, which was right after the '87 stock market crash. For most of you out there, you might have to go research that on Wikipedia, which meant there were no jobs in finance after that. So it was about being creative and pivoting. My resume was the last page of the MBA book because they didn't know where to put a Master of Arts in Economics major and there was a business in Gainesville, Florida that was the first division of General Electric that Jack Well spun out, and they were a buyout by a privately held business out of Colorado and they were looking for someone in product management to do competitive analysis.
So my resume, I needed a job, I was in Gainesville, wasn't expensive to live there, so I took it and I got seven years of training with GE guys, which was phenomenal and really learned a lot and got to check off a lot of boxes, but it wasn't in finance.
I took a circuitous route, I did that, I was with a company called Iomega. We made a thing called the Zip Drive. It was unbelievable. We had one of the highest appreciations in a single year on NASDAQ ever. That was a lot of fun. Then I did a startup called Ask Jeeves where I ran marketing, so I got involved with the internet very, very early on. We got to do a lot of innovative stuff there. Tried another startup, which was kind of a precursor to YouTube. As with a lot of startups, didn't work out. Moved back to Florida and started a little marketing consulting business and I got involved with the company that grew diamonds above the ground. This is going to lead to private equity.
And so I was running this business early stage. We grew diamonds above the ground. It was really cool technology, incubated at the University of Florida, and we needed to raise money, so I presented at a couple conferences and there was a firm called Sierra Ventures out of Silicon Valley and there was a guy named Jeff Drazen and he was one of the partners, and I got introduced to Jeff. We hit it off right away and it was amazing. He understood what we needed to do. I said, "I'm either winning with you or I'm out of a job." We had a 10-person board. The vote was nine to one to take money from a car dealer that was friends with the board members, versus Jeff, and I was out of a job.
So I stayed in touch with Jeff and he said, "Look, I like the way you work." He goes, "I'm starting a private equity firm." And he said, "I'm going to need people to help run it. My view is I think I can..." Basically he said, "I want to take ball bearings companies and tech-enable them." And this was back in 2000... I started there in 2008, so this was 2007. And Jeff's view from day one was value creation, which as you know, no one was really thinking about value creation at that time, but he had a vision from day one basically to marry venture operating methodology, so really focusing on growth, with cashflow-positive businesses. Go imagine that.
So he said, "Hey, why don't you come on board as an operating partner?" So I started with Bertram as an operating partner. So I fulfilled, after 21 years, a full circle into finance and my original effort was going to be around finding a business for me to run. But very quickly what Jeff and the team realized was, in venture, all the deals come to you. They need the money. In buyouts, you got to go find it. And this was kind of the early beginnings of business development. Jeff came to me after a few months and said, "Hey, we don't have any deal flow." I think we saw 125 deals our first year. He said, "I need someone to go build a business around sourcing deals. You've built businesses. Why don't you go do that?" I'm like, "Great idea."
And it's been a great run, so that was my circuitous story.
Sean Mooney:
No, I love that background and it's so fitting to where the world of private equity is going and the business of private equity is becoming a business finally. And you and I have been talking about this for-
David Hellier:
When you started BluWave, yeah.
Sean Mooney:
Way too long. Way too long, right?
David Hellier:
Yeah.
Sean Mooney:
And it's been happening or starting to happen elsewhere, but you all have been doing it since years and years and years ago. And what I love about your background is GE, you think about it, I think a lot of people here that maybe weren't around back then, they think of GE as like, "Oh, it's this conglomerate that's really kind of not around anymore." But GE was the academy of getting a business tutorship at the highest level for so many years, and so what a great foundation to start off.
David Hellier:
A great foundation. Again, the company Gates, that bought the GE division, basically the GE guys took that over and it was that background that permeated. Things like, "If you can manage it, you can measure it." I had a mentor, he always said, "I can manage good news, I can manage bad news, but I can't manage no news." And it's like, "No surprises. If it's bad, we'll deal with it." And it was just that focus on managing the business using data. We were one of the first companies outside of Motorola to put in Six Sigma in our manufacturing process. So to get exposed to that as a 24, 25, 26-year-old, when really, they didn't even have the concept of lean manufacturing at that point.
I think the other thing for me is just being involved in all those different businesses. You and I have talked about the business development role. I know two people in business development that have an operating background: myself and Matt Jones, who I just hired to work with me. He came from Uber. But to me, that's been a huge advantage because the ability to sit down with an industry banker and talk about why gross margin is important, talk about ERP systems, talk about how you manage a team or be able to sit down with the business owner like yourself and say, "Hey, I've been on that side of the table," it's really complimented and helped my partners and our team to be able to have that level of conversation. And we always talk about differentiation. That's differentiation in the marketplace.
Sean Mooney:
I think it very much is an ability to have, if anything, if you're going to say it's a business development or sale role, it's really a consultative role and it's a highly variable, highly complex, probably the most complex business development relationship you can think about, acquiring a company.
David Hellier:
Yeah, I agree. It's not transactional. I think a lot of people treat it transactionally and that doesn't lead to long-term relationships.
I think one of the things we say internally is you have to be genuine and you can't fake genuine. And that's a compliment that is at the highest possible level. It's about really knowing someone, whether it's the business owner, whether it's the investment banker, whether it's the provider that's helping your business and being genuinely interested in them as a person, finding those commonalities. And that, again, I think in as competitive an environment we live in, just being a real person goes a long way.
Sean Mooney:
Yeah, and I think that's why we've gotten along for so many years is you've got this kind of Karma School of Business mentality where it's do good things with and for good people and good things happen.
David Hellier:
Yeah, I agree.
Sean Mooney:
And that was the genesis of just the name of the podcast was just a saying I would use, and mainly because if it were up to me by myself, I would've spun out and gone into a ditch years ago, so you got to know how to work with people.
David Hellier:
I agree.
Sean Mooney:
And if you do that, you can just go so much further in life. It might not be the straightest path to Rome, but it's probably the most certain.
David Hellier:
I think you end up where you're supposed to be if you take that path.
Sean Mooney:
Absolutely. And that's this whole concept of life being a journey, not a destination.
We've peeled back a little bit of the onion. One of the questions I'd like to ask is, we would all know you a little better if we knew this about you. So what is a tidbit of trivia or a factoid on you that not everyone knows?
David Hellier:
I got to throw out the first pitch at a Major League baseball game. That was pretty cool.
Sean Mooney:
I did not know that.
David Hellier:
Yeah.
Sean Mooney:
When did that happen?
David Hellier:
Yeah, that's in my pocket. I was working with Iomega. Again, back then, we had a product called the Zip Drive, which was 100 megabytes versus a 1.44 megabyte floppy disk, so it was revolutionary. It was also when Microsoft rolled out Office Suite, so there was much bigger files being produced, so this thing took off.
Sean Mooney:
I remember the Zip Drive.
David Hellier:
It was really cool. So Ingram Micro was one of our biggest customers and a guy on our team, his best friend was the sponsorship salesman for the Anaheim Mighty Ducks, and oh, my gosh, who's the baseball team? The Mighty Ducks and the-
Sean Mooney:
Oh, Angels?
David Hellier:
Angels, sorry.
Sean Mooney:
Yeah.
David Hellier:
Those were Angels. So the scoreboard had two big things on the side. One, it was Toyota, UPS, Pepsi, and he had to sell another one. They were selling for like $2 million dollars and it was like just before the season and he had to sell one. So we bought it for $250,000.
Sean Mooney:
Oh my goodness.
David Hellier:
We got half the game tickets. But one of the things was to get to throw out the first pitch. So I was on the field with Jim Abbott and Rod Carew, and Jim Abbott had just gotten his Golden Glove Award and we're on the field. I got to throw out the first pitch. High strike, so that was pretty cool.
Sean Mooney:
So you hit, you hit the glove, if nothing.
David Hellier:
I hit the glove, I said, "It's either going over the backstop or it's going to be a strike." I did not bounce it up there.
Sean Mooney:
That was going to be my next question is did you get it over there?
David Hellier:
Yeah, did not bounce it up there. So that was a pretty cool experience.
Sean Mooney:
That must have been awesome. And then hopefully, someone got you a picture or something of it.
David Hellier:
There's like, I think I have a VHS videotape somewhere hidden, but the experience was cool.
Sean Mooney:
You have to find one of those social media ads that say, "Turn your VHS tapes into digital files."
David Hellier:
Yeah, go to Costco, right?
Sean Mooney:
Yeah, exactly.
David Hellier:
They have that service now.
Sean Mooney:
That's exactly right.
So one of the things that I think we've talked about over time, and I certainly appreciate about people like you is this idea that you can overcome adversity. And as I've reflected on my career in PE, I don't think I ever got to the end of an investment ownership period for reasons that I had in the model or our investment committee deck. And so things don't go the way you think they're going to do and it's really about what do you do about it versus sitting there and ringing your hands.
And so I'd be curious, David, what is maybe one of the times of trials and tribulations that you've had personally that was maybe a little tougher that you had to overcome?
David Hellier:
Yeah. I would say the biggest thing from a work standpoint or from a Bertram standpoint is I've been in this role 15 years this month, so it's the longest I've done anything. And the first few years were a lot of fun. You're traveling, you're going out and meeting new people. The hardest thing over the last five years is keeping it fresh and it's easy to sink back in this role and go, "Oh, I'm just going to go meet the same people."
I have a rule with my team, which is I never want our managing partner, Jeff, or my partners to ask a question that we haven't thought of already. And Jeff was pushing a few years ago. His question was, "How do we get out of sourcing deals? How do we get out of the auction process?" And I'm like, "We're never going to get out of the auction process." And I still believe that, but I really stepped back and took a challenge from him, which was great because it made me, pushed me to really think about how I can keep this role really relevant and super value-added back to my partners because that's where my responsibility lies. It's my team's responsibility is to my deal partners.
And at first, I didn't have an answer for Jeff. I'm like, "Nah, we just can't get out of this." And then I'm like, "There's got to be a different way."
So we decided, I met Grata, the guys at Grata, through ACG, and I'm like, "This is the first software solution I've seen in a long time that actually is interesting to me." And so I started playing around with it, hired an analyst, and he had a background at a family office where he basically put a technology stack together. And over the last year, we've figured out and built this technology stack along with getting some help with our Bertram Labs team, which we can talk more about, and we built a pretty interesting approach to really deep thematic sourcing with a very heavy-up technology base.
Now, is it absolutely differentiated? No. Can someone else build it? Maybe. But we built it for us and we've done three tests now and we're getting great results. I think the point is is that you can kind of sink back and go, "Okay, this is working, I'm just kind of doing the same old thing," or you can push yourself to innovate and really stay on the cutting edge of your industry and your function.
Again, that was a challenge. I took that really personally, like, "What are you talking about? We're great at sourcing deals. We'll stack up against anyone," but to have someone push you on that and really kind of call you out, in a good way, it's been a lot of fun doing that.
Sean Mooney:
I think that's insightful and kind of prescient in terms of a number of things is that I think back, I started in private equity in the late '90s, to super date myself, and it was just a whole different period there. And I remember, I would say, "Oh man, I wish I was 10 years older. These guys are all going to own islands," and I think most of them do now.
David Hellier:
Yeah, they probably do. There's a very good chance.
Sean Mooney:
And then 10 years later, I was like, "Ah, I wish."
David Hellier:
And you helped them on the island.
Sean Mooney:
Yeah, yeah. And then it was like 10 years later I was like, "Ah, I wish I was 10 years older."
But every time, I think people can look at the PE industry and they go, "Oh, is it maturing?" It's evolving and certainly it's maturing like industry does. But those who kind of understand what's happening and you treat it like a business and you start playing three to five moves ahead, it gets really exciting. And so I think where you're taking your business is really taking it to that next level and saying, "Okay, this is what it was. The industry's maturing. Let's think about this a business." And so I really applaud what you're doing there.
David Hellier:
Yeah. We do it with a... We were talking about this earlier. If you're worth your weight in salt, you're doing it with your portfolio companies you'll find. When I was at Iomega, we co-opted a saying from HP, which is, "If you don't eat your young, somebody else will," which means if you don't innovate, you're going to die.
Now, you might not die tomorrow, but I had a buddy who's like, "Well, we're differentiated. We have operating partners." I'm like, "Operating partners isn't differentiated." Now maybe find an angle around that, but we're in this period, everyone's complaining about multiples. Okay, yeah, it's interesting right now, but it's like prices are sticky and I still remember 2008, 2009, 2010, eight times was a lot to pay for business, right?
Sean Mooney:
Yeah.
David Hellier:
Ben Procter, if you didn't know Ben from Watermill, they buy hairier stuff. And I had this conversation with him with one of my partners. My partners complained like, "Man." This is mid-2012, 2013, 2014. He's like, "Man, 10 times? That's crazy." And I'm like, "Ben, tell him what you're paying for your hairy deals now versus five years ago." He goes, "We used to be paying three, four times, maybe five, and now we're paying six, seven times. Everything moved up."
So you got to figure out a way, and growth is a great way to do that. And if you can build a growthy model and you have growth on the backend for the next buyer so they see a path, you've got a pretty good chance.
Sean Mooney:
I love it. So we pass out four books to all the team members at BluWave when they join, and so one is Good to Great, two of them involve-
David Hellier:
Unbelievable, yeah.
Sean Mooney:
Two involve more lean concepts, so the Lean Startup and The Goal. But the fourth one is probably one of my favorites. It's called Who Moved My Cheese? and it's just this great parable about life and change and it's like a 30-page book, but it's this whole idea that the world's changing and you can get upset and just stew about it or you just go and find the cheese when they move it to a different part of the maze.
David Hellier:
Agreed.
Sean Mooney:
That's what you all are doing. And maybe with that in mind, I'd love to hear about how you all are approaching value creation. You're doing some really innovative stuff with Bertram Labs.
David Hellier:
As I said, when we first started chatting, when Jeff and I, when I first talked with Jeff Drazen about the firm, it was "We're going to buy a ball bearings company and tech-enable it." And so for the first, close to 2010, we would outsource that, the technology enablement. And we had some good situations and bad situations, but what we finally got to was we need to control this, and the only way we're going to control this and manage cost and time and focus is if we build it ourselves.
And the first one we did that with was a company called Spirion. Spirion was a telematics business that tracked cars and fleets, so there was an automotive component, but then there was like if you had a 200 plumbing truck fleet, you needed to know where your drivers were, idle time, are they at the right place? Are they not at the right place? It also was with buy here, pay here cars. So those guys have to manage their inventory, so they want to know did the guy that I just made the loan to, was he at work?
We had two disparate SaaS systems. The teams were good engineering teams but didn't have the capability to integrate them and make a bigger system. So we said, "You guys just keep maintaining that." And we hired a guy named Brian Wheeler, a very talented programmer architect who was friends with Jeff, and asked Brian to come on and help us with this. And Brian and the team, he hired a team. We built this complex SaaS solution that so surpassed the two things we had. It moved as much data in a day as Twitter moves, so super high-volume, and we built this machine. We eventually exited to Greenbrier and it's a really interesting business.
So we just said, "We are going to, as a management team, management company, invest in this." So we've now built a 15-person team and our team members, they could work for Meta, they could work for Alphabet, they could work for Microsoft, they could work for anyone. So we always go for the top programmers, but they're working on different projects all the time.
And so about two-thirds of the team work on software deployment, software development, so we'll create original programming or we'll modify programming. We do a lot around ERP deployment, which is always critical. You might hire a big consulting firm, it might take them five years and $10 or $15 million. We'll do it in 18 months and $2 million of cost. All of our portfolio companies opt into it. They don't have to use it, but they quickly see the value, and our team only works for our portfolio companies.
The other third of our team is run by a guy named Tom Long and it's all around internet-related services. We'll build websites, we run literally over $100 million in marketing spend and we'll help build out the team. So we're doing all-
Sean Mooney:
It's like a digital agency.
David Hellier:
Basically, it is an in-house digital agency. We do a lot around business intelligence and dashboarding so that they can understand the company. We're adding significant value, not just value though, but it's stuff that the next buyer doesn't have to have the headache of so they can focus on growth. The way I describe it is they're driving top-line growth and they're improving gross margin through the activities that they're taking.
The challenge, I've heard other firms try to look at it, but it takes a lot of money and it takes a lot of guts to invest in that. And Jeff said, as the CEO of our firm, he's like, "We need to invest in this," and all the partners were behind it and that meant some sacrifice, but at the end, we're building better businesses, we connect better with management teams and we're selling a better product at the end of the day.
Sean Mooney:
I love that. And that's something that I've been kind of talking about both internally within our firm but also past firms. It's like the business of private equity needs to be a business, and that's how you're running your firm. You're going to make investments in operational capabilities. So you've got sales and marketing, you've got back office internal, you've got your own kind of operational activities that add true value.
David Hellier:
And measurable value. It's a lot of fun. The team is great. It's not that they're a separate team, they're an integrated part of the firm, they're involved in everything that we do. So it's all one firm and it's exciting to see how they've grown. Again, it's a huge asset in sourcing opportunities because when we meet with management teams, we bring our leaders from Bertram Labs in and they're basically doing ideation on the spot with these guys. "Well, have you thought about this? Could you do that? What problem are you trying to solve there?"
Literally, we had a business called Registrar. It was a FDA compliance software business. Some guys spun out of the FDA. When the Food Safety Enforcement Act went into place, what it said was anybody exporting food to the United States had to register with the FDA, so it was a very labor-intensive effort. And so they created some software, some SaaS software. When we met the management team, they're like, "Wow, you can really help us."
Well, one problem they had was on renewals, you had to go... Basically, we would hire people that would go in and manually check boxes for each of the clients. And one of the guys on our team in the meeting said to the manager team, "Give me a week. I can fix this." Literally in a week, he came up with a script that automated the entire process so we didn't have to hire temporary people to do this work. We automated it and created a much more seamless solution. He did it in a week and it was game-changing for this firm and no one thought about that as a possibility.
And that's the other thing. It helps us think about possibilities that you otherwise wouldn't have. So maybe you're in a competitive process, maybe you need to stretch a turn or so. Well, guess what? If you have that visibility that says, "I know I can fix this with this," it gives you a lot more confidence to do it.
Sean Mooney:
It's the art of PE now. It's not what the company is, it's what it could or should be and will be.
David Hellier:
It's Gretzky and the puck.
Sean Mooney:
Yeah, go to where the puck's going.
David Hellier:
Go to where the puck's going to be.
Sean Mooney:
100% and I think that's spot on. These tools that you're talking about are just one, with the first generation or the second or maybe third generation of software companies, the productivity enhancements that are underway, now you've got all these large language models that are coming out, these AI tools, we're going to see a productivity bump the likes of what we haven't seen since the late '90s with the internet.
David Hellier:
Definitely agree.
Sean Mooney:
It's probably a little too early to put you on the spot because they're all developing, but maybe six months from now, unless you have a perspective.
David Hellier:
No. Look, we view it as a tool. We've been deep after it. From our perspective, any technology tool that helps improve the business, we're going to try to leverage to the best benefit of our businesses.
Sean Mooney:
It's really interesting. BluWave, I've always thought as almost like the skunk works I wish I could have played with when I was in PE, and so we do a lot of the things that I was like, "I wish we could have done this stuff." And so just like you say, you spend everything we can to have robots do everything. It's push button once and then everything else happens. It's using data. So you go around our office, we have dashboards everywhere that shows what matters.
David Hellier:
Yeah. Our guys, we owned that business Solo Stove, which you knew about, which was-
Sean Mooney:
Yeah, I'm a proud owner. It's great.
David Hellier:
Thank you, thank you. We appreciate that. Several of my private equity buddies were incredible salespeople for Solo Stove. I thank them. But they were starting to really grow, but they had no way to control the product environment and know where things are, so we did very comprehensive dashboarding for the product teams and for the customer acquisition teams so they knew where everything was at any one time, and we knew where it was simultaneously so we could have real conversations and kind of course correct in real time like you guys see, because again, I love the GE's, "If you can measure it, you can manage it." If you don't know what it's doing, how do you... The gut works only so far.
Sean Mooney:
And I think as you think about the business owners and leaders that listen to this, that's, I think, an incredibly impactful point that any company can and should be doing, if they're not, they better get going real quick is everyone, no matter what your budget, you can afford Snowflake and you can afford Tableau or Power BI.
David Hellier:
Agreed.
Sean Mooney:
The hard part is knowing what are the three to five measures that matter versus having literally the Tableau with 100 screens.
David Hellier:
Agreed. I do agree.
Sean Mooney:
But I think that's something that anyone who listens to this should take to heart, and candidly, I think PE firms should have dashboards and the like of their own business in their company.
David Hellier:
Yeah. We made a conscious decision. We were one of the very first firms in private equity that put in Salesforce and we built out all of our own reporting. We've looked at other solutions and there's some very elegant solutions, but they're like two, three X what we're paying for Salesforce. So I went back to our labs guys, our data analytics guy, our PhD and data analytics, and he integrated with Google, not Google Analytics, but I forget the Google. And we're like, "We're getting so deep, we've got so much data."
And now my big thing is we have been very actionable on the data; I want to get really smart and even more actionable on the data. And so that's a huge effort for us right now and my team is you got 10, 15,000 deals in there, you got a lot of knowledge around that, how do we keep leveraging that? How do we leverage understanding things that have moved deal flow over the past 15 years? So we're really digging into that and trying to use predictive analytics just to give us a better sense and a better read. I can survey all the investment bankers, say, "What do you think? What are you seeing?" But we're also able to start using data to look at similar trends. That's another thing that's pretty exciting.
Sean Mooney:
I'll tell you, it's amazing how quickly these things are developing. And so the last, call it five years, every year I'd call the machine learning AI, they weren't calling it AI back then, groups saying, "Is it ready for a mere mortal?" And every year, it was, "No, you've got to have a Google budget. You got to have a then-Facebook budget." And every year, they would say, "No, no, no." I called last summer, and they go, "Yes." And I said, "What?"
David Hellier:
I'm in.
Sean Mooney:
But we had been capturing all of the data, and we're really a data business, so all of our data knowing that Alexa was going to be smart enough someday, and last summer, said yes so that we got it going. And so now we're building these recommendation engines. When they started, we really got going in the beginning of this year with the first iterations of a first MVP product and they're like 25% right January 1. Go to May, we're 75% right.
David Hellier:
That's amazing, isn't it?
Sean Mooney:
And we'll be 85% and 95% and 99% right in terms of-
David Hellier:
So you built the base, and now you're iterating.
Sean Mooney:
Yeah. And you just keep on getting better. But we're kind of the size of one of my portfolio companies when I was in PE and that's a lower middle-market company, but we can afford these things, and so these tools are addressable to mere mortals now.
And I think one of the lessons I take from what you all are doing is that anyone with the gumption and the forward vision to do it can and should be doing it, and not to be daunted by it, but start with what you're talking about as well. Start with the data and the analytics and the visuals or just data visualization and then learn to run. And so I think that's absolutely phenomenal.
David Hellier:
It's fun and it keeps you on your toes, it keeps things fresh, and it keeps you excited every single day. And that's the key is you got to be excited about what you do.
Sean Mooney:
Absolutely, 100%.
And so David, one of the things that you think about right now is it's like this churn, it pervades, fear. You've got a mini-banking crisis that's not quite '08, knock on wood, but not yet I mean.
David Hellier:
Definitely knock on wood.
Sean Mooney:
I've been saying it's like the banking crisis of '08 were black swans and these huge effects that came through, and this is more of butterfly effects that are rippling across.
David Hellier:
We hope.
Sean Mooney:
Yeah, exactly. We'll tell. We shall see very soon. But there's a lot going on in the world right now and I'd be curious, how are you all thematically engaging with your portfolio companies to respect the time we're in, but also find pockets of opportunity?
David Hellier:
So one of the things we... The firm was found in '06. We did our first couple deals in '07 and going into '08, so we started in the depths. I have four deal lead partners. We were all VPs at the time, so it was really Jeff Drazen, and our managing partner, that was really driving a lot. And the good news is Jeff had experience going through some cycles and two things he imparted on the team, one was a relentless focus on growth. We have to grow businesses to be successful. The other one was, if things are down, let's put our foot on the accelerator and be ready to come out the other side.
So we started to learn about getting good at add-ons. Again, a lot of us are focusing on that, but having the roadmap and going after that. Investing in sales and marketing heavy because you're going to come out the other side and you want to be able to capture that. So I think the willingness to accept the level of risk to invest in a business that you know is going to come out the other side, if you did your homework, you feel good about the end markets you're serving the TAM, all the things that make a good investment, but you have a confidence that that market's going to be there, having the guts to go after it is, I think, important. And we've been really good at doing that.
I think just my partners, after so many reps that they've had, just the confidence that they have working with their management teams together to give the management team confidence and support to work through it, sometimes you got to pull back a hair here and there, sometimes you got to be pushing forward, but I think just having the trust, not pressing down, but having dialogue and trust between the two so that you can make good decisions based on market intelligence, data, and not fear of reciprocity or whatever.
So those are qualitative, but I think those all go together to help you navigate some choppy waters.
Sean Mooney:
I love that perspective. And one of the things I always really appreciate about private equity is the industry does its best when times are worst and there's a whole variety of economic reasons why. One, even just think about the basics in private equity. The average return is going to be one and a half to three times your money, so you can't lose money on any deal.
David Hellier:
Right, ever.
Sean Mooney:
So when tough times come, private equity swoops in, and we see this in our data. It's really interesting. One of the fascinating things, we have more than 500 PE firms feeding project needs into this machine that we've built, and we get to see the world as it unfolds in real time.
David Hellier:
In real time, yeah.
Sean Mooney:
And when we have this thing called the BluWave Value Creation Index, and you just see value creation activity spiking when the economy gets soft, where the private equity industry just swarms their companies. And at first, it's about safety and security and Maslow's hierarchy, the base level. But then you go, "All right, we've battened down the hatches, now let's go find opportunity." And this whole data-centric approach that you all is exactly how it's done well.
David Hellier:
Yeah. Again, it's definitely played out that way for us.
Sean Mooney:
From this vantage for me, it's been really fun to watch from the cheap seats to see all these kind of practioners-
David Hellier:
We've talked about it for a long time, yeah.
Sean Mooney:
See the best of the best doing it in real life. And every day, I kind of look at the data, I'm like, "This is amazing." It's like, "This is how it works." Right?
David Hellier:
Exactly.
Sean Mooney:
There's been a lot of research that shows that PE does best and they think it's, "Oh, it's because they borrowed debt," and it's 100% not.
David Hellier:
Talk about the markets right now. It goes back to 30 years ago, the LBO model worked. Today, if it's not combined with an aggressive or a thoughtful growth approach, it's really tough to stay in the mix.
Sean Mooney:
Yeah. And that's another really good point. I think people tend to have this perspective that you cut your way through a recession and you are 1000% right that you've got to grow your way through it.
David Hellier:
Or at least tee-up your business so that as it comes out, you're not scrambling to grow; you're prepared and engaged to grow. I think that's the nuance in it.
Look, when someone else is cutting, there's really good salespeople out there, there's really good marketing people out there, it's a great time to find talent and add it and be able to pursue the opportunities as soon as they start to kind of unveil themselves to you or to your business.
Sean Mooney:
Yeah, yep. That's another great perspective in that I think as the business owners and business builders and CEOs and CFOs who are listening to this, in a typical world, a recession comes every six to eight, six to nine years, at least. And then we went into this kind of post-Bernanke Fed period where they say, "Thou shalt never be another recession" by doing all gas, no breaks.
David Hellier:
Yeah, yeah. And then reality hits.
Sean Mooney:
Yeah. And now we're dealing with it. But when you get into these, they also typically last six to 18 months, and so this too shall pass so start playing for the afterlife that's coming through this.
David Hellier:
Agreed, agreed.
Now look, we feel very fortunate. You pick your spots, you focus on what you do well, you execute and learn from it. And we call it muscle memory. Our team will read 1,000 books in a year. They're voracious readers and learners and it's about understanding and finding those muscle memory to repeat what you do well and try not to repeat what you didn't do as well.
Sean Mooney:
Absolutely. And if you were like me, you'd learn every lesson three times, but by the fourth time, I've figured it out.
David Hellier:
Yeah, and you've got lumps in your head.
Sean Mooney:
Now, I've got it. Exactly.
David Hellier:
Oh my gosh.
Sean Mooney:
We've known each other a long time and I think one of the things I appreciate, you like life hacks and gizmos and gadgets and things like that, and I'm always looking for these things in part because it's just like, how do you make your life a little bit easier when you've got a really crazy, hectic life? And so I'm always doing these things and I'll write this email that I send out to people. I share my little gizmos and gadgets and now it's been incredibly empowering for me because I tell my wife, "Well, I got to buy all this Amazon stuff because I got to write an email in a month about it."
David Hellier:
Yeah, exactly. Exactly.
Sean Mooney:
She's telling me, "The madness needs to stop." But I'd be curious, do you have any kind of life hacks or gizmos and gadgets that you use?
David Hellier:
One is the stupidest thing, but I'm so focused on it. I always put my cream in my coffee cup first because then I don't have to stir anything, I didn't have to wash a spoon, and I'm super more efficient. It's like cream goes in first, then the coffee, it's pre-stirred, you're ready to go. It's the simplest thing.
Sean Mooney:
That's simply brilliant, actually.
David Hellier:
It's so easy.
Sean Mooney:
I never thought about it.
David Hellier:
Wait a minute, you had to stop again to do the stir, then you had to throw it away or clean it off. Didn't cause any environmental... Like, "No stirrers were harmed in the making of this coffee."
Sean Mooney:
That is simply and elegantly brilliant.
David Hellier:
I figured that one out a little while ago.
Sean Mooney:
That's good, a game-changer.
David Hellier:
Super efficient. I can get to the end of the coffee line pretty quick.
Sean Mooney:
That is amazing.
David Hellier:
Plus you're reversed too. So you're hitting the cream and then you're ready to go.
Sean Mooney:
Yeah. And do you guys use a Keurig or an espresso or something like that?
David Hellier:
At home, we're definitely a build-a-pot because it's constant and I just want it on-demand. Yes, so we're brewing and let it percolate and it's always there.
Sean Mooney:
Now, the question is, would you take it to even the next level and put it in the pot, or would that get you trouble with your significant other?
David Hellier:
No, I think you get... Yeah. Well, yeah, because she's definitely flavored. I am now an oat milk guy, so I will go half-and-half sometimes if I'm going to splurge. But you've got to leave freedom of choice for the rest of the community. But from an efficiency life hack standpoint, cream or creamer or flavor goes first.
Sean Mooney:
That's brilliant. I'm going to use it today.
All right, David. Well, this has been incredibly generous of you to spend time with us.
David Hellier:
Very generous of you to create the platform, so thank you.
Sean Mooney:
Oh, well, thank you. This has been a ton of fun.
David Hellier:
Absolutely.
Sean Mooney:
Thanks, David.
Special thanks to David for joining. If you'd like to learn more about David and Bertram Capital, please see the episode notes. That's all we have for today.
For more information on this podcast and BluWave, go to bluwave.net/podcast. That's B-L-U-W-A-V-E. Please continue to look for us anywhere you find your favorite podcast, 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.
Welcome to the Karma School of Business Podcast. In this episode, we have an awesome conversation with my longtime friend, David Hellier, Partner with Bertram Capital.
This episode is brought to you today by BluWave. I'm Sean Mooney, BluWave's Founder and CEO. BluWave is the go-to expert of those with expertise. BluWave 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.
I'm really excited to have my friend David Hellier on. David, it's great to see you in real life.
David Hellier:
It's great to see you in real life. I grew my hair out just for you.
Sean Mooney:
It's amazing. If only all of us could be so lucky to have your head of hair.
David Hellier:
Yeah.
Sean Mooney:
There's a lot of jealousy around town these days.
David Hellier:
Or pity. It could be pity too.
Sean Mooney:
I don't know. I'm in the jealousy camp. Any hair follicle I have is a good one.
David Hellier:
I appreciate that.
Sean Mooney:
So it's great having you here. We've known each other for a long time.
David Hellier:
Long time.
Sean Mooney:
More than we're going to date ourselves on.
David Hellier:
We have the gray hair to prove it.
Sean Mooney:
Exactly, exactly. We both appreciate that the gray ones are the loyal ones.
David Hellier:
I think that's well-said.
Sean Mooney:
The brown ones are traitors aside, nothing good to say about them.
I'm so glad you agreed to do this and what we're going to do is have just a great conversation about the PE industry, what's happening, what's changed. A little bit about you, and I'd love to start there. One of the things that I think everyone would be really interested in is understanding more about your background, what brought you into private equity, and a lot of people have different paths and that's the beauty of this industry. What was your journey into PE?
David Hellier:
So first, thank you. I appreciate the opportunity. It's always great hanging out. Given the distance now that we have, it's not always as easy, but it's always good being in the same place at the same time.
I had a very circuitous route. I finished my Masters in Economics at the University of Florida, go Gators, in 1988, which was right after the '87 stock market crash. For most of you out there, you might have to go research that on Wikipedia, which meant there were no jobs in finance after that. So it was about being creative and pivoting. My resume was the last page of the MBA book because they didn't know where to put a Master of Arts in Economics major and there was a business in Gainesville, Florida that was the first division of General Electric that Jack Well spun out, and they were a buyout by a privately held business out of Colorado and they were looking for someone in product management to do competitive analysis.
So my resume, I needed a job, I was in Gainesville, wasn't expensive to live there, so I took it and I got seven years of training with GE guys, which was phenomenal and really learned a lot and got to check off a lot of boxes, but it wasn't in finance.
I took a circuitous route, I did that, I was with a company called Iomega. We made a thing called the Zip Drive. It was unbelievable. We had one of the highest appreciations in a single year on NASDAQ ever. That was a lot of fun. Then I did a startup called Ask Jeeves where I ran marketing, so I got involved with the internet very, very early on. We got to do a lot of innovative stuff there. Tried another startup, which was kind of a precursor to YouTube. As with a lot of startups, didn't work out. Moved back to Florida and started a little marketing consulting business and I got involved with the company that grew diamonds above the ground. This is going to lead to private equity.
And so I was running this business early stage. We grew diamonds above the ground. It was really cool technology, incubated at the University of Florida, and we needed to raise money, so I presented at a couple conferences and there was a firm called Sierra Ventures out of Silicon Valley and there was a guy named Jeff Drazen and he was one of the partners, and I got introduced to Jeff. We hit it off right away and it was amazing. He understood what we needed to do. I said, "I'm either winning with you or I'm out of a job." We had a 10-person board. The vote was nine to one to take money from a car dealer that was friends with the board members, versus Jeff, and I was out of a job.
So I stayed in touch with Jeff and he said, "Look, I like the way you work." He goes, "I'm starting a private equity firm." And he said, "I'm going to need people to help run it. My view is I think I can..." Basically he said, "I want to take ball bearings companies and tech-enable them." And this was back in 2000... I started there in 2008, so this was 2007. And Jeff's view from day one was value creation, which as you know, no one was really thinking about value creation at that time, but he had a vision from day one basically to marry venture operating methodology, so really focusing on growth, with cashflow-positive businesses. Go imagine that.
So he said, "Hey, why don't you come on board as an operating partner?" So I started with Bertram as an operating partner. So I fulfilled, after 21 years, a full circle into finance and my original effort was going to be around finding a business for me to run. But very quickly what Jeff and the team realized was, in venture, all the deals come to you. They need the money. In buyouts, you got to go find it. And this was kind of the early beginnings of business development. Jeff came to me after a few months and said, "Hey, we don't have any deal flow." I think we saw 125 deals our first year. He said, "I need someone to go build a business around sourcing deals. You've built businesses. Why don't you go do that?" I'm like, "Great idea."
And it's been a great run, so that was my circuitous story.
Sean Mooney:
No, I love that background and it's so fitting to where the world of private equity is going and the business of private equity is becoming a business finally. And you and I have been talking about this for-
David Hellier:
When you started BluWave, yeah.
Sean Mooney:
Way too long. Way too long, right?
David Hellier:
Yeah.
Sean Mooney:
And it's been happening or starting to happen elsewhere, but you all have been doing it since years and years and years ago. And what I love about your background is GE, you think about it, I think a lot of people here that maybe weren't around back then, they think of GE as like, "Oh, it's this conglomerate that's really kind of not around anymore." But GE was the academy of getting a business tutorship at the highest level for so many years, and so what a great foundation to start off.
David Hellier:
A great foundation. Again, the company Gates, that bought the GE division, basically the GE guys took that over and it was that background that permeated. Things like, "If you can manage it, you can measure it." I had a mentor, he always said, "I can manage good news, I can manage bad news, but I can't manage no news." And it's like, "No surprises. If it's bad, we'll deal with it." And it was just that focus on managing the business using data. We were one of the first companies outside of Motorola to put in Six Sigma in our manufacturing process. So to get exposed to that as a 24, 25, 26-year-old, when really, they didn't even have the concept of lean manufacturing at that point.
I think the other thing for me is just being involved in all those different businesses. You and I have talked about the business development role. I know two people in business development that have an operating background: myself and Matt Jones, who I just hired to work with me. He came from Uber. But to me, that's been a huge advantage because the ability to sit down with an industry banker and talk about why gross margin is important, talk about ERP systems, talk about how you manage a team or be able to sit down with the business owner like yourself and say, "Hey, I've been on that side of the table," it's really complimented and helped my partners and our team to be able to have that level of conversation. And we always talk about differentiation. That's differentiation in the marketplace.
Sean Mooney:
I think it very much is an ability to have, if anything, if you're going to say it's a business development or sale role, it's really a consultative role and it's a highly variable, highly complex, probably the most complex business development relationship you can think about, acquiring a company.
David Hellier:
Yeah, I agree. It's not transactional. I think a lot of people treat it transactionally and that doesn't lead to long-term relationships.
I think one of the things we say internally is you have to be genuine and you can't fake genuine. And that's a compliment that is at the highest possible level. It's about really knowing someone, whether it's the business owner, whether it's the investment banker, whether it's the provider that's helping your business and being genuinely interested in them as a person, finding those commonalities. And that, again, I think in as competitive an environment we live in, just being a real person goes a long way.
Sean Mooney:
Yeah, and I think that's why we've gotten along for so many years is you've got this kind of Karma School of Business mentality where it's do good things with and for good people and good things happen.
David Hellier:
Yeah, I agree.
Sean Mooney:
And that was the genesis of just the name of the podcast was just a saying I would use, and mainly because if it were up to me by myself, I would've spun out and gone into a ditch years ago, so you got to know how to work with people.
David Hellier:
I agree.
Sean Mooney:
And if you do that, you can just go so much further in life. It might not be the straightest path to Rome, but it's probably the most certain.
David Hellier:
I think you end up where you're supposed to be if you take that path.
Sean Mooney:
Absolutely. And that's this whole concept of life being a journey, not a destination.
We've peeled back a little bit of the onion. One of the questions I'd like to ask is, we would all know you a little better if we knew this about you. So what is a tidbit of trivia or a factoid on you that not everyone knows?
David Hellier:
I got to throw out the first pitch at a Major League baseball game. That was pretty cool.
Sean Mooney:
I did not know that.
David Hellier:
Yeah.
Sean Mooney:
When did that happen?
David Hellier:
Yeah, that's in my pocket. I was working with Iomega. Again, back then, we had a product called the Zip Drive, which was 100 megabytes versus a 1.44 megabyte floppy disk, so it was revolutionary. It was also when Microsoft rolled out Office Suite, so there was much bigger files being produced, so this thing took off.
Sean Mooney:
I remember the Zip Drive.
David Hellier:
It was really cool. So Ingram Micro was one of our biggest customers and a guy on our team, his best friend was the sponsorship salesman for the Anaheim Mighty Ducks, and oh, my gosh, who's the baseball team? The Mighty Ducks and the-
Sean Mooney:
Oh, Angels?
David Hellier:
Angels, sorry.
Sean Mooney:
Yeah.
David Hellier:
Those were Angels. So the scoreboard had two big things on the side. One, it was Toyota, UPS, Pepsi, and he had to sell another one. They were selling for like $2 million dollars and it was like just before the season and he had to sell one. So we bought it for $250,000.
Sean Mooney:
Oh my goodness.
David Hellier:
We got half the game tickets. But one of the things was to get to throw out the first pitch. So I was on the field with Jim Abbott and Rod Carew, and Jim Abbott had just gotten his Golden Glove Award and we're on the field. I got to throw out the first pitch. High strike, so that was pretty cool.
Sean Mooney:
So you hit, you hit the glove, if nothing.
David Hellier:
I hit the glove, I said, "It's either going over the backstop or it's going to be a strike." I did not bounce it up there.
Sean Mooney:
That was going to be my next question is did you get it over there?
David Hellier:
Yeah, did not bounce it up there. So that was a pretty cool experience.
Sean Mooney:
That must have been awesome. And then hopefully, someone got you a picture or something of it.
David Hellier:
There's like, I think I have a VHS videotape somewhere hidden, but the experience was cool.
Sean Mooney:
You have to find one of those social media ads that say, "Turn your VHS tapes into digital files."
David Hellier:
Yeah, go to Costco, right?
Sean Mooney:
Yeah, exactly.
David Hellier:
They have that service now.
Sean Mooney:
That's exactly right.
So one of the things that I think we've talked about over time, and I certainly appreciate about people like you is this idea that you can overcome adversity. And as I've reflected on my career in PE, I don't think I ever got to the end of an investment ownership period for reasons that I had in the model or our investment committee deck. And so things don't go the way you think they're going to do and it's really about what do you do about it versus sitting there and ringing your hands.
And so I'd be curious, David, what is maybe one of the times of trials and tribulations that you've had personally that was maybe a little tougher that you had to overcome?
David Hellier:
Yeah. I would say the biggest thing from a work standpoint or from a Bertram standpoint is I've been in this role 15 years this month, so it's the longest I've done anything. And the first few years were a lot of fun. You're traveling, you're going out and meeting new people. The hardest thing over the last five years is keeping it fresh and it's easy to sink back in this role and go, "Oh, I'm just going to go meet the same people."
I have a rule with my team, which is I never want our managing partner, Jeff, or my partners to ask a question that we haven't thought of already. And Jeff was pushing a few years ago. His question was, "How do we get out of sourcing deals? How do we get out of the auction process?" And I'm like, "We're never going to get out of the auction process." And I still believe that, but I really stepped back and took a challenge from him, which was great because it made me, pushed me to really think about how I can keep this role really relevant and super value-added back to my partners because that's where my responsibility lies. It's my team's responsibility is to my deal partners.
And at first, I didn't have an answer for Jeff. I'm like, "Nah, we just can't get out of this." And then I'm like, "There's got to be a different way."
So we decided, I met Grata, the guys at Grata, through ACG, and I'm like, "This is the first software solution I've seen in a long time that actually is interesting to me." And so I started playing around with it, hired an analyst, and he had a background at a family office where he basically put a technology stack together. And over the last year, we've figured out and built this technology stack along with getting some help with our Bertram Labs team, which we can talk more about, and we built a pretty interesting approach to really deep thematic sourcing with a very heavy-up technology base.
Now, is it absolutely differentiated? No. Can someone else build it? Maybe. But we built it for us and we've done three tests now and we're getting great results. I think the point is is that you can kind of sink back and go, "Okay, this is working, I'm just kind of doing the same old thing," or you can push yourself to innovate and really stay on the cutting edge of your industry and your function.
Again, that was a challenge. I took that really personally, like, "What are you talking about? We're great at sourcing deals. We'll stack up against anyone," but to have someone push you on that and really kind of call you out, in a good way, it's been a lot of fun doing that.
Sean Mooney:
I think that's insightful and kind of prescient in terms of a number of things is that I think back, I started in private equity in the late '90s, to super date myself, and it was just a whole different period there. And I remember, I would say, "Oh man, I wish I was 10 years older. These guys are all going to own islands," and I think most of them do now.
David Hellier:
Yeah, they probably do. There's a very good chance.
Sean Mooney:
And then 10 years later, I was like, "Ah, I wish."
David Hellier:
And you helped them on the island.
Sean Mooney:
Yeah, yeah. And then it was like 10 years later I was like, "Ah, I wish I was 10 years older."
But every time, I think people can look at the PE industry and they go, "Oh, is it maturing?" It's evolving and certainly it's maturing like industry does. But those who kind of understand what's happening and you treat it like a business and you start playing three to five moves ahead, it gets really exciting. And so I think where you're taking your business is really taking it to that next level and saying, "Okay, this is what it was. The industry's maturing. Let's think about this a business." And so I really applaud what you're doing there.
David Hellier:
Yeah. We do it with a... We were talking about this earlier. If you're worth your weight in salt, you're doing it with your portfolio companies you'll find. When I was at Iomega, we co-opted a saying from HP, which is, "If you don't eat your young, somebody else will," which means if you don't innovate, you're going to die.
Now, you might not die tomorrow, but I had a buddy who's like, "Well, we're differentiated. We have operating partners." I'm like, "Operating partners isn't differentiated." Now maybe find an angle around that, but we're in this period, everyone's complaining about multiples. Okay, yeah, it's interesting right now, but it's like prices are sticky and I still remember 2008, 2009, 2010, eight times was a lot to pay for business, right?
Sean Mooney:
Yeah.
David Hellier:
Ben Procter, if you didn't know Ben from Watermill, they buy hairier stuff. And I had this conversation with him with one of my partners. My partners complained like, "Man." This is mid-2012, 2013, 2014. He's like, "Man, 10 times? That's crazy." And I'm like, "Ben, tell him what you're paying for your hairy deals now versus five years ago." He goes, "We used to be paying three, four times, maybe five, and now we're paying six, seven times. Everything moved up."
So you got to figure out a way, and growth is a great way to do that. And if you can build a growthy model and you have growth on the backend for the next buyer so they see a path, you've got a pretty good chance.
Sean Mooney:
I love it. So we pass out four books to all the team members at BluWave when they join, and so one is Good to Great, two of them involve-
David Hellier:
Unbelievable, yeah.
Sean Mooney:
Two involve more lean concepts, so the Lean Startup and The Goal. But the fourth one is probably one of my favorites. It's called Who Moved My Cheese? and it's just this great parable about life and change and it's like a 30-page book, but it's this whole idea that the world's changing and you can get upset and just stew about it or you just go and find the cheese when they move it to a different part of the maze.
David Hellier:
Agreed.
Sean Mooney:
That's what you all are doing. And maybe with that in mind, I'd love to hear about how you all are approaching value creation. You're doing some really innovative stuff with Bertram Labs.
David Hellier:
As I said, when we first started chatting, when Jeff and I, when I first talked with Jeff Drazen about the firm, it was "We're going to buy a ball bearings company and tech-enable it." And so for the first, close to 2010, we would outsource that, the technology enablement. And we had some good situations and bad situations, but what we finally got to was we need to control this, and the only way we're going to control this and manage cost and time and focus is if we build it ourselves.
And the first one we did that with was a company called Spirion. Spirion was a telematics business that tracked cars and fleets, so there was an automotive component, but then there was like if you had a 200 plumbing truck fleet, you needed to know where your drivers were, idle time, are they at the right place? Are they not at the right place? It also was with buy here, pay here cars. So those guys have to manage their inventory, so they want to know did the guy that I just made the loan to, was he at work?
We had two disparate SaaS systems. The teams were good engineering teams but didn't have the capability to integrate them and make a bigger system. So we said, "You guys just keep maintaining that." And we hired a guy named Brian Wheeler, a very talented programmer architect who was friends with Jeff, and asked Brian to come on and help us with this. And Brian and the team, he hired a team. We built this complex SaaS solution that so surpassed the two things we had. It moved as much data in a day as Twitter moves, so super high-volume, and we built this machine. We eventually exited to Greenbrier and it's a really interesting business.
So we just said, "We are going to, as a management team, management company, invest in this." So we've now built a 15-person team and our team members, they could work for Meta, they could work for Alphabet, they could work for Microsoft, they could work for anyone. So we always go for the top programmers, but they're working on different projects all the time.
And so about two-thirds of the team work on software deployment, software development, so we'll create original programming or we'll modify programming. We do a lot around ERP deployment, which is always critical. You might hire a big consulting firm, it might take them five years and $10 or $15 million. We'll do it in 18 months and $2 million of cost. All of our portfolio companies opt into it. They don't have to use it, but they quickly see the value, and our team only works for our portfolio companies.
The other third of our team is run by a guy named Tom Long and it's all around internet-related services. We'll build websites, we run literally over $100 million in marketing spend and we'll help build out the team. So we're doing all-
Sean Mooney:
It's like a digital agency.
David Hellier:
Basically, it is an in-house digital agency. We do a lot around business intelligence and dashboarding so that they can understand the company. We're adding significant value, not just value though, but it's stuff that the next buyer doesn't have to have the headache of so they can focus on growth. The way I describe it is they're driving top-line growth and they're improving gross margin through the activities that they're taking.
The challenge, I've heard other firms try to look at it, but it takes a lot of money and it takes a lot of guts to invest in that. And Jeff said, as the CEO of our firm, he's like, "We need to invest in this," and all the partners were behind it and that meant some sacrifice, but at the end, we're building better businesses, we connect better with management teams and we're selling a better product at the end of the day.
Sean Mooney:
I love that. And that's something that I've been kind of talking about both internally within our firm but also past firms. It's like the business of private equity needs to be a business, and that's how you're running your firm. You're going to make investments in operational capabilities. So you've got sales and marketing, you've got back office internal, you've got your own kind of operational activities that add true value.
David Hellier:
And measurable value. It's a lot of fun. The team is great. It's not that they're a separate team, they're an integrated part of the firm, they're involved in everything that we do. So it's all one firm and it's exciting to see how they've grown. Again, it's a huge asset in sourcing opportunities because when we meet with management teams, we bring our leaders from Bertram Labs in and they're basically doing ideation on the spot with these guys. "Well, have you thought about this? Could you do that? What problem are you trying to solve there?"
Literally, we had a business called Registrar. It was a FDA compliance software business. Some guys spun out of the FDA. When the Food Safety Enforcement Act went into place, what it said was anybody exporting food to the United States had to register with the FDA, so it was a very labor-intensive effort. And so they created some software, some SaaS software. When we met the management team, they're like, "Wow, you can really help us."
Well, one problem they had was on renewals, you had to go... Basically, we would hire people that would go in and manually check boxes for each of the clients. And one of the guys on our team in the meeting said to the manager team, "Give me a week. I can fix this." Literally in a week, he came up with a script that automated the entire process so we didn't have to hire temporary people to do this work. We automated it and created a much more seamless solution. He did it in a week and it was game-changing for this firm and no one thought about that as a possibility.
And that's the other thing. It helps us think about possibilities that you otherwise wouldn't have. So maybe you're in a competitive process, maybe you need to stretch a turn or so. Well, guess what? If you have that visibility that says, "I know I can fix this with this," it gives you a lot more confidence to do it.
Sean Mooney:
It's the art of PE now. It's not what the company is, it's what it could or should be and will be.
David Hellier:
It's Gretzky and the puck.
Sean Mooney:
Yeah, go to where the puck's going.
David Hellier:
Go to where the puck's going to be.
Sean Mooney:
100% and I think that's spot on. These tools that you're talking about are just one, with the first generation or the second or maybe third generation of software companies, the productivity enhancements that are underway, now you've got all these large language models that are coming out, these AI tools, we're going to see a productivity bump the likes of what we haven't seen since the late '90s with the internet.
David Hellier:
Definitely agree.
Sean Mooney:
It's probably a little too early to put you on the spot because they're all developing, but maybe six months from now, unless you have a perspective.
David Hellier:
No. Look, we view it as a tool. We've been deep after it. From our perspective, any technology tool that helps improve the business, we're going to try to leverage to the best benefit of our businesses.
Sean Mooney:
It's really interesting. BluWave, I've always thought as almost like the skunk works I wish I could have played with when I was in PE, and so we do a lot of the things that I was like, "I wish we could have done this stuff." And so just like you say, you spend everything we can to have robots do everything. It's push button once and then everything else happens. It's using data. So you go around our office, we have dashboards everywhere that shows what matters.
David Hellier:
Yeah. Our guys, we owned that business Solo Stove, which you knew about, which was-
Sean Mooney:
Yeah, I'm a proud owner. It's great.
David Hellier:
Thank you, thank you. We appreciate that. Several of my private equity buddies were incredible salespeople for Solo Stove. I thank them. But they were starting to really grow, but they had no way to control the product environment and know where things are, so we did very comprehensive dashboarding for the product teams and for the customer acquisition teams so they knew where everything was at any one time, and we knew where it was simultaneously so we could have real conversations and kind of course correct in real time like you guys see, because again, I love the GE's, "If you can measure it, you can manage it." If you don't know what it's doing, how do you... The gut works only so far.
Sean Mooney:
And I think as you think about the business owners and leaders that listen to this, that's, I think, an incredibly impactful point that any company can and should be doing, if they're not, they better get going real quick is everyone, no matter what your budget, you can afford Snowflake and you can afford Tableau or Power BI.
David Hellier:
Agreed.
Sean Mooney:
The hard part is knowing what are the three to five measures that matter versus having literally the Tableau with 100 screens.
David Hellier:
Agreed. I do agree.
Sean Mooney:
But I think that's something that anyone who listens to this should take to heart, and candidly, I think PE firms should have dashboards and the like of their own business in their company.
David Hellier:
Yeah. We made a conscious decision. We were one of the very first firms in private equity that put in Salesforce and we built out all of our own reporting. We've looked at other solutions and there's some very elegant solutions, but they're like two, three X what we're paying for Salesforce. So I went back to our labs guys, our data analytics guy, our PhD and data analytics, and he integrated with Google, not Google Analytics, but I forget the Google. And we're like, "We're getting so deep, we've got so much data."
And now my big thing is we have been very actionable on the data; I want to get really smart and even more actionable on the data. And so that's a huge effort for us right now and my team is you got 10, 15,000 deals in there, you got a lot of knowledge around that, how do we keep leveraging that? How do we leverage understanding things that have moved deal flow over the past 15 years? So we're really digging into that and trying to use predictive analytics just to give us a better sense and a better read. I can survey all the investment bankers, say, "What do you think? What are you seeing?" But we're also able to start using data to look at similar trends. That's another thing that's pretty exciting.
Sean Mooney:
I'll tell you, it's amazing how quickly these things are developing. And so the last, call it five years, every year I'd call the machine learning AI, they weren't calling it AI back then, groups saying, "Is it ready for a mere mortal?" And every year, it was, "No, you've got to have a Google budget. You got to have a then-Facebook budget." And every year, they would say, "No, no, no." I called last summer, and they go, "Yes." And I said, "What?"
David Hellier:
I'm in.
Sean Mooney:
But we had been capturing all of the data, and we're really a data business, so all of our data knowing that Alexa was going to be smart enough someday, and last summer, said yes so that we got it going. And so now we're building these recommendation engines. When they started, we really got going in the beginning of this year with the first iterations of a first MVP product and they're like 25% right January 1. Go to May, we're 75% right.
David Hellier:
That's amazing, isn't it?
Sean Mooney:
And we'll be 85% and 95% and 99% right in terms of-
David Hellier:
So you built the base, and now you're iterating.
Sean Mooney:
Yeah. And you just keep on getting better. But we're kind of the size of one of my portfolio companies when I was in PE and that's a lower middle-market company, but we can afford these things, and so these tools are addressable to mere mortals now.
And I think one of the lessons I take from what you all are doing is that anyone with the gumption and the forward vision to do it can and should be doing it, and not to be daunted by it, but start with what you're talking about as well. Start with the data and the analytics and the visuals or just data visualization and then learn to run. And so I think that's absolutely phenomenal.
David Hellier:
It's fun and it keeps you on your toes, it keeps things fresh, and it keeps you excited every single day. And that's the key is you got to be excited about what you do.
Sean Mooney:
Absolutely, 100%.
And so David, one of the things that you think about right now is it's like this churn, it pervades, fear. You've got a mini-banking crisis that's not quite '08, knock on wood, but not yet I mean.
David Hellier:
Definitely knock on wood.
Sean Mooney:
I've been saying it's like the banking crisis of '08 were black swans and these huge effects that came through, and this is more of butterfly effects that are rippling across.
David Hellier:
We hope.
Sean Mooney:
Yeah, exactly. We'll tell. We shall see very soon. But there's a lot going on in the world right now and I'd be curious, how are you all thematically engaging with your portfolio companies to respect the time we're in, but also find pockets of opportunity?
David Hellier:
So one of the things we... The firm was found in '06. We did our first couple deals in '07 and going into '08, so we started in the depths. I have four deal lead partners. We were all VPs at the time, so it was really Jeff Drazen, and our managing partner, that was really driving a lot. And the good news is Jeff had experience going through some cycles and two things he imparted on the team, one was a relentless focus on growth. We have to grow businesses to be successful. The other one was, if things are down, let's put our foot on the accelerator and be ready to come out the other side.
So we started to learn about getting good at add-ons. Again, a lot of us are focusing on that, but having the roadmap and going after that. Investing in sales and marketing heavy because you're going to come out the other side and you want to be able to capture that. So I think the willingness to accept the level of risk to invest in a business that you know is going to come out the other side, if you did your homework, you feel good about the end markets you're serving the TAM, all the things that make a good investment, but you have a confidence that that market's going to be there, having the guts to go after it is, I think, important. And we've been really good at doing that.
I think just my partners, after so many reps that they've had, just the confidence that they have working with their management teams together to give the management team confidence and support to work through it, sometimes you got to pull back a hair here and there, sometimes you got to be pushing forward, but I think just having the trust, not pressing down, but having dialogue and trust between the two so that you can make good decisions based on market intelligence, data, and not fear of reciprocity or whatever.
So those are qualitative, but I think those all go together to help you navigate some choppy waters.
Sean Mooney:
I love that perspective. And one of the things I always really appreciate about private equity is the industry does its best when times are worst and there's a whole variety of economic reasons why. One, even just think about the basics in private equity. The average return is going to be one and a half to three times your money, so you can't lose money on any deal.
David Hellier:
Right, ever.
Sean Mooney:
So when tough times come, private equity swoops in, and we see this in our data. It's really interesting. One of the fascinating things, we have more than 500 PE firms feeding project needs into this machine that we've built, and we get to see the world as it unfolds in real time.
David Hellier:
In real time, yeah.
Sean Mooney:
And when we have this thing called the BluWave Value Creation Index, and you just see value creation activity spiking when the economy gets soft, where the private equity industry just swarms their companies. And at first, it's about safety and security and Maslow's hierarchy, the base level. But then you go, "All right, we've battened down the hatches, now let's go find opportunity." And this whole data-centric approach that you all is exactly how it's done well.
David Hellier:
Yeah. Again, it's definitely played out that way for us.
Sean Mooney:
From this vantage for me, it's been really fun to watch from the cheap seats to see all these kind of practioners-
David Hellier:
We've talked about it for a long time, yeah.
Sean Mooney:
See the best of the best doing it in real life. And every day, I kind of look at the data, I'm like, "This is amazing." It's like, "This is how it works." Right?
David Hellier:
Exactly.
Sean Mooney:
There's been a lot of research that shows that PE does best and they think it's, "Oh, it's because they borrowed debt," and it's 100% not.
David Hellier:
Talk about the markets right now. It goes back to 30 years ago, the LBO model worked. Today, if it's not combined with an aggressive or a thoughtful growth approach, it's really tough to stay in the mix.
Sean Mooney:
Yeah. And that's another really good point. I think people tend to have this perspective that you cut your way through a recession and you are 1000% right that you've got to grow your way through it.
David Hellier:
Or at least tee-up your business so that as it comes out, you're not scrambling to grow; you're prepared and engaged to grow. I think that's the nuance in it.
Look, when someone else is cutting, there's really good salespeople out there, there's really good marketing people out there, it's a great time to find talent and add it and be able to pursue the opportunities as soon as they start to kind of unveil themselves to you or to your business.
Sean Mooney:
Yeah, yep. That's another great perspective in that I think as the business owners and business builders and CEOs and CFOs who are listening to this, in a typical world, a recession comes every six to eight, six to nine years, at least. And then we went into this kind of post-Bernanke Fed period where they say, "Thou shalt never be another recession" by doing all gas, no breaks.
David Hellier:
Yeah, yeah. And then reality hits.
Sean Mooney:
Yeah. And now we're dealing with it. But when you get into these, they also typically last six to 18 months, and so this too shall pass so start playing for the afterlife that's coming through this.
David Hellier:
Agreed, agreed.
Now look, we feel very fortunate. You pick your spots, you focus on what you do well, you execute and learn from it. And we call it muscle memory. Our team will read 1,000 books in a year. They're voracious readers and learners and it's about understanding and finding those muscle memory to repeat what you do well and try not to repeat what you didn't do as well.
Sean Mooney:
Absolutely. And if you were like me, you'd learn every lesson three times, but by the fourth time, I've figured it out.
David Hellier:
Yeah, and you've got lumps in your head.
Sean Mooney:
Now, I've got it. Exactly.
David Hellier:
Oh my gosh.
Sean Mooney:
We've known each other a long time and I think one of the things I appreciate, you like life hacks and gizmos and gadgets and things like that, and I'm always looking for these things in part because it's just like, how do you make your life a little bit easier when you've got a really crazy, hectic life? And so I'm always doing these things and I'll write this email that I send out to people. I share my little gizmos and gadgets and now it's been incredibly empowering for me because I tell my wife, "Well, I got to buy all this Amazon stuff because I got to write an email in a month about it."
David Hellier:
Yeah, exactly. Exactly.
Sean Mooney:
She's telling me, "The madness needs to stop." But I'd be curious, do you have any kind of life hacks or gizmos and gadgets that you use?
David Hellier:
One is the stupidest thing, but I'm so focused on it. I always put my cream in my coffee cup first because then I don't have to stir anything, I didn't have to wash a spoon, and I'm super more efficient. It's like cream goes in first, then the coffee, it's pre-stirred, you're ready to go. It's the simplest thing.
Sean Mooney:
That's simply brilliant, actually.
David Hellier:
It's so easy.
Sean Mooney:
I never thought about it.
David Hellier:
Wait a minute, you had to stop again to do the stir, then you had to throw it away or clean it off. Didn't cause any environmental... Like, "No stirrers were harmed in the making of this coffee."
Sean Mooney:
That is simply and elegantly brilliant.
David Hellier:
I figured that one out a little while ago.
Sean Mooney:
That's good, a game-changer.
David Hellier:
Super efficient. I can get to the end of the coffee line pretty quick.
Sean Mooney:
That is amazing.
David Hellier:
Plus you're reversed too. So you're hitting the cream and then you're ready to go.
Sean Mooney:
Yeah. And do you guys use a Keurig or an espresso or something like that?
David Hellier:
At home, we're definitely a build-a-pot because it's constant and I just want it on-demand. Yes, so we're brewing and let it percolate and it's always there.
Sean Mooney:
Now, the question is, would you take it to even the next level and put it in the pot, or would that get you trouble with your significant other?
David Hellier:
No, I think you get... Yeah. Well, yeah, because she's definitely flavored. I am now an oat milk guy, so I will go half-and-half sometimes if I'm going to splurge. But you've got to leave freedom of choice for the rest of the community. But from an efficiency life hack standpoint, cream or creamer or flavor goes first.
Sean Mooney:
That's brilliant. I'm going to use it today.
All right, David. Well, this has been incredibly generous of you to spend time with us.
David Hellier:
Very generous of you to create the platform, so thank you.
Sean Mooney:
Oh, well, thank you. This has been a ton of fun.
David Hellier:
Absolutely.
Sean Mooney:
Thanks, David.
Special thanks to David for joining. If you'd like to learn more about David and Bertram Capital, please see the episode notes. That's all we have for today.
For more information on this podcast and BluWave, go to bluwave.net/podcast. That's B-L-U-W-A-V-E. Please continue to look for us anywhere you find your favorite podcast, 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.
THE BUSINESS BUILDER’S PODCAST
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.
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.
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