Good Values and Work Ethic Win | Doug McCormick, HCI Equity Partners
At the end of the day, good values and work ethic win.
Welcome to BluWave's Karma School of Business. I'm Sean Mooney, the founder and CEO of BluWave, an intelligent B2B marketplace that is trusted by more than 500 of the world's leading private equity firms and thousands of proactive companies, connecting them with the very best resources they need to expertly assess opportunities and build value in their companies with speed and certainty. During this episode, we have a great interview with Doug McCormick, managing partner with HCI Equity Partners. Enjoy. Today, we are very fortunate to have an amazing guest, and our friend, Doug McCormick from HCI Equity Partners. Doug, thanks for joining us today.
Doug McCormick (00:44):
Hey Sean. Thanks for having me man. Appreciate it.
Sean Mooney (00:46):
Absolutely. You know, you've had one of these storied careers in private equity, starting at the U.S. Military Academy at West Point, business school, investment banking now being managing partner of a top private equity firm in the United States. Would be great to hear a little bit about you from your own words.
Doug McCormick (01:05):
Sure. I think you learn a lot about a person just from your personal experiences, so I'll kind of start there. I think the most formative experiences for me as a young person were wrestling in high school and college and attending the United States Military Academy. And I'm really grateful for those experiences because they gave me a broad perspective outside my central PA upbringing. And I think that the time in service gave me a chance to really develop some strong values and a chance to practice leadership at a very young age, in a relatively demanding environment. So I'm also married to my high school sweetheart, got married at age 23 and have been built in the family together for about 30 years now. I'm a proud empty nester, just watched my daughter graduate from Wake Forest earlier this summer. As life gets simpler, I seem to kick kids out of the house and collect dogs. So I've got three dogs now that I'm trying to take care of.
Doug McCormick (01:54):
Professionally, I think been pretty eclectic, as I mentioned, I spent some time in service, felt like that was a great experience and I kind of characterize it as an adventure. But ultimately concluded after a five year stint that it wasn't going to be a career for me. So back to business school at Harvard, fortunately Harvard embraces supporting military in that transition, spent some time at Morgan Stanley and then had been in the private equity business for the last 20 plus years.
Doug McCormick (02:19):
I joined a firm called Thayer Capital and then co-founded HCI a little more than 15 years ago. I guess I would summarize my private equity experience in saying I feel incredibly blessed to still be so passionate about the job and enjoy it. And the team I work with and humbled that after 20 years, I'm still learning. Those lessons continue to be very expensive, but that's what makes it so fun and interesting.
Sean Mooney (02:43):
There was an amazing amount of one of a kind of experiences there, packed into a very short period of time. One of the things I think intrigues me about some of the things you talked about is growing up in central Pennsylvania. It seems that there are a large number of highly successful people that come out of that area of the country. What is it about central Pennsylvania that kind of breeds excellence and just really good people?
Doug McCormick (03:09):
I'm not sure I know. But I think the older I get, the more I believe that life is pretty simple and things like good values and work ethic win. You know, there's that old saying success is 99% perspiration, 1% aspiration. And I think Pennsylvania people have a really hearty view of life and a strong work ethic.
Sean Mooney (03:29):
I was listening to a podcast with Aaron Rogers the other day and they said, how do you describe grit? And he essentially said, Pennsylvania.
Doug McCormick (03:39):
Hey, we know our football and our wrestling. That's for sure. That's for sure.
Sean Mooney (03:42):
As you think about your career to date, one of the things you talked about was being part of the United States Military Academy at West Point. What was it about your military background, West Point, that has served you well to date throughout your career?
Doug McCormick (03:59):
I often say I went to Harvard and I learned a lot of bad habits and I got enamored with the intellect of business, and then as I've practiced business for 30 years now, I certainly still respect the intellect business, but what I really appreciate is the leadership required to be successful in business. And I think that's where my experience has kind of come full circle. And the longer I'm in private equity, the more I'm in a management position, the more time I spend thinking about leadership, human capital, how to build world class teams, both at HCI, but also at our portfolio companies. I'm a big fan of the old African proverb, "if you want to go fast, go alone. If you want to go far, go together." And I think that represents my management and leadership philosophy.
Sean Mooney (04:43):
As you think about leaders, what are some of the characteristics of leaders and leadership that makes people successful in those roles?
Doug McCormick (04:51):
So I think one of the great things about leadership is it truly can be accomplished effectively in a lot of different ways. Like if you studied history and you looked at Eisenhower versus MacArthur. Very different leadership styles, but I think they all have a couple common themes. One is integrity. You got to be able to trust a leader. The second is authentic. You got to be authentic to yourself and you can't adopt somebody else's leadership style. And I think the third is just passion and I think passion is contagious. So if you do those three things and you demonstrate some competence, I think people follow you.
Sean Mooney (05:26):
That's very well said. When anyone comes into our office here, they see four things. They see team, values, win and grow. And one of the most important things we stress here at BluWave is this whole concept of values and integrity and this kind of growth showing passion. And it's the idea of also that you want to win and succeed. And I think you summed it up much more succinctly and excellently than what we try to convey here. And so, I think that's very well said.
Doug McCormick (05:51):
What I've watched with a bunch of the entrepreneurs we work with is that as a small business owner, the leader, the entrepreneur, the founder can be the keeper of culture and mission. And as you scale a business, that gets harder and harder to do. And so one of the things we spend a lot of time with, as we think about consolidation strategies, is how do you formalize, how do you ingrain a culture when the business started at 50 people or 50 million and is going to 5,000 people or 500 million? And so I just highlight that as it's a key element of one of our value creation strategies as we think about what we're doing from an investing perspective.
Sean Mooney (06:26):
I think that's an amazing point because every company goes through these plateaus and transitions over time. And it's so hard in some ways to keep the kernel of what made it amazing consistent through those transitions. Have you all learned any kind of best practices in terms of ways to maintain that culture as companies build and grow and ebb and flow?
Doug McCormick (06:45):
We're trying. There's always this healthy tension in our business between the rigor that comes from standardization and systemizing things versus the art of leadership and private equity. We often joke if this was paid by the numbers, you know, everybody could do it. And so I don't know that we have a standard way to think about perpetuating culture and values, but I will say we make it an explicit part of our journey. And I think so as long as you got all the team members sitting down and saying, "okay, today we are going to agree and get aligned around these four key things." That's the value creation, I think, as much as it is the answer.
Sean Mooney (07:24):
I think that's a great point. As I reflect back when I was in private equity, every single company was different and there are different perspectives certainly across the different private equity firms that we work with, in terms of prescriptive versus partnership and responsive. I think the way that you're describing it is, at least in my perspective, the right way to do it. Every company is different, but what matters is the focus and in some ways the attention, knowing that it matters. And then how do you nurture it over time?
Doug McCormick (07:54):
We try to subscribe to standard process, custom outcome. We're going to take everybody through the process, the same discovery, and then we're going to create the program that makes sense for that company and culture.
Sean Mooney (08:05):
So you started at West Point, you went to Harvard Business School, you could have kept on this great career track in investment banking, which is also kind of an amazing field with challenge and rigor. What was it that attracted you to the private equity industry and how did you get into this business?
Doug McCormick (08:24):
So, you know that old Rodney Dangerfield joke that, "any country club that would have me, I don't want to be in." So I got to business school and had very little business experience. And a lot of the smart folks that I was interacting with had either been investment bankers or had significant business experience and they all seemed to think private equity was a really interesting career path. I got somewhat sucked up into that momentum of the class generally. And so I toyed with trying to pursue a career in principal investing right out of school.
Doug McCormick (08:54):
And candidly, didn't have a compelling pitch. So here's a young, hard working guy who's passionate, but has no relevant skills. And so it became pretty clear to me I needed to kind of cut my teeth and get some good transactional experience. I've always had an interest, a personal interest in investing, I was an econ major. And so it just seemed like getting to Manhattan and experiencing the rigors of investment banking would be a good life experience and developmental experience for me. You know, I joke my time at Morgan's Stanley is like dog years, where every year you spend, it's seven experience.
Doug McCormick (09:23):
So I'm super appreciative of that part of my career, but I concluded two things. One, I got there at about age 30 and I had a relatively developed family. And so it was a challenging balancing act of family, child in Manhattan, first year associate. But the second thing I discovered is I always wanted to see the rest of the story. And so I was involved in a bunch of transactions and I was really curious, how does it turn out? You know, did the team deliver against the strategy that they thought they were going to deliver? And so ultimately I concluded, I have a personality that desires to be a principal, desires to kind of be on stage as opposed to advising or directing the stage. And so ultimately decided that I was going to try to migrate to private equity and I did that in 1999.
Sean Mooney (10:08):
That resonates with me on a number of levels. I grew up in Texas, which is maybe even further away from New York than central Pennsylvania, but all of my friends in college were from the New York Metro area. And they all said, basically, we're in our senior year and we're talking about what we're going to do when we grow up. And every single one of them said, "oh, we're going to go do investment banking." And then the first thing I said was, "what's investment banking?" And then I proceeded to get turned down by virtually every investment bank in the city of New York. And so, but I was able to convince one, but from there, I think what you said was dog years also was tremendously kind of a brings me back, in terms of when they said that you're going to work 120 hours a week, I didn't think they were serious. Somehow they figured out how to make that work.
Sean Mooney (10:57):
But the experience you get is tremendous. And I too had the similar sense of what happens next. And so I completely understand this appeal to join this industry, which is all about building businesses and growing the entrepreneurial dream into the next phase of growth and development of companies across the United States and the world. As you think about the private equity industry, you've had a long career supporting growth and development of companies. How are you seeing the PE industry innovate, particularly with the small and medium sized businesses that you're investing?
Doug McCormick (11:31):
Well, Sean, let me just comment. First of all, you and I have talked about this a little bit, which is we as an industry are horrible at telling the great stories and the real value creation that's happening in this marketplace. And would comment, there's so much activity in terms of public capital investing in the secondary markets and all of that's interesting in the context of efficient markets. But at the end of the day, what we do in the lower middle market is really help entrepreneurs realize their vision. And I think there's been a lot of great press in terms of how the venture capital community does that. And I don't think near as much good discussion about how late stage private equity does it. But I think it's equally important and in many cases, I think a better business model because you take less risk you more consistently deliver on the underwritten value proposition.
Doug McCormick (12:17):
So I think the way I think about it is three different aspects of innovation in our target market. The first is just acknowledging that we're explicitly changing the risk profile of the entrepreneur. Many times I'm buying a business from a founder or a family whose entire net worth is in the business. And by buying 70% or 80%, I put them in a position where they can afford to take more risk with their remaining equity. And just being explicit about that is an important part of the way we innovate.
Doug McCormick (12:46):
The second is we try to bring all kinds of capital resources and know-how to pursue a variety of initiatives that these middle market businesses are unlikely to pursue on their own, either because they don't have the capital or they don't have the know-how. And that could be product development it could be new information, technology, geographic expansion, or simply marketing capabilities. But it's an important part of the journey and driving organic growth.
Doug McCormick (13:12):
And then the last is for us, driving growth through M&A is an important part of our value creation and dramatically scaling these businesses. And if you think about those three things together, more risk, more organic capabilities, more scale through M&A, we can help these companies not only become much bigger businesses, but better businesses with better value propositions for their customers, their employees, and all of their constituents. And so it really is a good news story all around.
Sean Mooney (13:40):
I completely agree with that. And on multiple aspects, one of the things that we've talked about is the private equity industries, maybe intentional focus on describing what we do and why we do things. And I think part of the challenge is the first word in private equity is private. And so there's this notion that discretion is the better part of valor. If we keep our head down and just do good things, people will recognize it. And I think the industry's getting better at it, but I think a lot of people don't understand it because I don't know that we necessarily do a good job of describing what we do and why we do it.
Sean Mooney (14:15):
And I think that's an excellent description, is I think about my own kind of journey here being a long time private equity investor, but now an entrepreneur, you feel it. When you're first starting a business, it's all gas, no brakes. You've got nothing to lose. You're just going to create something. If something goes awry, what do you have to lose? Because you've already burnt the rafts and you've taken that risk. But over time, the company starts becoming worth something and it becomes something to lose. And I think the psychology behind a lot of entrepreneurs is they start taking the foot off the gas a little bit. They stop taking the risk that they did that made the company successful. They stop maybe reinvesting as much. If we go with the football analogy, you're playing to not lose.
Sean Mooney (15:02):
And I think what private equity comes in, is gives them an option to those business owners and builders, where they can take some money off the table. They can participate in the next phase in the growth and development, but can go back to that risk posture that maybe previously they embraced a little more fully, and continue innovating in their own rights in ways that they probably did earlier in their journey of their own business. Is that kind of consistent with what you see?
Doug McCormick (15:25):
Totally. And I think just to acknowledge that evolution is rational. Like when you're starting out you got nothing to lose everything to gain, when you've created value and you've begun to think about the business more as an annuity. It is serving a valuable purpose for the family at that point of the family's life stage, but with a portfolio that's diversified, you can afford to take some bets that you couldn't take if you own one stock. So I think the evolution of the behavior is natural and this is kind of a way to optimize the portfolio if you will.
Sean Mooney (15:54):
Yep. And before the industry was around your options were essentially, you could borrow bank debt or you could sell your entire company. And so I think this kind of new option that came around, and not that long ago, it's really kind of the eighties it started becoming a thing. It's provided this option to business owners that I think just was never there before, but enables them to kind of realize their vision, as you said earlier.
Doug McCormick (16:17):
Yeah. Sean, I think the other thing, just as you think about like the societal benefits of that. It's critically important that our economy creates a mechanism for entrepreneurs who are building main street America businesses, and don't expect to take it public. Don't expect it to be a unicorn, but our valuable part of the economy. We got to create a liquidity strategy for them to entice the next generation of entrepreneurs to take those same kind of opportunities and risks.
Sean Mooney (16:42):
I completely agree with that. And one of the interesting things is if you look at venture capital and private equity. And venture capital serves a meaningful purpose in terms of getting things started, but as you think about private equity, it's how do you take good to great. And how do you take great to exceptional. And all of those play very important roles in our economy. But certainly from an expected value perspective, I think private equity is probably the sustainable larger creator of jobs over time on a more consistent basis. Not that one or the other needs to be better than the other, because they're both serving different roles and they're distinct from each other.
Sean Mooney (17:21):
So as you think about what you all are doing to help entrepreneurs realize their vision, what are some of the things that HCI is bringing to bear, in terms of the strengths and the resources and how you're helping these entrepreneurs activate their investment strategies?
Doug McCormick (17:41):
Yeah, I would say as we think about what unique strengths do we bring to the table, I think it's that two attributes. One is we focus on trying to be business builders as we mentioned. And then I think second is culture. And my general view is the market's become so competitive that there's no such thing as kind of cheap deals. And the real value for private equity on a go forward basis is our ability to deliver during our ownership period. Bottom line, were we good owners?
Doug McCormick (18:08):
And so because of that, we've invested heavily in our skills in executing a consolidation strategy, combined with our operations team. And if we can do that, we get the right partner, we can dramatically help them scale through M&A, we can dramatically help them scale through our operations team. And I think that's a winning combination that's replicable.
Doug McCormick (18:29):
And I think the second thing that we try to compete on is this concept of culture. We got a deep team, we've been doing this together for a long, long time. And we come to these partnerships with passion, humility, intellectual curiosity. And I believe that we don't lose a lot of deals based on fit. So we're working hard to make sure that for deals that we think we can compete on, that the entrepreneur understands what they get from a culture perspective and what they get from a capabilities perspective.
Sean Mooney (18:56):
I was fortunate enough to visit you and your team earlier this summer at your offices in Washington DC. And one of the things that really impressed me was how you all see the business of private equity as a business. And it's this idea that you got to bring something more than a check to the entrepreneur. That may have been more of the case 20 years ago in private equity, but now you got to bring resources and capabilities that help improve the businesses. And one of the things that particularly struck me was how you all bring operational resources to the entrepreneurs you're supporting and really think about your business as a business. Can you share a little bit about the operational resources on your team and how this helps build value for the companies that you're investing in?
Doug McCormick (19:37):
Sure. So first of all, very big picture. I think the operating capabilities have to be put into context. So we try to deliver our teams with four things. We try to deliver a clear strategy and end state. We try to be supportive in terms of organizational design and team required to get to the end state. Then we bring the M&A and then we bring the operating capabilities. And we don't bring them sequentially, but those are the kind of the four pieces or ingredients of the cake, if you will.
Doug McCormick (20:05):
And as we think about our operating capabilities, it starts with what we call a value creation plan, a value creation playbook. And it's a combination of off-the-shelf standard engagement playbooks, if you will, that we can make available to the company. So we define ourselves our operating teams more by functional expertise than we do utility infielders. And so we have somebody that's very deep in Salesforce effectiveness. We have somebody that's very deep in IT. Someone that's very deep in how we would consider all things related to operational efficiency. So it could be lean, it could be supply chain excellence, it could be freight, it could be related to cost corporate, et cetera. And then we have somebody that's very deep in marketing and somebody that's very deep in HR.
Doug McCormick (20:51):
And so we try to provide this centers of excellence around these core functional areas. And then back to earlier part of our conversation, we try to standardize those types of expertise, but we engage with the companies on a custom basis, depending on what's critical to their business. Because in some businesses it may be all about sales and marketing and not so much about cost efficiencies, and so we tailor the engagement, but try to create standard playbooks that are available to the companies.
Sean Mooney (21:19):
I really like the custom approach. And one of the interesting advantages here at BluWave is we work with over 500 PE firms. So we get to see how a large swath of PE does things. And at one end of the spectrum, you have, we specialize in partnership, where there's a picture of a handshake on the website, we're just going to shake hands. On the other end, it's very prescriptive where it's, we're a hammer and everything looks like a nail, and you're going to do exactly what we want you to do.
Sean Mooney (21:48):
I think so often the world's not binary, it's that middle ground. And it seems like you all are taking that approach of we're going to have resources available, but they're going to be deployed on a custom basis based upon the unique needs of the businesses. And I think that's very thoughtful within the realm and not that one or the other is wrong. It's just, even from my own personal perspective, seems like the way that you are taking is the way that kind of hits that middle ground in the right way.
Doug McCormick (22:13):
Yeah, Sean, I would say another important part of the dating game for us is being brutally honest about what our desired end state is, and what the engagement model looks like, and what the expectations are on both sides. Because I think the worst outcome for all parties is you actually get a deal done and wake up the next day and realize, "oh my God, I didn't realize what I got myself into." So, we'd rather be overly transparent about the goods and the bads of working with us and our model and have people opt out if that's not a good fit.
Sean Mooney (22:43):
That's something that shows your good Pennsylvania upbringing. We always had a saying at the PE firm that I was previously, it was, "just turn your cards face up." It's so much easier when you just flip them up and say, "here are my cards." And then you get rid of all the other kind of dance and people who know me and know my wife, they'll share that I'm not very good with innuendo. So they have idea of just being brutally honest and just saying, "here's what I think," really appeals to me because I don't necessarily get the subtleties that otherwise that appear in human interaction, so I appreciate that on many levels. So one of the things that you mentioned previously was how you all take a consolidation strategy in terms of accelerating and augmenting value creation. Can you talk a little bit about how you think this approach to value creation and how it happens and what it does for your businesses?
Doug McCormick (23:34):
Sure. So this is an area of the firm that we're really proud of. We're proud of the progress and the traction we're getting with some of these strategies. And we have good examples of massively scaling businesses through M&A.
Doug McCormick (23:45):
So just a couple examples. AmerCare is a business that we got into in 2014, still work in process, we still own it. We've scaled that business 20 times its original size. MSI, we've scaled over 10 times its original size. And interestingly, in spite of the fact that we've grown them so much, we started with such small platforms and big fragmented markets that we believe both of these businesses have a ton of white space to continue to grow.
Doug McCormick (24:10):
The most recent consolidation strategy that I exited is called Summit Interconnect, it's a pretty good example. We partnered with a CEO that we had a previous successful exit with, by the way, we love opportunities to work with great managers on a repeat basis. You know their strengths and weaknesses, you can get right into it quickly. And we targeted at Summit, the high reliability, high technology and prototyping segments of the printed circuit board market. And that had been a market that for 15 years really had very anemic growth. And our thesis was that while the overall North American PCB market was showing mediocre growth, the sub segments that we were targeting were very attractive. And it was a very reasonably large, several billion dollar market, relatively fragmented and had a lot of entrepreneurs who were relatively late stage.
Doug McCormick (24:54):
So kind of the classic good landscape to run an M&A play. So we had a very capable, highly regarded manager in the space. And in the course of four years, we were able to stream together five deals, scale the business by over six times. And I will say back to this leadership concept. Shane Whiteside, the leader here, was well known in the industry and people actually followed him from other companies he had been at. I think we created the best management team in the industry and ultimately created a very attractive asset for the next buyer.
Doug McCormick (25:26):
So as I think about looking at our consolidation plays that are in progress and the ones we've gotten out of, I think the common theme in all these stories is all of these consolidations have their challenges along the way. Integration's tough, scaling is tough, but the prize is big and with a big market, a good team and a commitment to doing it the right way by building a better business, we think this is a really effective repeatable strategy for generating outsized returns.
Sean Mooney (25:55):
So you're an entrepreneur. You see that you're a really nice lily pad and a pond of with other really nice lily pads. What's one of the biggest value drivers? Why should you think about consolidating a market?
Doug McCormick (26:07):
So I think what's interesting is the way that the investor community underwrites and values consolidation strategies. And so businesses that grow quickly in a growing market get paid huge multiples because people can convince themselves are going to do that on ongoing basis. Well, in a market that is reasonably stable or growing modestly, but where businesses are consistently growing at above market rates because they're successful at acquiring businesses or consolidating are also garnering those huge multiples.
Doug McCormick (26:34):
And it is a distinct skill set, right? The ability to have a consistent pipeline and mature that pipeline diligence and buy effectively and then integrate is arguably, while it may cost different, it's no different than investments in organic growth if you were increasing the capacity of a manufacturing facility, et cetera. So, at a very high level, you can get paid dramatically more, mostly in the form of multiple arbitrage because you're buying businesses that have a growth profile of X and through consolidation, you are selling businesses that have a growth profile that's substantially better.
Doug McCormick (27:07):
The other thing I'd say is we do feel like in almost all the businesses we work at, with scale comes the opportunity to stake out differentiate capabilities. You can afford to invest in IT, you can afford to invest in a national footprint, you can afford to invest in better sales capabilities. And so, I think that's another important aspect of the value creation related to consolidation.
Sean Mooney (27:29):
I think that's a great summary and it brings us back almost to the original point of our conversation, where there's so many benefits where you can be better together than going alone. And so if you can bring in scale and resource, there's just things that you can do as a larger kind of consolidated entity versus a kind of a fragmented single in these worlds. And I think it's a great reason to think about partnering with firms like yours, who know how to do these things with a high degree of expected value. With that in mind Doug, what are one of the biggest risks that a business leader need to think about if they're going to start making acquisitions, to do this right?
Doug McCormick (28:05):
Good underwriting, in my experience, has been two things. Intimate knowledge of the market and the business model combined with how to do deals. But the implications of that are, we consistently find we are way better at doing very good deals when we have a platform than when we're first getting into an industry. And the reasons were obvious. You know the business whole lot better, you know the industry after you've done a deal or two. And what I'm highlighting is there's this magic kind of secret sauce that happens when you have a good team that knows the industry, knows the business, knows the participants and a good private equity partner who knows how to get deals done and how to finance them and how to integrate them. That's when you really create a lot of value.
Doug McCormick (28:46):
And so to bring that back to your question, if you're thinking about acquisitions and you've been in the business, you've been in the industry, you got that covered what you really need to develop, or you need to find somebody to partner with is how do I do deals? How do I finance them and how do I create an asset that will be highly valued when I try to exit?
Sean Mooney (29:03):
Yep. Makes tremendous success. So given the number of your portfolio companies that you're involved with and manufacturing and distribution, one of the big things that we're all seeing in the news is inflation and supply chain challenges. How are you seeing this play out in the real world economy, from the vantage of your portfolio?
Doug McCormick (29:23):
First of all, I just think let's acknowledge what a humbling couple years navigating the turmoil. But I couldn't help as I was going through it and enduring the pain of the pandemic also acknowledging what an amazing, fascinating time to be in the business.
Doug McCormick (29:36):
I think as a firm I'm really proud of our overall performance. I think it's because we had a propensity to act and are comfortable doing so with imperfect information. Our teams are really nimble and we're data hounds. So anything we can use or do to get data that gives us competitive advantage, we're always investing heavily in those things.
Doug McCormick (29:58):
In terms of implications for the future, I think that customer behavior in the industrial markets has changed. It'll be interesting for me to see for how long, but today the conversations we're having with our customers are very different. Our customers are much more focused on continuity and availability and quality of supply than they are simply price, which is kind of been the narrative for the decade before the pandemic. I think for the kind of businesses that we operate in, that puts us in a valuable position of being a supply chain expert, a supply chain partner, as opposed to a commodity supplier. So we're trying to deliver on that promise of helping them navigate difficult supply chains and markets.
Doug McCormick (30:38):
I think the other insight I'd have is I think all companies have come to the conclusion that human resources is, and the management of human capital, is a strategic competency of an organization, not just a compliance program. And I don't see that changing any time soon for two reasons. One, I think we've got a supply demand imbalance between capable, qualified, motivated talent and the needs of that talent. And then secondly, I think people have seen the benefits of winning talent. Like human capital is not a commodity. There's good human capital and there's less good human capital. And so the name of the game is fielding a better team.
Sean Mooney (31:13):
If we unpack that, there's a lot of things that we're seeing here that completely align with that. And I think one of the things that we see in the private equity industry is this idea of when there's a challenge, you run towards it. And so we're seeing the PE industry through our data, absolutely going after these challenges as opportunities. And what really kind of struck me is this whole notion of, this is not a problem, this is an opportunity to deepen your relationships with your customers and show how you're there for them in tough times. And you're not a commodity, you're a value added partner. And ultimately as you come out of these kind of tough times, my sense is your portfolio companies are probably going to have the best relationships they've had with those customers that they've ever had, you know, with that kind of a mindset. And it's certainly something that we're seeing play out.
Sean Mooney (32:00):
And the other thing that you mentioned was this idea of understanding the strategic value of humanity. If I were to turn the lens on myself and my former kind of young whippersnapper days, it would be, "Hey, we're going to get our teams to the finish line and what matters are the results." And I think what you're articulating is this perspective that, focus on people first and then the results tend to take care of themselves. And I think that's a really positive mindset that I wish I probably had when I was younger in my career. Not that I want to say I was kind of cold to the world. I think it's certainly a refreshing perspective to hear.
Doug McCormick (32:37):
Yeah, I think it's cause and effect, right. If I got the right team, I think you can get them to deliver the right results. So it's always interesting, you know, you think about underwriting so much focus on quality of earnings historically. And so a little focus on, do we have the team that can deliver those perspectively.
Sean Mooney (32:53):
As you turn your lens on the future here, and you think about advice that you would give to a business owner or CEO, as we go through kind of these economic tidal waters here, what advice would you give to a CEO? Here's how you should look at a recession in the days ahead.
Doug McCormick (33:10):
You know, you and I have been dancing around sports analogies, but I think this is a classic play defense first, play offense second. And so, as we think about prospects for supply chain, disruption or recession, the first thing we're trying to do is make sure we've planned for and played good defense. And that's around scenario planning ahead of time to war game, "okay, what could happen? What levers can you manage to whether that disruption, whether it be cost management or supply chain related, and be ready to execute that quickly when you see predefined things that are happening in the marketplace that tell you that a recession's coming."
Doug McCormick (33:45):
And I think the purpose of this is all about ensuring that you have more than adequate liquidity to navigate the storm. I'm a big believer that businesses don't go bankrupt because the debts exceeds the enterprise value. They go bankrupt because they run out of money. So liquidity is priority number one, and making sure you can navigate whatever the disruption period is.
Doug McCormick (34:06):
Once you've accommodated a good defense, then I think it's all about offense. And I think it's the classic when you have a recession, you feel bad about everything you've purchased and good about everything you're about to purchase. And so it gives you an opportunity and it could be not only M&A, but it could be just taking share in the marketplace. Out-competing out-investing against your competitors. So I do think consolidation strategies are particularly well positioned for success in a recession because you kind of get to dollar average cost throughout the cycle.
Sean Mooney (34:37):
I think it's very well said. It's kind of Maslow's Hierarchy, protect your base and then go for it with thoughtfulness. And so I think that's excellent advice for any business owner that is either backed or not backed by private equity. You've no doubt read, I'm sure extensively, over your career and days. One of the questions I like to ask is what's a book that you think everyone should read? It could be business, it could be personal, it could be in between.
Doug McCormick (35:04):
Yeah. So that's a hard one, right? One book, but I'll share a book with you that I read during COVID. It's called Factfulness. And it's 10 reasons we're wrong about the world and why things are better than you think. And so this was an interesting book for me, and it's based on my belief that in today's world, curation of info that we consume is becoming more important than skills of comprehension. And so I do a horrible job of managing what comes through my newsfeed and I just read whatever is teed up based on somebody else's algorithm.
Doug McCormick (35:33):
And this book actually discusses how humans process information and highlights this basic fact that we tend to focus and process way more on the bad than the good. And we have an inherent bias about how we process numbers and comparisons. And so it kind of gives you some tools to check yourself in terms of how you're evaluating that. And so for me personally, in the context of COVID and just what I perceive as just being inundated with negative news and negativity in general, this was kind of a self-help book for me. I think it helped me see the world and the current events, and probably our trajectory, in a more positive light. So anyways, if you're like me and you've had a tough couple COVID years and you're a nerd, this is a good fit.
Sean Mooney (36:14):
I think everyone who's experienced this world over the last couple years could use the positivity and tools to navigate through it. So I will be buying that book today. I've been saying this too shall pass for about two and a half years. And so I think that'll be an excellent book to kind of equip everyone to kind of view the world in a positive way.
Doug McCormick (36:36):
I warn you, it's not an easy read. It's an intriguing read. Lots of math. It was helpful for me.
Sean Mooney (36:40):
You know, you eat a whale, one bite at a time, right? So I'll just read it one chapter a night.
Doug McCormick (36:45):
There you go.
Sean Mooney (36:46):
Another question I'd love to do in just kind of Karma School of Business mentality of how you help other. Going forward, as you reflect back on your days in business and life and if you were entering the private equity industry today as a young professional, what is one of the biggest pieces of advice that you would offer your former self?
Doug McCormick (37:06):
You know, making me pick just one thing. This is not easy. I would say, I think young people should spend more time underwriting the teams they're joining, not so much the brand and the opportunity. And when they think about the team they're joining, thinking about the developmental opportunity. And I think the younger you are in your career, the less it is about W-2, and the more it is about quality of experience, quality of branding, quality of development. And so I think that's a big miss on a lot of folks. You know, you get enamored by 10,000, 20,000, whatever the number is. And that's could be in a very expensive choice in the long run if you're not getting good skills and development.
Sean Mooney (37:50):
That's amazing advice. And it's kind of similar advice I remember receiving from my dad as a kid. Pick the experience versus the check. And if you can have a greater deeper role in something with great tutors and mentors versus maybe a bigger name and carrying someone's briefcase. Go with the former versus the latter. And that certainly served me well. And it made me feel better about maybe the 100 hours a week I was working. I was 22.
Doug McCormick (38:14):
Like many things in life, I've taken somebody else's good ideas and made them my own. So I got this experience or this advice when I was at Harvard. And of course it came from a very successful guy and I wasn't even mature enough to really hear it because I'm like, "oh, okay. So the rich guy who's made a lot of money says, don't worry about money and focus on the experience." But actually the more I've watched it play out across peers and mentors and subordinates, I do think there's a lot of truth to it.
Sean Mooney (38:37):
If we could look back on our former selves and teach us things, I'm sure we'd all do things a little differently. One of the biggest pieces of advice I got as a kid also came from my dad who was at the time, really working on my jump shot and my basketball game. And my dad said, "you know, you really got to be playing the sport called golf." And I was like, "no, no, dad, I'm going to work on my golf shot." And today I can't break 100. And so I really wish that I listened to him on that one, that would've served me well, as I have very limited hobbies and ability to play other sports.
Doug McCormick (39:07):
So Sean, you'll be surprised to hear this, but wrestling does not age well as a sport for you know, middle-aged out of shape guys. So I totally relate.
Sean Mooney (39:15):
So you have to get into coaching, I guess now.
Doug McCormick (39:17):
There you go. There you go.
Sean Mooney (39:19):
So last question here. I think there's been a lot of nuggets that I think all of us are going to take home with us. The last one is I think a lot of our listeners are in the business world, they're business owners, business leaders. If you are potentially thinking about bringing in a private equity partner to help act on your vision, as we talked about earlier, what advice would you give them to help them pick the right partner?
Doug McCormick (39:44):
So, first of all, I like the way you frame the conversation. My big pitch is don't view it as selling your business, view it as picking a partner. And that's a very different selection process. And obviously, you've got to get the economic goals that you set out to accomplish. But then focus on fit, alignment, alignment of where do you want to go take the business together and relevant skill sets. So don't look at this as the end of the story, look at it as a new chapter. That's point one.
Doug McCormick (40:10):
Point two is listen, integrity's non-negotiable. And I've seen a lot of people try to manage partner risk through legal agreements, and I can promise you it's not doable. So you cannot protect yourself from a partner you don't trust through the documents. So at the end of the day, this is about a handshake and being able to feel good about the handshake, the person that shook the hand on the other side. And so I think that's just something that's non-negotiable, as you think about your partnership.
Sean Mooney (40:37):
That's great. Well, Doug, we very much appreciate you sharing your insights and perspectives and wisdom here. Thanks so much. And we look forward to supporting your success and our other listener success in the days ahead.
Doug McCormick (40:50):
Yeah. Thank you, Sean. Appreciate you having me on. Fun conversation.
Sean Mooney (40:52):
Yeah, absolutely. Thanks, Doug.
Sean Mooney (40:58):
Thanks for joining us during our discussion with Doug. For more information, go to bluwave.net/podcast. Please continue to look for us anywhere you find your favorite podcasts, including Google, Apple, and Spotify. As always, we truly appreciate your support. If you like, what you hear, please subscribe, review, and share. In the meantime, let us know if there's anything we can do to support your success. Onward.
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.
OTHER RECENT EPISODES
John Huhn, Compass Group Equity Partners | Unlocking Success: The Power of Persistence in PE
A managing partner from Compass Group Equity Partners, John Huhn, joins the Karma School of Business Podcast to discuss:
1:04 - John's background and path to private equity
9:28 - The most important traits to look for when evaluating a potential investment
13:50 - What makes Compass unique and how they approach value creation
21:34 - Advice to successfully manage a rocky economic period
26:52 - Important aspects of the portco-PE firm relationship
31:30 - John's advice to his younger self
And much more.
To learn more about Compass Group, go to https://www.cgep.com/.
To learn more about BluWave, go to www.bluwave.net.
Brian Adams, Excelsior Capital | Real Estate vs. Buyout: Private Equity Investor Perspectives
Brian Adams, Founder and President of Excelsior Capital, joins the Karma School of Business podcast to discuss real estate investing and compares it to private equity investing. Brian dives into a broad scope of topics, including:
1:44 His path to real estate investing
5:55 Advantages and benefits to real estate investing
10:36 How to evaluate a good investment
17:39 How the current economic landscape is impacting the real estate investing industry
21:48 The long term outlook for real estate investing
30:29 What lessons Brian would teach his younger self
Hernan Saenz, Bain & Company | A Glance into the Future of the Planet, the Power of Circular Transformation and the Role Private Equity Can Play
The Karma School of Business is joined by Bain and Company Global Head of Performance and Improvement, Harnan Saenz to take a deep dive on the future of the economy as it relates to sustainability, viewed through the lens of private equity. The conversation topics include:
2:30 "Remanufacturing" and forces applying pressure to traditional operations
5:21 What is the circular economy?
13:13 The current policies set up by the government related to the circular economy
16:03 Barriers to a circular economy
25:21 How can tech be leveraged to support the circular economy?
27:13 Measuring progress toward circularity
29:25 The role of private equity in promoting circularity
30:28 Incorporating circular principles into investment strategies
33:01 Investment opportunities and most promising sectors
35:46 Challenges a PE firm might face when investing in a circular economy
37:13 How can firms work with portcos to improve sustainability?
39:39 How PE can collaborate with governments and other stakeholders to promote the circular economy
Connect with a PE-grade Resource
Connect with BluWave-vetted service providers in hours
Select and hire a PE-grade resource that fits your needs