Joe DeLuca, NewSpring Capital | Reassess and Adapt: A Conversation on Pivoting Business Models and Organizational Structures

Sean Mooney:
Welcome to The Karma School of Business Podcast. In this episode, we have a great conversation with Joe DeLuca, operating partner with NewSpring 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.
So Joe, we are very excited to have you here today. Thanks for joining us.

Joe DeLuca:
Sure, thank you.

Sean Mooney:
So maybe to jump right in, one of the things that I've always appreciated about people who joined the private equity industry, there's usually something that brought them to this industry, almost like this siren call that drew them to it. Can you tell us a little bit about what drew you to the industry?

Joe DeLuca:
Sure. I used to work for many years, I think it was probably seven or eight years at one of the large strategy consulting firms. It starts with an M, I won't tell you the name.

Sean Mooney:
Okay.

Joe DeLuca:
If you ever come back to me, I will deny it. But we used to do obviously work with all sorts of different companies, and invariably we were coming up with great ideas to sort of help build the company and add value. But at the end of the day, let's say six months later, nine months later, you kind of move on and down the road you go. After a few years I said to myself, "Somebody else is getting rich here." There must be a different world. And so I was actually talking with one of my clients. He said, "You ought to think about private equity investing." And I said, "That's an interesting idea." I didn't know a lot about the world of private equity. This is way back, this is long before it was hip to be in private equity.
And so I started sniffing around the local private equity community where I was working up in Boston and I really fell in love with the concept. I pulled a ripcord, I left consulting and hooked up with a really, really small firm that was probably in the middle of their first fund, actually. It was founded by a guy who had spun out of Berkshire partners. And so we had a little office in the suburbs, and I went there and started working with them. And I didn't know anything about private equity investing. And it was a little bit embarrassing to say because we weren't trained in doing deals, we were trained in sort of problem solving for large companies. But over the years I picked it up and moved around a couple of private equity investment firms in between. And so here I am 25 plus years later. In between, I spent I think seven or eight years doing, well, maybe even more than that, 10 years doing independent sponsor deals too. And it's funny how this industry has evolved because it used to be called fundless sponsor. That's not PC anymore. Now you're an independent sponsor.

Sean Mooney:
Well roll-ups are now buying and builds and consolidation plays.

Joe DeLuca:
But that's basically how I got into it. I said, "I really want to be doing the things that I've been doing and consulting, but I want to have economics attached to that." And private equity allowed me the route to hopefully be able to do that.

Sean Mooney:
That very much resonates. It was kind of a similar but different path. So I started off in investment banking, and there's that whole idea where you say, "This is interesting. It's compelling." I started off actually in a restructuring group, which was very germane for times like now. So I'm dusting off 20 year old memories or 20 plus year memories. And there was that whole idea, it's like what happens after? And this idea of how do you build value and participate in that value beyond a deck that you leave for someone else to do. And it was always this kind of consternation that was like, I'd really like to be part of doing that thing. And I grew up in a family business, so I grew up wearing steel toe boots and hard helmets.

Joe DeLuca:
You're kind of guy.

Sean Mooney:
Working at the plants. I was an expert at painting things safety yellow in high school. So I think under my fingernails there's probably some yellow paint. But for exactly the reason you said, I think that's what brings a lot of people to it is if you're curious, you like to build things. You probably had Erector Sets or Legos as a kid.

Joe DeLuca:
Yeah, I was one of them.

Sean Mooney:
Erector Sets for those who don't know, is this almost like this really cool scaffolding robotic type device that existed a long time ago.

Joe DeLuca:
Yeah, it's before, I think Roblox, the video game.

Sean Mooney:
It's like the '70s and '80s version of Roblox. That's great. So one of the things, Joe, that I really like asking people to learn, maybe a little of the story behind the story is we would know you better if we knew this about you. So what's one of the things that we would know you better?

Joe DeLuca:
So there's probably a couple of things. I think the first one is if you came into my house and looked at my bookshelf, you'd get a pretty good snapshot of who I am or what I'm interested in and what makes me tick. And the second way I think is if you come and hang out with me and you're open to do this with me a weekend at the shore in the summertime or even in the wintertime, you'll learn a lot about, so on the first one, relatives to the bookshelf. It's true, I find myself when I go visit people even unconsciously just sort of gravitating to like, "Wow, what's on their shelf?" And I think about what they're reading or what they've read and what their interests are. And I've always been like that. So if you came over and you looked, you'd see a lot of interesting, you'd be very diverse subjects. We go from religion, to stories about the sea and the ocean, to trashy novels, be all over the [inaudible 00:05:54].

Sean Mooney:
The whole spectrum depending whether you're on the beach or you're at your chair before you go to bed.

Joe DeLuca:
And if you came over to the shore, you'd spend some time working on boats with me. We'd be doing little home projects where we shouldn't be doing electrical, but we're still doing electrical or we'd be fishing or kayaking or paddling or fishing or fixing boats or fishing. So that's what we'd be doing.

Sean Mooney:
Probably some good pizza in the shore.

Joe DeLuca:
Let's throw it in for you. So that's how a little bit more about who I am.

Sean Mooney:
That's great. I'm one of these dabblers with reading where I have 10 books at any time that I'm reading pieces through and I jump almost like switching channels. You go through and you're always just finding different little pieces. And so I 100% appreciate that. And my trivia was certainly right out of college. I had a shore house in Belmar, and so a little bit northern, a little rowdier, a little more budget friendly for-

Joe DeLuca:
Did you have a, I think they used to call it quarter share or half share?

Sean Mooney:
Yeah. Every other Saturday and Sunday I'd get to go and we would pack 50 people into this poor house. None of us had two nickels to scratch, but it was one of the best times of our lives, I think.

Joe DeLuca:
Absolutely.

Sean Mooney:
As you look back upon it, as people are sleeping sideways and diagonal as we packed into these rooms. But what a wonderful place to live. And certainly for me it was kind of a coming of age experience. So one of the things that I really like about the private equity industry and the people that are drawn to it is this sense that there's this idea of we're going to overcome, this too shall pass, we're going to find ways. And as I think about my career when I was in PE, and certainly also at BluWave was every time the way things happened in life and in business, et cetera, they never really happened for reasons I thought it'd be. Not one model happened. There was never the serendipitous like March the model and the sim set. And so I think people have this ability in the industry to kind of get to a roadblock and find a way to overcome, and it's certainly a challenging industry. What's one of the things that as you reflect back on your life and business and career, that was maybe a hard thing that you had to work through and overcome?

Joe DeLuca:
Well, I would imagine a lot of people have a favorite pandemic story. It was challenging for everybody in some way or another. So I would pick one example from my COVID story, was right at the beginning of COVID, sort of February, March. And we had a portfolio company up in New York City, and I'm in the Philadelphia area as you know. We had a portfolio company up in New York City area. And we had invested in it probably 18 months prior to when COVID hit. And at that point in time it had gone through two CEOs, a CFO, a COO, a failed IT implementation, all in 18 months. I mean, the company was just reeling. And then COVID hit, and a chairman. And so it was without a chairman and without a CEO, and I had to go up there and run this business, and it's in Queens, which is in the bullseye of COVID. And so here I am and nobody in the world has figured out what are the implications of COVID, where is this going? I said goodbye to my family. I went up and found it was easy to find rooms in that area of the city at that time and started introducing myself to this company. We had 110 employees and they had to be in the building every day because it's an institutional pharmacy.
We were an essential business. We're doing meds for transplant patients and people with AIDS and HIV, or HIV and CF, and these really bad serious diseases and they need their meds. And so we had to be [inaudible 00:09:43]-

Sean Mooney:
Probably more than anyone.

Joe DeLuca:
So that was challenging because we all had to figure it out together, are people coming in? They're wearing masks. Are we able to deliver these meds to the people in their homes? Well, we had a fleet of drivers for example, and we had to pivot the whole business because the fleet of drivers, no driver was going into a building anymore. They would drive up, but they couldn't get into the buildings. So how do you deliver meds to people in buildings around the city? And so we had to figure all that out and it was very challenging while at the same time just trying to keep people safe, keep people feeling like they can come into work and be protected. And it's New York City, so it's very, very tight confines, right? Real estate, New York's real estate. So it was very challenging. We thought we had the thing under control and stabilized. And then we sort of came into this new, about nine months later, I was still there running the business and the vaccine came out, and now we had to pivot our business again, which is we were one of the first people, I'll never forget this, one day armed guards show up and the truck rolls up and I got 10,000 doses of the vaccine to put in my refrigerator.
And I was like, "Holy crap." We're one of the first people in the world to get this stuff and it's going in here. And so we pivoted our business to basically being institutional pharmacy, delivering these other meds to how do we go out into the community and vaccinate people? How do we do that? And how do we get paid to do that? And basically the state, the governor's office and other authorities have said, "Just go do it. We will figure out how to pay people and the paperwork involved in that." So for a whole host of reasons, it was interesting intellectually, but it was very challenging physically and mentally, and our team, we sort of put our heads down and we just went day by day and plowed through it. There was nothing else we could do.

Sean Mooney:
It seems like a dream now. All of this thing in the haze, in some ways I think this generation, particularly like the kids that we're going through it, this is going to be like their 9/11, this life-changing event that changed not only the world, but I think a lot of people's perspectives on how it works and why it works, and it's going to be this thing that I think a lot of people can look proudly on the challenges that we all face, but finding a way through and wasn't perfect. No, but we all found a way through. But those first few weeks were daunting. So when you were kind of called into action, you had to get into Queens and probably even just finding a hotel even there's lots of rooms. It's like where do you go? What was that first week like? How did you approach it? How did you get the lay of the land?

Joe DeLuca:
Literally, I walked into the building which didn't have a sign really because it's institutional, it's not retail. I went into the door, actually I had to knock on the door because they didn't know who I was. And so I said, "Hi, I'm here." I introduced myself, and I tried to just do half of the building at one time and the other half of the building at the other time and say, "Look, can we just sit together for 15 minutes and talk? We're in this together. What's going on in your world?" And you hear the stories of the team. It's like, I'm making a name up, but Mary, Mary commutes an hour, she has to take a bus to a train and it's sort like her normal commute. How is that going to work in this world?
So, I tried to understand what the people that were working at our business, just what was going on so that we could relate to each other, and then I could ask of them, "Hey, okay, we really need to do X." And then there was some empathy and some relationship building in the first week that I just felt was really critical because it was all happening real time. And instead of just coming in and saying, "Here's the list of 17 priorities and we're going to work on these from a business perspective." The world wasn't like that for us. It was more human that first week as opposed to anything.

Sean Mooney:
I really liked that. So one of the things when COVID started taking shape, and I remember I was actually in the Mayo Clinic in February, I had this thing going on, and they were saying, "We're probably shutting down our hospital next week. So it's this or it. Let's hope it works." And then you get into this haze where no one knew. I mean it was really scary at the time in retrospect, people said, "Oh, we'd figured it out." But then I remember exactly the things that you were going through. And so I started looking at how do you even come with the frameworks how to act? And what you're describing is exactly kind of like the first step in this framework.
I saw there's this really fascinating guy named Colonel John Boyd, who came up through World War II, and then the Korean War, and then became a really big part of the military doctrine. But you think about it, they're always working with imperfect information and trying to figure out how to make decisions. And he came up with this construct called OODA loops.

Joe DeLuca:
What is it?

Sean Mooney:
OODA loops. O-O-D-A. OODAs. And so what it stands for is Observation, Orientation, Decision and Action. And the thing that he was saying, the first thing you always have to do is exactly what you did. Let's observe what's going on. Let's listen. Let's figure out the lay of the land. And then you can then analyze and orient, then you can decide and then you can act, and then you rapidly iterate. So it sounds like you were operating kind of right out of the playbook there.

Joe DeLuca:
How about that? I was doing OODAs.

Sean Mooney:
Yeah, a little.

Joe DeLuca:
But I didn't know.

Sean Mooney:
It's just that whole concept. And so we used it all through COVID and it was tremendously helpful, but what you did naturally was exactly what this really one of a kind thought leader would say you should. So 100% appreciate that.

Joe DeLuca:
Well, it's interesting you mentioned that because at the meantime, we were talking about all of our portfolio companies every week. That time especially, and I think my observation was a lot of our CEOs, they basically switched into instinct mode because they had to. And it was very interesting to just watch it play out. Some people just killed it. It was unbelievable. They completely changed their business model and the things that they were able to do, these people running the businesses. It was fantastic. And a lot of it wasn't by the book for anybody. It was neat.

Sean Mooney:
So Joe, you've got this really interesting vantage having come up through industry, also being in private equity, being a consultant and now being an operating partner for NewSpring. And one of the things that I think the cliche in private equity is you've seen one private equity firm. Everyone does it a little bit differently. So how does your firm approach value creation, and what resources do you all bring to bear for your portfolio companies? Kind of like what we were just talking about.

Joe DeLuca:
So I will say that the model is iterative. We started several years ago with what we call the value creation team. And this was a team of people that were not employees of NewSpring. They were 10 to 12 people, external people. And the concept was, well, let's get somebody from each of the disciplines. Let's have a finance person, a marketing person, an HR person, an IT person. You sort of get the idea, and let's have them on tap to call on them and add value where and when needed. So we started to do that and for a couple of years it worked in some instances and for a lot of reasons it didn't work. And so then we did a reboot a few years ago. And one of the things that I got involved in when we were doing the reboot, I went out and did a little consulting study and I interviewed 40 people, 20 operating partners, 15 people from private equity firms around the country, other people in the value chain, just to talk about the role of operating partners, the role of value creation and private equity.
And I sort of synthesized and came up with recommendations for how we should do reboot version two at NewSpring. So anyway, what we've moved on to is really because we have five different investment strategies at NewSpring, instead of having a value creation or operating partner group that serves all, we go strategy by strategy. So I happen to be in the mezzanine strategy, dedicated to that strategy now, whereas before I was sort of trying to do a lot of the other strategies and just for a lot of reasons it doesn't work. So basically we sued up with strategy jerseys now, and now we were adding to the team the roles that we play and where we get involved. We still use these third party people frequently, because there's so much ground to cover. Unless you're a mega, mega fund and you're able to afford to have a person in HR, a person in marketing, a person that focuses from an operating partner perspective just on that discipline, we come at it with a generalist approach and we chopper in these very specific resources as needed.
So that's a model that works for us now. I can see as we grow where we may move to a model where we actually bring one or two of the more typical disciplines in-house like finance and HR or talent typically are the first to come in-house because they're just across every portfolio company all day long, you know that you will have financial issues that you need people to work on and HR issues that you need people to work on. So that's the model that we use right now. But like I said, I've talked with lots of other private equity firms and there's very different ways that people go about doing it. They're really interesting and unique. I remember Francisco Partners out on the West Coast. Those guys, they built their own consulting firm, basically after they sort of evolved their model for value creation. It's interesting,

Sean Mooney:
That resonates for a whole host of reasons and I think we probably think of the world in many ways similar, at least you read a lot, I read a lot. So I view the world through a lot of the things that I've read. And one of the things that you kind of mentioned reminds me of this book, The Lean Startup, which is it's one of certainly the best book I ever read to start BluWave, because it saved me from making a thousand mistakes. And they were the one that came up with this concept of MVP, the Minimum Viable Platform product, however you want to describe it. And it sounds like that's exactly what you did. It's like let's go have the audacity to talk to your stakeholders and they'll tell you what they want. And so how you went out and talked to 40 different people before you even built it is I think incredibly insightful and intuitive in terms of how to build something that your customers want.
And then their whole concept once again is this idea of you iterate, you're going to just get it going, talk to people and form it, and almost like OODA loop as well, and then they'll tell you where to take it. So the way that you're iterating here seems very familiar and makes a ton of sense to me and a lot of what we're seeing, and certainly with the third parties, I intimately appreciate that, because that was something as a lower middle market private equity investor, we needed lots of them. And unfortunately most of the time I spent Googling and calling friends saying, "Do you know someone who does this?" And I was like, "Oh, these market network concepts will solve this." But I mean your point, even with the large funds, we work with many, if not most, of the large private equity firms and their ops groups as well.
And they still have to outsource tons of things, because you just can't forecast where your needs are. And I almost think of private equity, it's almost like a craps' table kind of Germany into where we are. You can only cover so much of the board, everything else you're kind of moving and grooving and trying to fill in chips with. So that makes a ton of sense. So we're obviously in this time that's very fluid, I think every time is fluid, but this one, particularly as you think about this recessionary, transitory, economy, whatever you want to describe it, you have geopolitical issues, you have global kind of changes. As you think about the time now, and at face value can be kind of scary to people. Where do you find opportunities? What do you thematically sharing with your portfolio companies and saying, "Here are places you can secure safety but also find success and opportunity."

Joe DeLuca:
So I think that what I generally end up observing across our portfolio, and there's lots of places you can poke your head in an add value. These are small businesses. But invariably one of the big themes is organization, for me, and it's organization structure and people. So it's helping those companies take a look at how are they set up from an organization structure perspective. Are our processes properly aligned with the tasks that we're trying to accomplish? Are we aligned organizationally to best serve the customers? And once you start going down the rabbit hole of organization, you invariably, at least my experiences, start to make decisions and improvements in the way you do things, the processes. And so you're adding value in a whole bunch of different ways that you didn't even think about, but you came in with the approach of, I'm going to look at the organization, how we're organized.
And then the second part of organization, I think where there's always huge amounts of value that can be added is with the people. And so again, these are small companies that we're investing in and they really, in most cases, haven't had the luxury or been pushed to step back and say, "Let's talk about talent and talent management across the organization in a systematic way." How are we going to develop people? How are we going to recruit people and retain them? And what are the criteria to move people on if they're not making the cut? And so just thinking about that in an organized way with the leaders of the businesses, I think it's a huge way, it's a huge lever to add value in the companies, because then all of a sudden I'm thinking like, wow, we never really could afford or had an HR person before, and a week later they're like, "This is the best thing. I can't imagine how we got on without this person." For example. And it just goes on and on and on when you're in there doing this from an organization perspective as it relates to people. So I think organization is always a good go-to to really a theme that across the portfolio company can't go wrong.

Sean Mooney:
Your point about people I think really makes a lot of sense. It's something that we see every day. And I think particularly when people from the outside think about private equity, they don't think about the investments in people that occur. And I think sadly, most people think of, or many people think of the industry as a 1980s movie with Charlie Sheen.

Joe DeLuca:
Right. Greed is good.

Sean Mooney:
Those days are long gone. Even if they wanted to, you could never make a return. So even if they were selfishly altruistic, you have to do these things now with people, because at the end of the day, notwithstanding everyone's saying anything about ChatGPT, and they said the same thing with the iPhone, the same thing with the internet. People are really what drive these companies. And as we even look at our own data, and you think about this, it's more than 500 PE firms that are using this magic toolbox across all spans of private equity, across size, scale, industry, et cetera. So it gives us a normalized perspective of what's happening. 2017 or 2018, it was like 17%, 18% of the projects. This last quarter, it was upwards of 40%. And so there's been this metamorphosis, and people were always important through all of PE.
But right now, I think in some ways COVID has catalyzed this whole idea of, wow, by getting the right people, keeping your teams intact, keeping them engaged, we've seen this metamorphosis occur. And so what you're sharing makes a ton of sense. And once again, you all are intuitively doing all these things and we see the industry kind of taking shape. And now the biggest single use case we see in private equity is people. It's every quarter, and it gets bigger and bigger and bigger. And so that's something that I think people don't necessarily understand or appreciate about the industry is even if the industry is totally return generated, the only way they're going to do it is by bringing in great people and making them successful.

Joe DeLuca:
Definitely. And there's not enough of us to go around and it's not our jobs, it's the company's jobs to run themselves ultimately. And so the way we get leverage in those situations is we can help identify problems and solve problems and do it for a while, but long-term, right? You got to have the right people doing it.

Sean Mooney:
Yeah. Business in the world becomes a lot easier when you have great people. And I think I always appreciated that the way I grew up and private equity in that regard. But now leading a business you truly appreciate, if you just bring in great people, the rest becomes so much easier. And it probably took me way too long to learn that, which is the reason why the only hair I have left is gray.

Joe DeLuca:
Sometimes I say when I was in business school, the course that I blew off the most was organizational behavior. Give me finance, give me accounting. Okay, those are interesting. And now 90% of my job every day is organizational behavior. It really is.

Sean Mooney:
I think that's very spot on and insightful. So Joe, one of the things I'd love to wrap up here is I'm really curious, and so you're an avid reader and you've got this great bookshelf or bookshelves, I'm sure, with these great books. What are one or two or some of your favorite books, either personal or business that have made an impact?

Joe DeLuca:
There's so many. I'll tell you one though. I draw a whole bunch of parallels from this book for life in general and business, but one of my favorites, and to be favorite, you have to be read at least three times in my house. Okay.

Sean Mooney:
There's lots of notes in there.

Joe DeLuca:
So The Making of the Atomic Bomb by Richard Rhodes, according to me, it's unbelievable.

Sean Mooney:
Really?

Joe DeLuca:
It's a great book. So the first 350 pages are just a history of nuclear physics. So this is going back to Chadwick and Rutherford, Lise Meitner, the real pillars of nuclear physics. It's really interesting and cool. And then the next 450 pages are the making of the atomic bomb and the Manhattan Project. And it's an awesome book. I mean, it gives me goosebumps when I pick it up and I can just jump into it in any place and be just totally overwhelmed by the task that they had to accomplish. It's incredible.

Sean Mooney:
What were some of the takeaways for you?

Joe DeLuca:
Okay, so here's one which is you've got this guy, General Leslie Groves, who from the government in the military is sort of in charge of Manhattan Project. And then you have the polar opposite in Robert Oppenheimer, running the scientific and the technical aspect of the project. These guys pulled it off, and they were completely opposites. I mean, they were like the stereotypes. You've got a cigar chewing, belligerent sort of general, and Oppenheimer probably weighed 120 pounds, 130, brilliant physicist, just a man of the world, and by a lot of regards, probably a communist. And they worked together over the course of a couple years to put this thing together and make it happen. How does that ever happen? But it does. So one of the things that always is inspiring to me from that, and in a parallel into businesses, no matter what the task is, there is a way to do it.
There is a way, I mean, how do we build, how do we make this work? How do we get these people to work together? There's a way to do it if you really, really, really, really want to drive on it and spend the time. And these guys, they spent the time, they worked on it and they got it done. So I think that that's a lesson for me at least, I can use everywhere, and it's inspiring. At least for a short period of time though, because they weren't going to be working together for five years. But if you put them in a room for two years, they can get this stuff done. And same with all the other people that were involved in that project. The tens of thousands of people that were involved, for a short period of time, they came together and got it done. I mean, they can't fix the potholes in the road around my house in two years, but they can build an atomic bomb in whatever, 18 months. It's unbelievable.

Sean Mooney:
Where there's a will, there's a way. And after our conversation, I can see why that book really, really kind of registers with you because it's everything we've talked about here. If you work with great people, you kind of understand the situation, come up with a plan. And if you're tenacious and you're going to find a way, and I think that so much just reflects the whole conversation that we've had here today. So Joe, thank you so much. I'm going to order that book right after this conversation.

Joe DeLuca:
You can borrow my copy when you come to the shore.

Sean Mooney:
I would love that. So, thank you so much for joining us today.

Joe DeLuca:
Okay. My pleasure. Thank you so much.

Sean Mooney:
Special thanks to Joe for joining. If you'd like to learn more about Joe and NewSpring 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.

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.