Private Equity Spotlight: Value and Vision with John Caple of Hidden Harbor

[00:00:00] Sean Mooney: Welcome to the Karma School of Business, a podcast about the private equity industry, business best practices, and real time trends. I'm Sean Mooney, BluWave's founder and CEO. In this episode, we have an awesome conversation with John Capel, partner with Hidden Harbor Capital Partners. Enjoy.
I am very excited to be joined today by John Capel. John, thanks for joining us.
[00:00:43] John Caple: Thanks for having me.
[00:00:44] Sean Mooney: Yeah. I've been looking forward to this conversation. We've been working with you and your firm for all these years. And it's the first time we've had the opportunity to sit with you on this podcast here and have a great discussion.
[00:00:53] John Caple: Yeah. It's kind of fun, right? We don't talk about this stuff very much in day to day. We're talking about driving value creation and EBITDA kind of stuff. But kind of sitting back is an awful lot of fun. So I'm looking forward to it.
[00:01:02] Sean Mooney: And maybe to jump right in, John, I'd love to hear a bit more on your story.
So we can share it with the listeners Kind of how you came up, how you got into private equity, what drew you to this industry, given all the places you could have gone in life.
[00:01:14] John Caple: Yeah. You know, after business school, I actually was in management consulting. So I was at Bain for six years in the Atlanta office, really enjoyed that, learned a ton.
I did a bunch of private equity work during my time there. So I spent about six months in London working for most of the big private equity firms in the city. And then in Atlanta worked for a number of the big Southeastern private equity firms doing cases. And I really enjoyed working with private equity.
It was much shorter, right? So you'd get a SIM and you'd have a couple of weeks to come back with kind of a strategy assessment on the business. So it was very fast paced and the private equity firms were a lot of fun to work with, right? The corporates. Oftentimes the answer is sort of the simple part.
And then the hard part is how do you actually affect change? How do you get people on the same page? It's a lot of that stuff with the private equity firms. It was like really simple, like what the heck is the answer? And that's all I need. And so it was both interesting, fast paced and really engaging.
And so, it started with me really enjoying that. And then, prior to business school, I'd been in investment banking. So the finance part of it was something that kind of came naturally to me as well. As I thought to next steps beyond Bain, I was talking to a number of different private equity firms and HIG capital.
Like most people know was my first private equity job. What most people might not know is that most of the early people at HIG were from Bain and company. So
[00:02:30] Sean Mooney: I didn't know that actually,
[00:02:32] John Caple: Tony tamer was a partner there. John Baldock was there. Doug Berman was there, but then they had a real history of hiring.
Reasonably experienced consulting people. And so coming in through consulting is not the traditional, path to private equity. So I took a little bit of a different path and they were one of the firms that sort of understood the skillset that I brought and then didn't have. Right. So on the one hand, assessing a business, driving a CEO, all that kind of stuff.
I was really good at that. I didn't know how to negotiate a CA, much less a purchase agreement. So it was, I had this very mismatched, uh, Kind of skillset coming in and they understood that and understood kind of the, one to two year pathway of learning to negotiate purchase agreements and debt documents and all that stuff.
None of that is rocket science, but it's something you need to learn when you don't know it at all. And so that was, it was a great place for me to land.
[00:03:18] Sean Mooney: love that background that you had and that perspective because the P firm that I was with right before BluWave had similar streaks.
There was a lot of Bain streaks. There were some L. A. K. streaks. More of the consulting quadrant. I came up through investment banking and when I joined all these consultants, I go, Oh man. You guys have a better skillset. All the really like critical stuff. They were really good at.
[00:03:40] John Caple: Yeah. I'm not sure it's better, right? We have a mix here at hidden Harbor. We have, of our five partners, three of us kind of came up through consulting to more through the traditional investment banking pass and they both work and it's actually helpful to have mix of those skillsets, I think, and.
It's served us well,
[00:03:56] Sean Mooney: think that's a great way to put it. They're complimentary and the Venn diagram overlaps, but there's separate strengths. And so for me, it was that whole concept of the grass is always greener. And so they were wowing me with PowerPoint, but boy, could I bedazzle them with Excel?
And I think also HIG is I knew them in the earlier days, you Where they really got how to see value. And then also probably earlier on, fundamentally because of their value orientation, how to create it.
[00:04:27] John Caple: Yeah. In value and discipline. Right. And so I learned a ton at HIG. It was a great place and you know, both HIG has continued to be successful.
Frankly, the HIG spin outs have been hugely successful. So clearly there was a lot of good things going on there. I think the investment process was just first class. And I think one of the things HIG is very good at is not falling in love. And so I remember back to my time at Bain, we'd be working on a deal for a private equity firm and you could see it in their eyes.
They were in love and there was nothing you could tell them about their baby that would convince them not to buy this company, right? They were just truly in love. And I think one of the things that HIG was so good at was not, in fact, it may be the thing that they're the best at is they don't fall in love.
And it's a really important skill to learn. Cause when you fall in love, you make good money. You make bad decisions. I mean, sometimes you make good ones, but about companies, you probably make bad decisions.
[00:05:16] Sean Mooney: And that's another really good point. And,
So how did your time at HIG then kind of lead you to Hidden harbor?
[00:05:22] John Caple: I was at HIG for six years. It was a period of enormous growth for HIG. So when I joined HIG, the core buyout fund was 300 million. I joined the Bayside kind of distressed fund, which was 500 million, by far the biggest fund they'd ever raised, a couple, three, four years later, we raised Bayside too, which we kind of combined with the middle market fund.
We raised 3 billion. It was then off to the races and they were raising European funds. And so, I tell people, you know, my first day at HIG Sammy and Tony took me to lunch, it was this tiny place and, fast forward five, six years. It was really an enormous place.
And, I got an opportunity to firm called Convest partners up in West Palm beach. They had just brought in a new partner, this guy, Pete Kite, Pete, you probably wouldn't know him, but he was actually an entrepreneur and he had started a business that eventually became a company called check free, which he took public, but then sold for 4 billion.
And I was really excited about the fact that Convest was going to be a place run like a business. Like, we're not just going to be a funky private investment firm, we're going to try to run this like a business. I was extremely attracted to that. And I really liked Pete and thought he was a great guy.
And so that's what sort of convinced me to move kind of up the road to West Palm beach.
[00:06:38] Sean Mooney: That's great. it's interesting. I think a lot of people, when they, were maybe more, tangential to the private equity industry thing, private equity, New York, San Francisco, Boston, and
what I think a lot of people don't realize is a lot of the roots of private equity are really in this one corridor along the east coast of Florida.
And there's just some really, really kind of strong foundations there that have kind of led innovation in the P industry for years to come.
[00:07:06] John Caple: That is very true from a value investing perspective, right? So the genesis of value investing kind of in the U S and the private equity side was really.
Frankly, South Florida and LA, right? It was originally Sun and HIG in South Florida and then Platinum and Gores in LA and, you know, Platinum and Gore is kind of out of a Drexel kind of heritage and us, both HIG and Sun were founded by guys coming down here. So it really was very much that way.
Now it's become a much bigger space, but it is amazing. When I came down here, it really was just sun and HIG. Tribest was a little place. There was one or two other small ones, but it was really just sun and HIG. Now there are literally 40 private equity firms with offices in South Florida.
And so not just, some senior partner down here, but real people. And it's become real community down here. So it's certainly changed over the 20 years I've been here.
[00:07:55] Sean Mooney: It's this kind of epicenter of business builders now. And in some ways, I imagine, catalyzed by COVID as everyone kind of got the opportunity to see, you know, in Florida, they have this stuff called the sun, and not the fun per se, but actually the sun in the sky that shines and you get this thing called vitamin D and they have this thing called no state income taxes.
Yeah. And it's been amazing how these really, really awesome business builders have voted with their feet by going to places like Florida, like Nashville here, where I live, like Texas, through that whole kind of metamorphosis.
When I was going through this whole kind of life decision around, do I do BluWave or do I stick with this pretty good gig as a partner of a P firm, one crazy choice, one smart choice, and you can probably decide which one was which.
I don't know. It's in retrospect it seems more clear than the other, but not up front. But I was thinking through the whole idea and here I am. I grew up in Texas. I was going to go do two years in New York and then move back to Texas. And then I met a nice girl from Connecticut. 20 years later, I'm like, I am still here.
And I just realized over time that. It used to be you had to be in these big city centers because you had to go to Midtown Manhattan to do the management meeting to see the company you had to go sit in your lawyer's offices. And then this thing called the internet came up and then, it was more about going to see the companies where they were.
And it's like, you know, you don't have to be here. And in some ways it just makes things more hard, more expensive, difficult, and not taking anything away from New York or California, because there's still, amazing. Epicenters of commerce and capitalism, but at least as I thought about it for my personal self, I was like, you know what, I can change the equation on a number of fronts.
And sounds like you, saw that and learned that a lot earlier.
[00:09:31] John Caple: Wow. I didn't really learn it. I just got a job at HIG capital, which happened to be here. So really any learnings there. It was really very much, this is where the opportunity was. And I took it and it happened to be at South Florida and that's worked out great.
[00:09:42] Sean Mooney: That's great. Well, I'd love John, maybe to drill down a little bit more into kind of your background. One of the things I love to ask is, we'd know you better if we knew this about you, like what's maybe something that doesn't show up on the, you know, the LinkedIn page.
[00:09:56] John Caple: I have two kids who I spend most of my time with. I spend a lot of time fishing. And so I love to get offshore, you know, in South Florida, it's, hot in the summer, right? Golf and tennis really actually aren't that. Sweet here, half the year. So I spent a lot of time on my boat catching fish between here and the Bahamas.
And so, that's the thing I kind of enjoy outside of work. I'm happily married for almost 20 years now, which is great as well. And I don't know if there's anything else all that interesting about me. I'm kind of a boring guy, actually.
[00:10:22] Sean Mooney: No, I think that's really interesting. So what do you like to fish for? What's your, like, when you catch this, you're like, yes.
[00:10:28] John Caple: So it's interesting. So the truth is I like being out on my boat. Like it's some level to me. Fishing is an excuse to spending a day on the boat, right? You can't just go drive your boat around the middle of the ocean doing nothing.
You gotta have something to do. And so it's some level it's that. And I do a bunch of different kinds of fishing. There's sort of what we call the classic South Florida troll, where you're fishing a couple of planer odds and a couple of surface baits and you'll catch dolphin Wahoo, tuna, Kings, all sorts of that kind of stuff.
I love to go over to the Bahamas. Yellowfin tuna fishing is really fun. You catch these, at times hundred pound fish that just fight unbelievably hard. It's really fun. And then I spend a lot of time sword fishing. I'm not as successful at that. And that's a whole separate ball of wax. You're out kind of in the middle of the Gulf stream.
It's super technical. You actually catch them with an electric rod. So you don't even realize. Yeah. But once, you do a lot of fishing, you realize actually like people think of fishing is the reeling in the fish. Like that's not fishing. That's just reeling it in.
What's fishing is, how do you present the baits the right way? Be the right speed, all that kind of stuff. That's 95 percent of fishing. Pulling it in is just like the last 5%. So.
[00:11:37] Sean Mooney: I've always been kind of Like jealous of people who fish, I don't know how to do it. Cause I grew up in Texas.
There wasn't really, I guess that you could do river fishing and things like that. And I had this one kind of like formative experience. I was doing a study abroad in Australia, which was a great, I was like, I could either go to London school of economics or live on a beach in Australia. And think I chose wisely.
And. My roommates and I, we went on a big offshore fishing thing, and we had caught like a 300 pound, at least according to the captain, like a Marlin or something, something huge. And we were reeling this thing for three hours and it gets close to the boat and none of us had a clue what we were doing.
And then apparently, they get to be 300 pounds by being smart. And at the last moment, it blitzed towards the boat, turned upside down and spit the lure out. And the captain was so mad at us. He's like, cursing at us. He's like, you stupid, you know, Americans. Yeah. We didn't keep it tight.
But in some ways it was a huge blessing because we're a bunch of, dumb college kids and we were planning on taking back this huge fish in a cab.
So I think the captain was really mad at us cause he knew we would eventually see the light and just have to give him this fish that he'd be able to sell at market for a lot of money.
And so we ruined his day.
[00:12:51] John Caple: I don't know what the rules are in Australia in the U S you can't sell them. Oh, really? Yeah.
So it's actually very against the law. Oh. So offshore here in, South Florida, I think it was a couple of years ago, somebody caught a 750 pound bluefin tuna. And so they claimed it was dead when it got to the boat, whether that's true or not, I don't know.
It doesn't matter. You're still supposed to throw it back. Even if it's dead because it's illegal to catch a bluefin tuna in these waters. You're supposed to throw it back. I think it's hard to believe that almost any fisherman would really throw it back, right? Like it's like a catch of a lifetime.
And so they took it in and they brought it to the dock here in Whitten Beach, took a bunch of pictures of it. Put those pictures on Facebook. Not so smart, but the dumb thing they did was they sold it.
[00:13:36] Sean Mooney: Oh, it's just got worse and worse.
[00:13:38] John Caple: Well, no. And they ended up getting, I think it was a 30, 000 fine or something.
It was a huge fine. Yeah. But the really bad thing they did was sold it. Like I actually think if they just put it on Facebook and even if fish and wildlife had caught them, it would have said, Hey, it was dead and I'm sorry, but once you sell it and they sold it for like nothing too.
So yeah, it's super illegal to sell fish. You can't sell them at all without a commercial license. You have to have a commercial license.
[00:14:04] Sean Mooney: That's good to know. Is so as a fisherman who doesn't know how to fish, I'll remember that for sure.
[00:14:10] John Caple: A hundred percent.
[00:14:11] Sean Mooney: This episode is brought to you today by BluWave. BluWave is the go to expert of those with expertise. BluWave connects proactive business builders, including hundreds of the world's leading private equity firms and thousands of leading companies to the very best BluWave credentialed professional service providers, independent consultants, and interim executives for their critical variable on point and on time business needs.
Now back to the episode.
So john, I'd love to maybe dig into a little bit about kind of how you think about the business world given kind of these really kind of amazing experiences.
You work for some of the real kind of pillars of the private equity industry. You've Built in harbor into what it is today, which is, one of the most innovative PE firms that we know of. And we recognized as a top PE innovator, through this, analysis and recognition program that we do.
And so I'd be really curious to think about, what are some of the business traits that you look for when you're looking at a prospective investment and thinking about, is this a really. Good company, or probably more importantly, could it, or should it be even better than what it is today?
We take a little bit of a different view, I think, than even most of the private equity world. We're a value investor. And so there's always a reason why things traded a value. And the question I think you have to ask yourself is what are the things that are going to cost something to trade as a value that are really hard to change versus what are the ones that are easier to change.
[00:15:40] John Caple: And so as an example, it's really hard to change the industry you're in. It's really hard to change the products you sell. If you don't have quality products, if you don't have quality services, if you're losing market share, those things are really, really hard to change.
[00:15:55] John Caple: Frankly, even if you're not making good returns, those things are hard to change.
On the other hand, there's some things that are easier to change. They're not easy in the sense that most private equity firms are set up to change them, but they're changeable in a reasonably straightforward manner. As an example, we buy a lot of founder owned businesses where the founder wants to retire.
So essentially you're buying a business without a management team because oftentimes, there's a reasonably unsophisticated, bookkeeping person that maybe does the books. It's almost always running QuickBooks, obviously not audited, all these kinds of things, right? And so as an example, that's actually something that's very fixable.
You can go recruit, a great CEO to run that business. You can recruit a great CFO. You can move from QuickBooks to Sage. You can do a lot of those things. And so one, That's a risk we're very willing to take. We buy a lot of less sophisticated businesses. Oftentimes they're really good businesses.
They're run well, their products and services are really good. Customers like them, their employees are happy, but for a variety of reasons, they're going to be hard for a typical private equity firm to buy. And then we're also very focused on buying businesses in markets and with business models that at least have the potential to trade for kind of double digit multiples.
So, as an example, an easy one that most private equity people recognize is HVAC services, right? Who doesn't love residential HVAC services? Well, we have a business called Air Conditioning Specialist. We started at two million dollars of EBITDA there. Actually a really good business.
Good management team in that case, but not super sophisticated. We've done 10 add ons. We've put in a ton of systems, we've built it up. So that's an example of, a really good subsector that everyone likes. We're able to find a reasonably small place to start and get going. And so we're really looking for right businesses and the right business models and not nearly as focused on the system processes and people they have now.
Cause we're going to build that over our ownership.
[00:17:54] Sean Mooney: I think that's a great way to think about it and articulate it. It's kind of like, as I think everything in my life, I have to think through a metaphor as a part of growing up in Texas. And it's kind of like, if you're buying a house, you can't change the block that it's on, you maybe can change the foundation, but that becomes a really big lift, but you can do the kitchens and you can do the bathroom and you can add a pool.
And, those types of things where it's like, as long as you have something that has a solid foundation, there's a lot you can do to help these companies reach full potential.
[00:18:21] John Caple: That's right. And the management team isn't. Like just the kitchen, you know what I mean? I think it's really important, but it is something that, you can go find the right set of people to run these businesses.
And so, as an example, that's something that we've had a lot of success in changing over time and improving. And we're not like firing everyone, right? Like almost always it's, do a lot of corporate carve outs as well, which actually is very similar. It's actually shocking how similar corporate carve outs are to sort of professionalizing a founder on business.
It's almost all the same steps, in almost every case, we find really good people at these businesses. And so it's really a matter of augmenting the team and getting the team ready for growth, right? Because oftentimes the businesses we buy are kind of like one location founder run businesses. The founders really good, but they do what I call managed by walking around.
Right? Like they started the business. They started from customer one. They know every employee, they know every customer. They don't need systems and reports, right? That works really great up to a certain size and in one location. And so then when you want to have locations, two, three, four, and five, when you want to do add ons, all of a sudden you need systems and processes.
But making sure that you're starting with a really strong foundation, as you put it, being in the right industry, but then a pretty well run business. I mean, just cause they don't have Sage and service Titan and, a CRM system doesn't mean they're not well run. And so that's something we're often doing.
[00:19:45] Sean Mooney: And I think that's some other really good points that you bring up. And even as I think through kind of the journey here BluWave, we're about the size of, or at least maybe the size of portfolio companies that I used to have now. But when we started this thing, I could walk around and I could just had a sense for the business.
I'm like, okay. It would outsource my accounting in the first couple of years. Cause like, Oh yeah, I know exactly what's going on. Just give me my financial spreadsheet. And then two things that I would feel is one, it starts getting more complex and you start losing that intuition. And then, I always feel like, we're on this plane that we're building as we're gaining altitude.
And then you just read these phases where you feel the wings wobbling and you can't gain altitude anymore. And until you put in that next layer of infrastructure and rivets in kind of capabilities, there's no way you're going to gain that altitude any further than what you have done. And so what you're sharing there kind of viscerally makes me recall kind of our phases as we've kind of come along and just knowing that if you don't do those things, you're not going to get any more altitude.
[00:20:41] John Caple: Yep. That's right. That's 100 percent right.
[00:20:42] Sean Mooney: So maybe with that in mind, you've looked at a company, you see that it's got this potential, it's got the preconditions for kind of transformation and adding, untold or unforeseen amounts of value previously. How does your firm then Approach the value creation phase.
What resources do you bring to support your portfolio companies as part of that process?
[00:21:06] John Caple: Yeah. So it starts with our portfolio operations group. So we have 13 people on our portfolio operations group, which is a huge team for 450 million fund, right?
[00:21:16] John Caple: And those people kind of have two different flavors to them.
We have a whole series of functional specialists. So we have a CIO, we have a head of talent acquisition, a general counsel. And so our businesses aren't big enough to have those roles in there at the same time in almost every business we're putting in new systems, we're hiring people and have legal issues.
And so by bringing those resources to our CEOs, it helps them get things done. And that's critical and critically important. Then the next thing we have is we have a bunch of people that are kind of on the ground, driving the businesses day one. And one of the things we've put together is what we call our value creation engine.
Which is 12 standard operating procedures that we do at every portfolio company. By the way, you can go on our website and see them. So they're not secret and they're fairly straightforward. Of course, we're buying pretty small businesses. Like, they're not ready for maybe some of the things IBM is ready for.
And when you see them, you'll say, wow, those were pretty simple, but almost every business we buy isn't doing these things. And so we then implement those in a pretty straightforward way, every time. And the goal is to get those implemented in the first year.
[00:22:21] John Caple: Our whole approach to value creation is called building teams, focused on execution.
So everything we do is about those two things, getting the right team in there, but it's not just hiring the right people. It's how do you have the right feedback loops? How are you communicating the right way? What's the vision? How are you then measuring? Do you have an engaged employee base? We do employee surveys across the portfolio once a quarter.
And it's really helpful. And we found that everyone always said, well, do we have to do this every quarter? Yes, it really helps because it actually keeps it in front of you and you keep getting new data, neither getting better or worse. And when you're getting worse, you figure out where you are and where your hotspots are.
And
[00:22:57] John Caple: it's really helpful. So that's kind of the building teams part of it. The second part of it is what we call focused on execution. And so there it's really all about that word focus. Biggest mistake companies make by far is trying to do too many things actually. So they have a list of priorities and it's 10 or 15 long.
And that means you have no priorities. That means you're not focused on anything. You're just doing a bunch of stuff and you're almost certainly not accomplishing all that much. And so all of our portfolio companies have what we call a value creation blueprint. that's the two or three things they're focused on right now.
It's only two or three. And we are going to focus maniacally on those two or three and get them done. So if you sat through one of our monthly board meetings, like we don't get to the financials till page 10. Right. Like we're starting with one of those initiatives. Where are we? What are the leading indicators?
How are we getting this stuff done? And so we're going to spend the first half hour, at least of the board meeting, talking about that, then we'll get to the financial and how we're doing. I mean, we're still private equity guys. We care about that.
But it's actually, what really matters is, are you getting those core things done?
[00:24:01] John Caple: Are you making progress? And it helps our portfolio companies, right? Cause it's easy to not focus. It's actually really hard to focus. And so we help them by almost focusing them. We reach the two or three things jointly. So it isn't in the Harbor telling them we come to a joint decision that these are the things, but then
[00:24:19] John Caple: we do hold them accountable and they're holding themselves accountable too.
Right.
[00:24:24] John Caple: Are we really focusing on these things? Are we getting things done? And so that's the way we approach it. And, we're always learning and getting better, but I think in the eight years, we've really developed a pretty good system.
[00:24:33] Sean Mooney: I really like that mindset. And I think we've all seen this.
It's kind of easy and kind of fun, to wax poetic on a whiteboard and like, Oh, all the places we'll go. And it's so much harder to do it. And not to dilute your focus.
[00:24:46] John Caple: It's literally a personality trait. The personality traits called consistency, actually.
So there's some people that are actually very consistent. Like they want to do thing one, then thing two, then thing three. And they get very out of sorts. If they have to change the order, if you put something new in their order, they hate
[00:25:02] John Caple: it. On the other hand, there are people who love it. Someone comes into their office with a new idea and it's like, Oh my God, this is exciting.
There's a crisis of the day. This is fun.
[00:25:12] John Caple: Private equity people are all that way. Cause it's just not the way the world works. But the problem with that is that means we all like new things. And so the easy thing to do is to call your CEO with your three new ideas of the week.
Right. But that's not actually very smart. You actually need to help your CEO focus on the couple of things we've agreed will most drive the business. I'm like that. I love the new ideas. So, kind of left to my own devices. That's probably what I do, but I've just learned over time that that doesn't work.
And so we do have to be focused on those two or three things. And as a partnership, we hold each other accountable to that.
[00:25:47] Sean Mooney: Do you bring in like project managers within your portfolio companies, or is there someone on your team providing that role because I would imagine still like you want your CEOs looking forward, but someone's got to keep the train on the tracks and roll.
And in the meantime, as they're peering out above our horizon.
[00:26:02] John Caple: Yeah. So that's kind of what our portfolio operations group folks do as they come in, so they are project managing sort of the implementation.
[00:26:10] John Caple: Of both the standard operating procedures, but then also, kind of that monthly cadence
[00:26:16] John Caple: was it Patton that said, a good strategy, executed violently today is better than the perfect strategy next week. So we're big believers in that. Like execution is 90 percent of the battle and
[00:26:26] John Caple: the battle is never, do we have the right strategy? A mediocre strategy really executed will win.
Whereas 50 percent never does. And so. We're huge believers in actually focusing our CEOs less on the horizon and more on, Hey, we've agreed to do this. Let's hit it. Once again, not that that's always it, there's clearly been times when we had three objectives and we over time said, Hey, no, no, no.
Let's flip out this one for that one. So it's not that it never happens, but 95 percent of the thought process should be on how do I execute these three things?
[00:27:00] Sean Mooney: I love it. That makes a lot of sense. So as you think about, where you are today, and we're looking into the visual period ahead of us, John, I'd be really curious to talk about with you, what are some of the value creation opportunities, maybe that you're thematically engaging with your portfolio companies and business leaders that you think, pretty much every, Person should probably be thoughtful about as well

[00:27:23] John Caple: These may be specific to the kinds of deals we do But I would say there's two that really come to mind that have a big impact almost every time for us
One is improving the sales process at businesses
[00:27:38] John Caple: And so sales are the result Of running through a very consistent process, probably starts with defining your value proposition, understanding what your target market is and what the ideal customer profile is getting those in a CRM and then consistently putting those through a sales funnel. So you see very seldom. Do you see that in companies, at least companies of the size we buy, I mean, bigger companies all have a CRM, but when you're buying 5 million founder owned businesses.
I won't say we've never found one with a CRM, but it's pretty close to that. Right. And so there's almost always real opportunity and just putting process on top of the sales function, how many calls are they making? All that, measuring the pipeline, all that kind of stuff.
Almost always there's real value there and that we can really accelerate kind of organic growth. That'd be number one. Number two, I'd say is. Almost all of these guys are under invested in systems in general. And so they're all run on QuickBooks without an operating system, et cetera, et cetera. And so we're,
[00:28:40] John Caple: and it isn't just putting in Sage, it's putting in service Titan and an operating system.
Often it's putting in an HRS system. It's putting in a CRM.
[00:28:49] John Caple: Those generally drive value during our ownership. And even if they don't, the next guy will pay me for them. So even if they don't drive value in my ownership here, because I have CEOs that doubt it, I'm like, but guys, like when we go to sell this business, having a best in class tech stack and being able to answer all their questions immediately,
[00:29:10] John Caple: always pays dividends.
So I would say that's kind of point number two.
[00:29:15] John Caple: And the point number three, something we've already touched on, we're incredibly focused on employee engagement.
[00:29:21] John Caple: We measure it on a quarterly basis.
[00:29:23] John Caple: And have a real tracker. Can we buy a lot of businesses that don't have a good employee engagement scores when we buy them that end up with best in class employee engagement scores?
That's the first half of our value creation engine, this idea of building teams and that's our best metric for, have we built a great team and are they engaged?
[00:29:40] John Caple: What I'd tell you is most people think employee engagement is all about having a super charismatic CEO that, Elon or whoever the heck it is, that really, sets a great vision and everyone gets excited about that's not it at all.
It's a process. Employee engagement is a process. It's all about, you have to set out the vision, but it's all about communications. It's all about feedback. It's all about measuring it. It's really very much a process. You do not have to be charismatic at all to drive good employee engagement in your organization.
And we've seen it over and over again, when people just execute the basics of our kind of building teams,
[00:30:23] John Caple: SOPs, every time it works, it just does.
[00:30:28] Sean Mooney: And what are some of those basics, John?
[00:30:29] John Caple: ours are simple mission, vision values. So set out a mission statement, have a vision and a set of values.
The second one is communications. So have a communications plan. Write it down. How am I is the CEO going to talk to every person in my organization? Probably weekly.
[00:30:46] John Caple: And how do I do it when I don't have email? Because I have a bunch of folks in the factory floor that don't have email. And there's a variety of ways to do it, by the way.
And there's some good I. T. Systems that help. But there's also some ways that don't involve I. T. So the second is communications. Third feedback. So every employee at every portfolio company we own gets quarterly feedback. Their boss sits down with them and gives them feedback. I can't tell you how hard our companies fight this.
[00:31:10] John Caple: They all fight it. Oh, we can't do it. Oh, it's too hard. Oh, it'll take too much time. My guys don't know how to give feedback. I mean, I just, I've heard every excuse in the book
[00:31:20] John Caple: , we've gotten the point. Actually I had one of our CEOs, we had a conference last year. And he's like, I wish I'd just done it.
Like I spent so much time telling you guys why we shouldn't do this.
[00:31:29] John Caple: And every time they do it, they're like, Oh my God, that's great. Because it turns out one, all you need to do is sit down with every employer for 15 minutes. And so for the typical, supervisor that has 10 direct reports, it's like two hours, it's like no time at all to there's like ways to do this really well.
But all that really matters is you sit down and talk to each other and you give them some feedback and they give you some feedback. So that's one that we do at every portfolio company, every portfolio company we have has incentive plans.
[00:32:00] John Caple: So every single person in the company gets both a bonus incentive and an equity incentive.
And they're different for everyone, but every single employee gets both a bonus and an equity incentive. Every single person in the portfolio company is on a team and that team has to meet once a week. Oh, we don't need to do it once a week. Oh, whatever the excuse is. No, no, no. It's once a week you
[00:32:20] John Caple: sit down once again, ideally you sit down and go through the metrics for that team and talk about like, what did we promise last week?
And what are we doing this week? Think there's ways to do this. In A plus way, but literally sitting down and once a week, communicating to your people is huge. And then finally it's these employee surveys. It's literally measuring it every quarter. And for even your best businesses, what you find is it's not consistent, right?
There are groups, there are facilities, there are whatever that are lower than others, and that then tells you where to go fix. And then when you see drops, it tells you where you have a problem. So that's how we do it. And like, nothing, I just told you is complicated.
It's just sitting down and engaging in a number of processes and just doing them consistently.
[00:33:01] Sean Mooney: I think that's a treasure trove of information though, in terms of like, how do you do the basics really, really well and do it consistently. And that drives results. And it goes back to your, the ethos that we've talked about during this conversation.
Maybe one other, double tap on this conversation. John is on the sales side, right? Sales and growth is such a huge
[00:33:18] Sean Mooney: correlate to ultimate enterprise value creation. And if you can grow the business, it creates value, hopefully with cashflow, let's go over at the risk of dating ourselves and being curmudgeons, like you got to make money at it too.
And hopefully more money each year. And so I reflect on businesses that I looked at and assessed in career past and, just business in general, there's usually a transition from companies where, uh, The sales team are kind of run intuitively by salespeople and you might have a unicorn here or there they're just kind of running around and they're just doing stuff.
And sometimes it works, sometimes it doesn't, or maybe it'll work for a while. Sometimes it won't. How do you think about value, particularly these companies are getting the next level of having sales leader
[00:34:00] Sean Mooney: that maybe isn't the best sales person. Maybe they are, but this appreciation of process. And data and using the data to understand and inform and drive outcomes.
[00:34:13] John Caple: Yeah. So it's interesting because I'm not even sure it's as important who the sales leader is, as it is, do you have a process and do you follow it every week? And so our sales excellence SOP is sort of four things. The first one is understanding your customer value proposition, your ideal customer profile.
So I was mapping the market saying, where are we trying to go? Where can we really add value? What are we looking for? Yeah. The second thing is implementing a sales process, which is essentially a CRM. I mean, that's what automates it, right? You conceptually don't need one, but you do, and you need to put one in place.
And it's as simple as tracking activity and then tracking the pipeline.

[00:34:48] John Caple: Point number three is we do digital marketing initiatives in every single one of our portfolio companies. At least with small businesses, like we buy Oftentimes they have not done the basics, like maybe they have a LinkedIn site, but everyone's not on it and they're not posting on it and it's like super basics.
And so we're just trying to do that every time. I don't think any of our companies are a plus, but like, you can actually get a ton of value just from getting to see right. And just doing the basics. And then finally, you pull all that together in a weekly scorecard. And so that you're going to measure the sales group once a week.
So I talked about the idea that everyone should be on a team and that your team should meet weekly. So it's really important for the sales team to do that. And they have to have a scorecard. There's a lot of other teams actually don't need their own scorecard or where that's like a nice to have with the sales team.
It's a must have like, I want to see your weekly sales scorecard. And once you sort of have a weekly sales scorecard and they know they're going to get held responsible for it. Even that sales leader, who's really more of an intuitive sales guy,
[00:35:46] John Caple: like starts to figure it out. Right? Like if I didn't hit my number of calls that week, I'm going to get held accountable for it.
And so then I better make sure each of my guys have allocations of calls. So they're going to get there. And I'm going to track who's making, who's not. I mean, this isn't complicated folks. Right. There's a ton of value in just setting out that set of metrics. And then once again, holding them accountable on a weekly basis, not monthly, so it's not monthly, it's literally weekly and it's that operating cadence.
So as an example of hidden Harbor, we, every Monday sit down and go through our pipeline. I think like every private equity firm in the world does. And so that's just a basic sales process, right? Well, your portfolio companies need to have the same thing.
And I actually think the process and the scorecard are in some ways more important than the person you have leading it. Cause oftentimes a good salesperson, if you help them with the metrics and help them with the process, they'll then actually be in many cases, reasonably good at kind of.
Mentoring and understanding what it takes to sell things. And they can do that part of it well. So that's at least what we found across our portfolio.
[00:36:49] Sean Mooney: That makes a ton of sense. Maybe to round out our conversation here, John, what I'd love to kind of tap your wisdom on is, this whole notion of like, you've seen a lot, you've been through a lot.
And I think one of the great things about private equity is. We're all in this constant improvement journey and you never get there, but we're always on that path. And there's a thousand things that I wish I knew back in the day that I would have benefited from had I been able to bring a Wayback Machine,
but if you were to go back, to like 22 year old John, what would be one of the things that you would share with yourself that you wish you knew then?
[00:37:24] John Caple: I think the hardest thing about anyone's career is both giving and receiving feedback. How do we get better? How do we give and receive feedback, give it in a way that people can act on it and then receive it in a way that they can make you
[00:37:39] John Caple: better.
The more time I've gone through, the more time I've found that, like, there are a whole series of things you can change. They're relatively small. They're what I call your process. So at the end of the day, it's almost impossible to change who you are.
[00:37:54] John Caple: Right. Like we talked about that personality trait of, do you like consistency or do you like change?
Like, I can't change that about you. It is what it is. You can change a little bit and you can take the edges off, but at the end of the day, you kind of are who you are. You have all these things about you that are almost certainly.
[00:38:08] John Caple: Pretty unchangeable, particularly in the short term, but there's all sorts of things about your personal process that can have like a huge impact in how well you perform your job.

[00:38:18] John Caple: And so let me give you an example of one so you can understand what I mean by process. So when we raised our first fund at hidden Harbor, we came off the road, I'd spent literally the last two years
[00:38:28] John Caple: driving to the airport every Monday night, hopping on a plane, pitching.
[00:38:32] John Caple: Three to four investors in a day, flying to a new city.
I mean, totally painful.
[00:38:37] John Caple: Right. And I get back and the first thing we decided to do is we're going to do an employee survey. This is the beginning, right? This is our first employee survey. We're going to find out like, how are we doing? And this is like the 10 people that hit and we get the survey back and they're like, Hey, We don't feel like the communications are very good.
We don't know what's going on. Communications at hidden Harbor are very good. I'm like, are you kidding me? We have like 10 people here. What do you mean? Right? Like my door's always open. I'm a totally open guy. I'm always happy. You have any questions, come ask. And like, this is nonsense.
[00:39:06] John Caple: okay.
But they're telling me that my communications aren't very good. So maybe I should listen.
And what I did was we have a Monday morning meetings we talked about. I now start the Monday morning meeting with announcements and I write down a couple things and then I ask, does anyone else have anything to announce?
[00:39:21] John Caple: That's it. My communication scores went through the roof. Like I didn't become better at being a communicator or care more or any of that stuff. I just made like a really small change in my personal process that like all of a sudden I'm a great communicator, right? And it's amazing. I think the number of things in business that are like that.
[00:39:41] John Caple: And so I do think that one,
[00:39:44] John Caple: when you're giving. feedback, the more you can give that kind of feedback. So telling someone, early in my career, you're not detail oriented enough. I mean, like you are, aren't as detail oriented as certain you are. Right?
[00:39:58] John Caple: So the one I give junior guys is never go directly from the printer to my office.
I want you to go back to your desk and look at it for five
[00:40:07] John Caple: minutes and like you'd be shocked Mistakes you find when you do that. It's a little simple thing, right? Like I can't tell you to be more detail or any because you are who you are you know what I mean? And so both when you're getting and giving feedback, understanding like what people can do that are different, that they can really execute on.
So I just had a three 60 review. We do three 60 reviews for everyone at hidden Harbor, including our partners, by the way. And so the person gave me my review. It was like, I have a very distinctive style. My partners tell you all about it. I'm extremely straightforward, extremely blunt. I will tell you exactly what I think, by the way, I'm not then mad at you afterwards.
Right? So we can have a disagreement on something. A minute later, I'm done. And I like you just as much as I liked you before. That's sort of my style. And so they were like, look, your style lands really differently with different people. And so those of us have known you for a long time, get you, and we get exactly how you are and
we love your style, but it lands differently. And so you should probably figure out how to modify your style. It's going to be almost impossible for me to do that, right? Cause it's my style and I've been doing it for 30 years or what have you. And by the way, it's deeply ingrained in my personality in a million ways.
Oh, by the way, also, if you give me a test, you'll find out I'm actually not very good at figuring out how my style lands. That's one of the EQ things I'm actually low at. I'm high at some others, but I'm really low at that. So the interviewer said, but you know what you can
[00:41:26] John Caple: do. You can do what's called voice or vote.
[00:41:30] John Caple: In other words, you need to be clear with people on whether they have a voice or whether they have a vote. So like when you're just telling someone to do something, just tell them that that's what they have to do when they have a voice, but you're making the decision, tell them that when they have a true vote.
Make sure, but just make sure you're clear about that. People get wildly less frustrated with you and your style.
[00:41:50] John Caple: I can do that. I can change my process. The idea that I'm going to change my whole style is almost impossible. And so I would say that's the thing I've learned kind of in my career, both when you're giving feedback and receiving it.
And a couple of folks have given me awesome feedback that looked like that throughout my career. Another one, that's a great story. So when I was a new manager at Bain. My case team scores were decent. So at Bain, you like literally get rated by your team every month. So you get rated like once a month by your team on how good a job you're doing. My case team scores were decent. And I sat down with one of our partners for my annual review. And he's like,
[00:42:22] John Caple: Cable, like when you were a consultant, you wanted to be given the problem and just go away and you wanted to solve it.
And by the way, you were really good at that and that's how you wanted to be managed.
[00:42:34] John Caple: And he's like, your problem is that's how you're managing others now.
[00:42:38] John Caple: And so you're doing the same thing to them. And they go away and they work on it for two weeks and they come back to you in your office and, you correct everything, right?
You completely redirect and you say, no, you do this, this, this, this, this, and he's like, so that isn't working for you. What you need to do is just tell people what to do, like literally sit down and say, I want you to do this exact set of things. Here are the slides, go fill them out. I'm like, no way. They're going to hate that. Right.
[00:43:03] John Caple: Oh, that's awful. I can't do it. It's like, no, no, trust me. You do this. I started doing my case team scores went through the
[00:43:08] John Caple: roof because it really worked well because I knew exactly what I wanted and people wanted to be communicated with, on what I wanted.
And all of a sudden I got great scores. So it is those little things that through your career, the best mentors you have will give you sort of very, actionable, direct changes to your process that you can do. And then once again, is your mentoring others and trying to help them along, do the same thing.
Don't tell people. You need to be more detail oriented or you need or whatever, try to give them very specific things they can change in their personal process. And you'll see real improvements in people.
[00:43:43] Sean Mooney: I really, really like that advice. And it's interesting. So we do quarterly engagement surveys with our team.
And one thing that constantly comes up is this concept of feedback. And it's interesting as you poll people. Everyone wants more of it, almost a hundred percent and almost a hundred percent are also afraid to give it. It's a journey and we do trainings, we do all the things that, but it's still really hard.
But think the way that you set out this kind of framework, it's a great way to think about how to activate it.
[00:44:07] John Caple: I mean, the feedback is actually helping people. And the key is to be giving it around things. They can actually versus I wish you'd, be whatever
[00:44:14] Sean Mooney: yeah, I think that makes sense. So

[00:44:16] Sean Mooney: John, I've really enjoyed our conversation here. I've actually have pages of notes that you can see my hands underneath. And what's great about is it's not only as would think about we were saying through my lens as a former PE investor.
But also as I think about from a lens as a CEO, it really kind of struck, many courts or like literally I've taken a lot of notes. So this has been extremely helpful extremely valuable. So John, I very much appreciate you. And I very much appreciate the time you spent here to share kind of the wisdom that you've probably earned the hard way through a series of years.
[00:44:48] John Caple: That's for sure. So, Hey, Sean, really appreciate the time today. I really enjoyed being here and yeah, look forward to continue working together through the years.
[00:44:55] Sean Mooney: Great. Thanks, John.
[00:44:55] John Caple: Thanks. Thanks, Sean.
[00:44:59] Sean Mooney: That's all we have for today. Special thanks to John for joining. If you'd like to learn more about John and Hidden Harbor Capital Partners, please see the episode notes for links. Please continue to look for the Karma School of Business podcast anywhere you find your favorite podcasts. We truly appreciate your support.
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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.