Private Equity Business | My First Million Podcast | 03/31/2020

Shaan Puri

What's up, everybody? Sean here with Sam and special guest for this episode, Brent. Brent, how do you say your last name?

Brent Beshore

be sure be sure

Shaan Puri

Alright, cool. Yep, I've been trying to get you on for months. I think our email thread goes back months. The reason why is because I'm interested in the business of buying businesses. I've been looking to do this myself. After I sold my company, I said, "Great, I got some cash. I can either put this in the stock market, I could go gamble this on a riverboat, or I can potentially buy a cash-flowing business that's a good, solid, stable business." So, I started learning about that world, stumbled around, and saw Permanent Equity. I've been interested in having you on the podcast since then. So, why don't you tell us, give us like, you know, the minute version of who you are and then also, what is Permanent Equity?

Brent Beshore

Yeah, so **Permanent Equity** is... we like to say Scrabble's a family of companies that buys family-owned companies. So technically, we're a private equity firm. Now, we were just a small collection. It was my own capital in the beginning. I was an entrepreneur and then accidentally bought a business about 10 years ago. That's what led into kind of what we do today, but I raised a...

Shaan Puri

you accidentally bought a business

Brent Beshore

Yeah, so I had a mutual acquaintance say, "Hey, you should meet this guy. He's in your industry and he just got left at the altar for the second time." I took that to mean I should try to buy his business because, while he was just trying to connect two people that were in the same field or similar fields, I thought there might be an opportunity. I don't know, I looked about 24 or 25 then, but I looked about 13 or 14 at the time. I sat across from this guy and told him I wanted to buy his business. He laughed at me and said, "Two grown men tried to buy my business. How in the heck do you think you're going to do it?" I said, "I don't know, I'll figure it out." We negotiated, and he told me, "No, thank you." Then, seven months later, he called me back up and said, "Alright, let's move forward and get it done."

Sam Parr

what was your company before

Brent Beshore

So, I started a kind of collection of regional marketing companies. We had started in 2007 and really got going in 2008 and 2009, which were, as you all know, interesting times. But it actually allowed us to grow, and we adopted some video technology into becoming standard. We think we were probably the first people in the world to use it for commercial purposes. But what...

Sam Parr

does this mean what's regional marketing

Brent Beshore

You know, we were doing... look, we were doing like ad agency type work. We were doing media buying, we were doing digital work, you know, trying to scrap and claw and sort of make a go of it.

Sam Parr

sort of a little bit you're you're an agency just figuring it out

Brent Beshore

Yeah, we're an agency. We had some unusual talents kind of under that agency because being in mid-Missouri, we didn't have access to a lot of specialty groups. So, we started building out our own specialty groups. We built out research, did some mobile and app development, as well as some film work. Those were kind of the three unusual buckets that you typically don't get into in an agency.

Sam Parr

and I'll just

Shaan Puri

Yeah, give us a sense of the level of success. I think a lot of people, one of the things we hear a lot from the audience is that they hate when we fast forward and someone's like, "Yeah, I did this thing," and then all of a sudden these amazing opportunities opened up. They sort of were like, "Wait, where were they before?" So, give us the before picture. How were you doing? How was that business doing financially? Was it a big business or a small business? You know, what was that business like?

Brent Beshore

Yeah, so let's see here. I'm trying... it's been a while since I've thought about the numbers. So, we grew to **26 employees**, I think at the peak of that. Before we were... we were doing fine. I could make a living doing it, a good living. The agency business is hard. It's really, really hard. I think that's probably what I've learned in my career. I've made all the mistakes and I've tried and tested a lot of business models. You sort of taste and try something, and you're like, "Oh, I didn't realize how hard that was going to be." Then you move around. I would say we were a moderately successful regional marketing firm—nothing special. When we bought the firm that we did, called **Meticross**, we were kind of co-equals in the marketplace. They were much more focused on government contracts, while we didn't have any government contracts. That was really attractive about the acquisition. Being able to combine those organizations gave us a lot more cash flow than having them separate, just based on cross-selling different products that we had. We were able to fulfill a lot more of the gross profit through a larger organization that they had been farming out some stuff. So, that was kind of a nice combination.

Sam Parr

Wait, so did you buy that first company under the umbrella of your marketing business?

Brent Beshore

yeah yeah correct

Sam Parr

got it and so so it wasn't its own entity

Brent Beshore

No, well, I mean, it was... I mean, speaking with me technically, it was its own entity. But it was 100% owned by me, and 100% of the other firm was owned by me. So, I mean, it's shared resources and processes for me.

Sam Parr

so you didn't have a cofounder or any outside investors or anything

Brent Beshore

Yeah, so I bought it with an SBA loan. Thank God for the SBA. It was just an SBA loan, and I rolled the dice.

Shaan Puri

And so, just to give people a sense of where you're at now, I think Permanent Equity, you guys raised a second fund of $248,000,000. It's a 27-year fund, which I think is interesting, and you can talk about that. You have a 10-year investment period. So, the first fund was $50,000,000 and the second fund is roughly $250,000,000. What are you guys up to? Explain what the model is here and why that should be interesting for people.

Brent Beshore

Yeah, well, if you think kind of from first principles, families got wealthy by getting involved in a business and holding it for a very long time. Over time, they used those cash flows to either fund new investments or opportunities. So, we just have a very similar mindset. You know, private equity is kind of the main methodology of how people have bought and sold companies in the past. It's a very short time clock. If you think about it that way, from the time you buy to the time you sell, it really needs to be probably no more than 4 years or 5 years at most. That's if you catch it kind of early on in the life cycle. Most private equity funds are 7 years with 3 one-year extensions, so up to 10 years maximum. I mean, technically, if you can't sell the asset, you can go longer than that, and everyone gets irritated at you. But you're expected to sort of have capital return. What that forces is, you know, you just can't think longer than your time horizon for holding the business. When you combine that with, you know, most private equity firms are trying to put in as little equity as they possibly can and maximize the debt, what you end up doing is taking these great family businesses that have been around for a long time and sort of hitting them with the needle. You're not trying to supercharge them to grow and get a higher multiple when you sell. You're making just very short-term decisions by necessity, and you're opening yourself up— which is pertinent now; it wasn't as pertinent 3 or 4 weeks ago— to a lot of downside risk. You just can't withstand nearly as much shock as you could if you didn't have any debt. So, we've just really taken the opposite approach and said we want to own businesses like a family would. We buy with no intention of selling the business, and we're typically using no debt as part of our transactions, which in the private equity world means that we're the weirdest duck in the world.

Sam Parr

So, how much... what's your total? What's the total revenue of the collection of companies then?

Brent Beshore

Well, see, so total revenue... gosh, I mean $180,000,000, something like that.

Shaan Puri

and then

Sam Parr

I imagine you guys try to run this like super profitably. So, if you have $180,000,000 in revenue, I bet you have $40,000,000 in cash flow.

Brent Beshore

Let's see here... so hold on. You literally put me on the spot here. I've not done our calculations recently. Yeah, I mean, we're highly profitable. The organization does really well. I don't know if we're at $40,000,000 because we have some lower margin businesses; we're lower than that. But yeah, we do really well. And look, I don't own all that anymore, right? So just from a perspective, I don't want this to come across differently than this: we've got investors. The first fund owns five of those investments, and then I own four outside the first fund that were the group we put together before we raised that first fund. As for the second fund, we haven't deployed any of that capital yet. So, we have a bunch of dry powder. I mean, obviously, it's been extremely fortuitous for us to raise at the time that we did. I've been having lots of conversations with our investors, and there should be lots of opportunity and lots of pain out there, which is unfortunate. We have to try to toe that line. We could talk about it between being a "white knight" and a "loan shark," and that's not an easy one to toe.

Shaan Puri

Right, and so let's just take a look at the portfolio as it is. What types of companies are you trying to buy? Are you trying to buy based on a certain price, a certain business model, or a certain type of owner? What are you trying to buy?

Brent Beshore

Yeah, so we first want to buy something that we think is going to be durable and around for a really long time. If you look at our current portfolio, we are in the swimming pool business—digging holes in the ground and shooting concrete. We're also manufacturing in that space as well. Additionally, we have another company that's unrelated in the backyard product space, so we have a bunch of different SKUs that sell through mass retail. We also have a military recruitment firm; that was the first firm that I acquired, Meaty Cross. We've got a real military recruitment firm.

Sam Parr

so is that like lead gen for military

Brent Beshore

Yeah, so we actually work with a number of different clients. One of our main clients is a civilian branch of the Navy that resupplies the ships that never come into port. It's called the Military Sealift Command, and we're responsible for finding and onboarding all of their staff on a yearly basis.

Sam Parr

so it's like a staffing firm for a ship

Brent Beshore

Yeah, well, for a whole branch of the military, there's staffing. I mean, there are a lot of civilian mariners—14, 15, 1,700 a year—into that division. So it's a pretty large operation.

Sam Parr

but is it digital

Brent Beshore

some of it's digital yeah yeah we have you know online application products

Sam Parr

but not mostly

Brent Beshore

I mean, there's a lot of physical activities as well. We have physical recruiters, and it's, you know, online and offline. It's the not-so-sexy, where the rubber meets the road, real deal business.

Shaan Puri

Okay, so we were talking about some of the different businesses you guys own. So, Media Cross, which is a military recruitment firm, and a swimming pool business, Backyard Base. You have a couple there. You were saying you're looking for durable businesses. That's like, let's say, attribute one. What are the other key attributes you're looking at?

Brent Beshore

Yeah, I mean, we want to find a leadership team that we can partner with. There are so many challenges; it's hard to grow a business, right? A lot of the businesses we're looking at, we either call them "has-beens" right before the line of professionalization, or maybe they've just crossed it. There's this real interesting gap where a lot of these firms are too big to be small and too small to be big. The leadership team is kind of capped out; they're just brute forcing as much as they possibly can, but they don't have the systems or the talent on staff to grow larger. So, a lot of the time, we're trying to figure out from them if they want to get bigger. There are some firms that we talk to, and they say, "Well, even though I say I want to get bigger," the CEO is answering 60 calls a day on a cell phone. I mean, there's just no way, right? We're looking for a leadership team that has the base skills and is really excellent at what they do. We're also looking for the company to have a position in the marketplace that is somehow protected. We're not looking to get into just commodity-type businesses; we want them to have something unusual about them that we can really build on and help them grow. And then, you know, this is going to sound like a no-brainer, but we have to get to a price and terms that are acceptable to both parties.

Shaan Puri

right

Brent Beshore

And there are roughly 400 decisions that have to be made during the acquisition process. I mean, it's 400 opportunities to not agree, and it's very difficult and time-consuming. A lot of it is just trying to make sure that we think a deal could be done as well.

Shaan Puri

And so, when you say the leadership team, can you clarify what you want from them? You want them to scale, so why are they selling? If you want them to stay in place, they’re not looking to do something else, retire, or whatever. You want them to continue to operate. Are they just looking for liquidity? What is the core motivation to sell? Do you have a problem where, once they've sold, they lose interest? Or do you structure the deal so that they're still incentivized to stay on and do a good job?

Brent Beshore

Yeah, it's a good question. So, part of it is that the leadership team and the ownership are not always the same thing. Some of the organizations that we get involved in have owners who are very much part-time and haven't been directly involved in the business for a long time. For us, that's actually a decently good situation because we'd love to just, you know, maintain continuity, keep the leadership team, treat them well, and try to augment their talents as we go along. Some of the owners that we have gotten involved with have stayed on, and it's worked out great. The second bite of the apple they get down the road would be much larger than even their first payment, despite them selling a majority of the company. So, it really is a situation that is specific to each case. I would say, for the most part, some owners want to take chips off the table, while others realize that they need help in scaling and growing. It's a variety of different reasons. I would say that all of them have an exit strategy in their minds. I mean, if you're in your thirties or forties and you want to work for the next 30 or 40 years, I don't think many people like that are selling their business, at least in the size range and style of businesses we're discussing.

Sam Parr

That we buy. Hey, earlier you said that one of the best ways families have created wealth was by having a business and owning it for a very long time. Yep. So, something tells me that you study the wealth creation process. I'm not talking about just building a business that makes money, but creating true wealth. I guess what I'm wondering is, with these people who are building these companies, like I'm looking at things that maybe won't ever be massive but can create great wealth. For example, I'm looking at Gain Group and Selective Search, which is an executive search meets personal matchmaking. That actually could be big. Anyway, when you're doing this, what are some of the paths? I mean, in Silicon Valley, where Sean and I live, the path for most people is the typical Silicon Valley stuff, which is sometimes bullshit and sometimes not. It's creating something, raising loads of money, and owning a very small percentage. You don't truly get wealthy until after you sell it, or at least you don't get liquidity. Their salaries will be $100,000 to $150,000 a year, so you can't really build it there. But I have a feeling that you guys look at this differently. Is that true?

Brent Beshore

Yeah, well, I mean certainly the types of businesses... I mean, we have a rule: we don't buy from somebody who's not already wealthy. Because if they didn't get wealthy doing it, we're not going to. So they're already doing well. I mean, these people are the chairmen of the country club. They're in the geographies they're in. They're probably the people that, you know, the chamber of commerce would go to and say, "They're a really vibrant, good local business," or they're a bigger national business that's based in that geography. And so, yeah, I mean... the...

Sam Parr

the they're getting wealthy from cash flow

Brent Beshore

Yeah, yeah, yeah, these things make money. I mean, you know, we're typically involved with companies that are making more than $3,000,000 a year in real owner earnings—what sticks to the owner. So look, anybody... and these are closely held companies. Typically, the owner will be one to maybe three or four people at most. Usually, the one, two, or three people that own the company are doing very well. They're taking a lot of risk, which maybe sometimes is hard for people to see, and they've built it over a long time. But I mean, yeah, they've done well for themselves, and they're successful, you know, separately and outside of the transaction itself.

Shaan Puri

And so, the owner... let's just walk through a typical scenario. I'm the hypothetical owner of a business that manufactures wheelchairs. We're based in Oklahoma, and I'm the sole owner. I pull in, let's call it, $3,000,000 a year in owner earnings.

Brent Beshore

yep

Shaan Puri

and owner earnings would be different than sort of ebitda in this case right so you're

Brent Beshore

Yeah, I would say EBITDA minus operating interest, any sort of necessary capital expenditures to keep the business on its current trajectory, and a normalized compensation structure for the owner if they're in leadership of the company. So, it's like if you hired somebody to run the company for you and you made all the necessary reinvestments, how much would be left over at your discretion? You could either try to inject it back into the company and grow it further or buy a boat.

Shaan Puri

So, fill in the blanks for me. If I'm making $3,000,000 a year, what's a typical EBITDA for that company if the owner's pulling in $3,000,000 on the types of companies you look at?

Brent Beshore

Yeah, I mean, probably EBITDA would be 3.5 to 4, something like that.

Sam Parr

And then, like, say it again. So that was on $3,000,000 in owner earnings, which would be roughly $4,000,000 in EBITDA.

Brent Beshore

Yeah, roughly. I mean, 3.5 to 4. It depends on the type of company. I mean, we looked at an aerospace company a couple of years ago, and they were doing 7 in EBITDA, and owner earnings was like 3.5 or 4.

Sam Parr

why so

Brent Beshore

it depends on because of all the investment

Sam Parr

so just all they had they just they needed a a a large cash buffer

Brent Beshore

No, no. They're having to reinvest in equipment to just keep their market share and sort of stay steady in place. It just, you know, all that cash flow would be rolled back into buying new equipment, buying more inventory, you know, all the types of things that the cash will be sucked into.

Sam Parr

And how are they getting the money out of the business? I mean, are they typically LLCs or...?

Brent Beshore

Yeah, typically, I mean it's a mixture. I would say probably 90-10, maybe 85-15 is LLCs. But either way, I mean if they're a C Corporation, you'll typically see owners paying themselves a lot to avoid that double taxation.

Sam Parr

so they're just paying themselves big old salaries and just having to pay 50% tax

Brent Beshore

yeah I mean if you live in california

Sam Parr

if you live in california

Shaan Puri

So, let's keep going for a second. Let's say you're at 33 and a half, 4,000,000 EBITDA. When you guys go to buy these businesses, what type of multiple do you use? Of course, it depends on the industry and it's very dependent, but what's the range? Is it 1x, 2x, 3x, 4x? Is that the sweet spot for kind of the bulk of your deals?

Brent Beshore

Yeah, I would say kind of **3.5 to 5.5** would be a normal range. I mean, we may go higher for a really high-quality asset, but I would say that's a pretty normal range in our segment. You know, kind of our strike zone is **$3 to $8 million** of bonus earnings. So, in that range, I mean, on the upper end, you can get into more traditional private equity territory. You used to see, as of three weeks ago—this is again, I gotta reorient myself to the new reality—but yeah, I would say **3.5 to 5.5 times**. Then, there's usually a component of that that's held back, earned out, or downside protected in some way. So, we're typically paying **2 to 2.5 to 3.5 times** cash at close, and then the rest kind of on the upside depending on what happens.

Shaan Puri

Gotcha. So, you might have a, let's say, **$10,000,000** price tag for the cash at close and then maybe **$7,000,000** that's earned out. Now you go to the SBA, and what you were saying is that you guys don't do debt. You guys are no debt or you use less debt than a typical private equity firm.

Brent Beshore

yeah so so the sba was on the first transaction I did

Shaan Puri

10 you don't do sba

Brent Beshore

My own money. We have no involvement with banks or the SBA or anything like that now.

Sam Parr

so you

Shaan Puri

guys just do cash deals you say here's $10,000,000 we're done and why don't you use debt

Brent Beshore

Yeah, well, debt's one way to take a good company and make it a fragile company. The more debt you're layering on, the wider the variation of outcomes that you expect to happen. Obviously, pandemic risk is something that was not on a lot of people's radars, us included, until recently. But it's a good example of why we think that not leveraging these companies, especially when you're starting to get to know them, is important.

Shaan Puri

I mean until you own these companies you just

Brent Beshore

Don't know what you're really getting until you get, you know, underneath the hood. There's always more risk there than you think there will be, right? So, you know, our mentality has been to go with all equity, no debt. We try to keep them very, very robust on the balance sheet and make sure we're buying these with full balance sheets attached to them, right? So, working capital is all included. The net worth of the company will be, you know, fairly robust going into the transaction. Then, of course, as we build cash into these companies over time, we can decide what to do with it. But the working capital bucket is kind of like, you gotta fill up the bucket first before the owners can get anything out, right? Because you gotta keep the machinery lubricated.

Shaan Puri

And when you buy a company, what are the first three months or six months like? Are you hands-on with that? Do you have an operating partner who does that? How do you guys make sure that when you buy an asset, you don't destabilize it and, you actually start to grow it? Which is, I assume, why you bought it in the first place.

Brent Beshore

Yeah, so our philosophy... there's a lot of private equity firms out there that have these, you know, 30-day, 90-day, and 120-day plans, right? We don't do that. What we try to do is take a humble attitude towards it and say, "Look, we know some things, we have some talents, but we want to learn and come alongside them." They're the experts; they've been doing it for a long time. So, there's a team of 16 of us. I don't want to give the impression that this is just me. There are people far more talented than I am on staff. We have a dual hook and structure post-close. Our financial team hooks into their financial team and creates feedback loops. Then we have what we call a portfolio partner. They're kind of a "board of directors in a box" that oversees the executive leadership, helping make very high-level decisions. I mean, these are autonomous operating units. We're not injecting these people into the companies to run them, but they're in touch with the leadership teams all the time, doing a variety of different types of calls and meetings throughout the year.

Sam Parr

and how many companies are there

Brent Beshore

there's 9

Sam Parr

that you guys own yeah got it so that seems manageable

Brent Beshore

Yeah, I mean, for every kind of 3 to 5 companies we acquire, we have to hire one high-level financial person and one portfolio partner. That's kind of their grouping of companies that they're running. So, we're almost creating like a fractal, if you want to think about it that way, down into the organization. This allows it to scale in a sort of linear way.

Sam Parr

So, Andrew from Tiny and I are friends. I just shoot the shit with him every once in a while. He emailed me; he tweeted this thing and sent me the tweet about how he met a guy who had a cool furniture store. He goes, "Oh, this is neat! You need to put that on Shopify. Okay, I'll partner with you. Let's do it." Now I own part of it. He also did the same thing with a local news outlet in Victoria, where he just seems like he's spinning up stuff so fast. I'm like, "Andrew, I don't know how you track all this. This is crazy!" Sure, tracking nine is easier than tracking nine is hard, but it's a little simpler because it appears from the outside as though he has got 40 different things. How does that compare, do you think, with something like Tiny? Does keeping on top of all this seem really hard to focus on where to put your focus?

Brent Beshore

Yeah, I mean, I know Andrew a little bit. I don't know him super well, but it seems like he's been successful. I think they're getting involved in, for the most part, more internet-based, software-based type companies. So it's just a very different model. I would say I have no idea how they're organized internally. I can tell you on our end, is it a lot of work? Is it difficult? Of course it is, right? Anything worthwhile is going to be hard. Internally, how we've created that structure, though, creates a very manageable focus group. You can allow a small group of people to be highly focused on certain outcomes as opposed to being all over the place. I mean, if it was just me and a partner of mine trying to "ham and egg" this thing, I'd go nuts. There's no way, especially right now, with all the turmoil that's happening. There's just no way you can keep everything separate and watch legislation that's coming out, watch legal and accounting, and meet deadlines for audits. I mean, it takes a full team. So, yeah, I mean, we're obviously blessed to have that.

Sam Parr

Earlier, you talked about one of the things you buy a company. You said that your sweet spot is in between it working out and it being professionalized, right?

Brent Beshore

yeah

Sam Parr

And I think that when I started the company I have, I started when I was 24. It's a good business now, but what I learned the hard way was that to make something more valuable, you need to take yourself out of the equation. As opposed to, you know, this Mark Zuckerberg thing where you're just going to superman this thing into existence, it's actually far more valuable, even if that means you have a lower revenue number, to have it where it's like a machine. You need to put people in place so it's not just on the shoulders of one person. Sure, can you? And I learned this from David Hauser. Sean, you know David Hauser?

Shaan Puri

I don't

Sam Parr

Okay, there's this guy named David Hauser. He's one of our investors; we have raised a little bit of money. He started Grasshopper, which was like a... yeah, you know Grasshopper, right? He started that. It helps entrepreneurs by providing small businesses with a phone system, so it's like Google Voice on steroids. He sold it for, I think, $300 million. Really successful! And he wasn't even the CEO. He started it, owned the company, and hired a CEO to run it. He taught me how to do that, and I think that's fascinating. Can you talk about that? That's different from what a lot of our listeners probably think. They think if they're going to start a business, they have to be running the show. Can you discuss where you've learned this process and why? Also, I guess the companies you've bought—how they successfully navigated that to where the owner is no longer the person in charge?

Brent Beshore

Yeah, so I mean for us, well, I knew my own limitations. I knew that there was no way I could just brute force this thing on my own. I think I always subscribe to the idea of bringing people that are far smarter and more driven around you. That's how we build the organization. I hope in 3 to 5 years, I'm completely useless and they just give me my ball of yarn and let me play with it. In the organizations that we look at, we call this "founder remote." This is probably the biggest danger of acquisitions: you buy a company where all of the goodwill is tied up in the relationships, expertise, and drive of the founder. There's just no real way to transition those, separate from maybe coming alongside them and, over a very long period of time, making that transition happen. For us, we try to select against that. We want to see repeatable processes. We want to see a healthy layer of non-owner management. We always call it the "hit by a bus" risk. If anybody in the organization can get hit by a bus and destroy the value of the business, that's just a no-go for us.

Sam Parr

But tell me, what have you learned from these people? How do I want to make my company like that? How have you... what have... who... how have they done it?

Brent Beshore

Best, yeah. So, I mean, I think the methodology that we've seen work the best is to take the things that either you aren't good at or you don't want to do and start giving them to other people. Over time, as you sort of continue to offload and offload and offload, you just kind of move up until eventually there's not much for you to really be working on. I mean, if you have a lot of free time and you have a lot of flexibility, we always talk about if you have the optionality to get involved or not to get involved. A lot of these owners, you being a good example, could probably add a lot of value if you chose to get involved. But you also know that the thing's going to work out fine if you don't get involved. So that's always ultimately the test. Now, we also have a lot of owners that we talk to, and they say, "Oh, I'm not needed in the office at all. This thing runs itself." We say to them, "Oh, that's great! When was the last time you took a vacation?" They're like, "Oh, I think three years ago I went on a weekend getaway with my wife." And yeah, you know, and you're like, "Really?" So there's that balancing act of self-awareness as well.

Sam Parr

Is there any resources that you turn to or have turned to, to learn this? Or that you can tell me and our audience to turn to in order to learn how to do this successfully?

Brent Beshore

Gosh, I don't... it's more just, you know, getting hit in the face over and over again. The hard knocks.

Shaan Puri

Brett, where are you finding these companies? Is it a broker network? Are there websites you use? Is it inbound because you do a lot of content? You know, explain how you find the companies that you end up looking into and potentially buying.

Brent Beshore

Yeah, yeah. So we're fortunate now. We do a lot of content out there. Actually, the podcast is one of the things that has been helpful for us. So thank you guys for having me on. But we have... it's all inbound at this point. So we're not going outbound to anybody.

Shaan Puri

the way

Brent Beshore

website oh there you go

Shaan Puri

I got your book. If you're listening to the audio version, which you almost certainly are, I'm holding up *The Messy Marketplace*, which is Brent's book.

Brent Beshore

I bought this like

Shaan Puri

I don't know 6 months ago I bought it right after we sold our business so it wasn't really there

Sam Parr

you go

Shaan Puri

applicable I just kinda like oh what did I do wrong type of thing

Brent Beshore

but I'm sure you'd be fine

Shaan Puri

I think, yeah, it turns out just timing was good. You know, getting in before the whole world descended into chaos was a good idea—a good time to sell. But I didn't know that. I agree, but you put out this book, and it seems like you do more content than, I would say, the typical kind of buyer or private equity firm.

Brent Beshore

Yeah, I mean, I owe most of my career to just ripping off venture capital. In reality, you just look at how all the, you know, Fred Wilsons, Brad Felds, Shusters, and Andreessens broke into the world. It was basically by pulling back the curtain and helping educate people. So, I mean, that's what we've taken to heart. We started very early on, producing content and talking to people for probably 7 or 8 years now. It's gone back a long time. Over time, that compounds, right? In the beginning, you're just shouting into the darkness and no one cares. Then, over time, you sort of get people's attention. Our goal is just to be the first stop for anybody who wants to sell their business. We also try to be helpful on the back end. So, all that's inbound. We have a scout network, which is common in Silicon Valley but very uncommon in private equity. We have about 700 people now that scout opportunities for us, which is fantastic. We obviously pay them when we are able to consummate a transaction.

Sam Parr

and you have a cap capital camp right

Brent Beshore

Yeah, so Patrick and I were complaining one night about how all the events in finance were terrible. We thought it would be fun to get a cross-section of people together. Typically, there are VC events and private equity events, but there are very few events that bring together a broad cross-section of people doing interesting things. We complained about it enough that I said to Patrick, "Why don't we just do something about it?" So, he and I partnered up and hosted the first one last year. It was fantastic! About 250 people from 11 countries and 5 continents came in, and we had a wonderful time hosting it in Columbia, Missouri, in my backyard. However, I think there was only one other guy from Missouri there, so it was not a regional crowd, if you know what I'm saying. Unfortunately, this year we had to postpone it due to the virus, so we're pushing it to September. Hopefully, we will be able to flatten things enough by then to host it.

Shaan Puri

Give us some predictions about the virus and the way businesses are being affected right now. You know, on one hand, you said your timing was good in the sense that you raised your big fund before all this. Now, a bunch of businesses are going to need liquidity. They're going to need, you know, somebody who's a stable capital partner to come in and buy them. What are you guys seeing? What's your prediction on how this is going to play out?

Brent Beshore

well both for

Shaan Puri

for you and for the economy I would say

Brent Beshore

yeah well so so for well let me broader I think what what we're predicting and and of course no one has the idea right we're I mean we're trying to do the best we can to triangulate information we think it's gonna be a pretty long if you wanna think about it a good analogy I heard was a is a blizzard a winter an ice age right it's kind of a the 3 stages probably you know I think the blizzard is gonna last for another at least 6 to 8 weeks probably longer than that and then I think we're going into a. Of it's gonna be hard to restart a lot of these businesses so there's in in theory it sounds oh there's economic problems it's no big deal you just kinda go into hibernation and come back out of it and everything's fine right in practice there's a lot of start stop problems I mean you guys have run businesses you know if you had to mothball everything and try to restart it I mean you're you're not gonna be able to do it or at least be very difficult to do it and so my guess is there's gonna be a lot of pain and suffering so in our portfolio you know because we don't use debt we have good balance sheets and obviously we have a financial firm to back it up you know we're gonna be fine I mean a lot of the businesses we're involved in have been doing better than we expected probably 2 weeks ago with that said you just have no idea where demand's gonna go and I mean we're bracing and we have plans for you know depending on what level of pain and suffering you know happens what you know what the plan is and you know we're gonna try to get the things back up and running as fast as we possibly can you know the government intervention that just came out is interesting in how it's structured so the care act just got passed I don't know 20 30 minutes ago and you know it is it's better than nothing it it it's going through the sba and the sba is to be generous like the dmv of the finance world and so it's not gonna be an easy thing to get all that money deployed also the the sba lenders that we're talking to that are at these banks and we're not using the sba but obviously if it's forgivable loans then it'd be insane for us not to to participate in that and they don't even know what the rules are right and so they're trying to get triangulated on on what things are so I think there's gonna be a lot of confusion I think it's gonna take a lot of time to get the the money into people's hands I'm not sure it's gonna actually stem the tide as much as they think it will on unemployment and so I fear that unemployment could go to 20 25 maybe even 30% which is do

Sam Parr

You think that's realistic? Yeah, yeah. *Fucking A, man, that's crazy!* To put that in perspective, the Great Depression was what, 18 or 20?

Brent Beshore

I think it touched the high twenties. Okay, so, I mean at the peak. And like I said, I hope I'm wrong, right? Let's just say it's what it is. I hope that this is not a good environment for us. Actually, I mean, this is interesting. We could talk about being a firm that has a lot of cash right now. I don't think this is a good environment for us at all. I would much prefer a 2008, which was a much more shallow downturn recession. The violence of this is basically rendering all information available like a nonissue. You just can't... there's nothing predictive about what's happened in the past and how it goes in the future. And demand curves... I mean, no one knows. No one knows what the demand curve is.

Sam Parr

looks like but are you betting for a 20% or 30% unemployment rate

Brent Beshore

well I'm not betting on it that's what I think it's gonna happen but I I

Sam Parr

think you said you think that's gonna happen

Brent Beshore

I think we'll probably touch 20%. I think we could touch 30%. Yeah, and I think we'll see it in the next 6 weeks. That will be when it really comes down. My guess is... I called the jobs number, the unemployment number that came out. I had said previously I thought it was going to be about 3.5%. It ended up being about 3.3%, which was wildly higher than what the sort of consensus was—1,000,000. If you're involved in small businesses and you see there's 1,000,000 people filing for unemployment, like I said, that's a good joke. Of course, it was going to be way higher than that. There's no way it couldn't be way higher than that. I mean, what we're seeing is... I had a buddy this week who laid off 4,000 to 5,000 employees. I had another friend who laid off 585 out of 600. I mean, and this is just what I know.

Shaan Puri

they in the hotel industry or what what was it just the industry then

Brent Beshore

Food service is one, and construction was the other. It's just... it's a tough situation, I mean.

Shaan Puri

And why do you say this is not a good time versus 2008? What is the core difference there?

Brent Beshore

Yeah, so the core difference is the violence of which this has downturned. You could see in 2008 a nice trend, right? A line like you could see it as kind of like a soft... you know, in private businesses. I'm not going to talk about the stock market. The stock market and private businesses are totally different.

Shaan Puri

right

Brent Beshore

But in the stock market, it sort of had a violence to it. Then, you know, it kind of petered down and had other violence to it.

Sam Parr

and it happened in in fucking 8 days

Brent Beshore

right right I mean obviously lehman and and all that stuff come crashing

Sam Parr

oh no I'm talking about right now

Brent Beshore

Oh, but yeah, right now, that's what I'm saying. In private businesses, it is worse than what is reflected in the stock market right now.

Shaan Puri

right I mean it's

Brent Beshore

It's hard to know what's priced in and what to do with monetary policy when you have basically an unlimited bid. I don't know, right? But when you look at it from the businesses that we interact with, it's carnage everywhere. I mean, you maybe have, I would say, 90% of businesses have been adversely affected. 5% are probably, you know, sort of unaffected, and then maybe 5% have some sort of tailwind that's weird because of this. But 90% are just suffering. I mean, it is unbelievable what's happening, right?

Shaan Puri

now mhmm

Sam Parr

And I mean, Sean, like four weeks or... no, wow, only two weeks. Whenever you sent me that link, Sean, where you go, "The NBA is canceled."

Shaan Puri

yeah I

Sam Parr

Like a few hours before that, I booked a flight to Germany because I was going to a conference. They paid for it, but I gave them my information. I was like, "Yeah, the conference is on." Then Sean sent me this link at 7, or maybe 5 o'clock at night, and he goes, "The NBA is canceled." I was like, "Oh, you mean like they're just pausing it for like 5 days?" It's like, "No, no, no, like it's done for the year. The whole thing." Then the next day, it was like, "Oh, my flight's canceled. Everyone's flight's canceled." It was like, right? That was only 2 weeks ago, Sean.

Shaan Puri

Yeah, that's insane. I remember people thought I was crazy. I started working from home the week before everybody did because I was like, "Hey, I think there's like this once-in-a-100-year virus out there. I'm just gonna start working from home." We did one podcast together, and I was like, "Yeah, I'm not doing any more in-person stuff. I'm not coming into the city. I'm not doing any of this." Then it just felt like day after day, it was like escalation, escalation. Now, I think the data is outpacing the fear, even at this point. I think the situation is worse than people realize, even now, because it's growing exponentially. So, I totally hear you, Brent. You know, my sister owns schools, and my brother-in-law owns gyms.

Sam Parr

My brother owns a nursing home. My brother also owns a concert promotion business.

Shaan Puri

right and nobody prepares for 0 revenue overnight for

Sam Parr

2 months

Shaan Puri

you can't you can't plan for that

Brent Beshore

Yeah, we were talking about our revenue. I mean, I calculated in my head that maybe we're going to be at $160 million this year, let's say under normal circumstances. I mean, we may be at $110 or $120 million. We have no idea; it depends on how things go off the cliff, right? I mean, it's literally that no one has any idea what's going to happen. What we know is that it's not good. If you look across our business, our military business is very robust, and obviously, we want to keep people employed in that. But if you look in construction, there's a longer lead time; the sales cycle is longer, right? So you'll have a longer tail to it. But still, if you're shut down on a construction site... One of our companies was working on the Wynn Casino, and they just shut everything down. I mean, there's like nothing to do. You have all the materials you bought, you have all the labor that's right there, everything you're coordinating, and what do you do? I mean, it's like... I said it was like prohibition, except for everything.

Sam Parr

so where's the opportunity here

Brent Beshore

Well, I mean, the opportunity is that there are going to be a lot of these family businesses that are very durable. You know, businesses that under any sort of normal circumstances would have easily gotten through a 2008, which everyone would consider to be a detonation prior to this. They are going to need help, and they're going to need capital to get through this. They're going to need capital to restart the businesses if that's what it takes, as well as just taking some chips off the table. I mean, you know, there are a lot of people we've talked to who are holding on for sort of the last couple of good years, and then they want to sell. We had these conversations two or three months ago with an owner who said, "Look, I'm in my seventies. I certainly can't go through another 2008, but man, business is really good right now. I'm just going to hold on for another couple of years."

Sam Parr

that changed

Brent Beshore

You know, it's tough. And by the way, I'm not saying that it was the right thing for him to sell then either. I'm just saying it's always a bet. One of the things that is maybe nice—if there's any silver lining in this—is that I think people had gotten, certainly not immune, but had built up a pretty good resistance to risk in general. I don't think most people were seeing it. I mean, most of the people we're talking to were saying, "Hey, there's nothing on the horizon. There's no contagion that could cause things to go down." I would hear people say this all the time. I mean, what could it be? Could it be student loan debt? Maybe that's going to be contained. Could it be, you know, the bubble in private equity? That's going to be contained. You know, gosh, we had no idea what was getting ready to come down the pipe.

Shaan Puri

I think that's what Mark Andreessen, or maybe Peter Thiel, was talking about once. When everybody keeps asking if thing X is a bubble, that's not the bubble. When we're all aware of it and we're all talking about it, that's usually not the actual bubble. It's something that a very small set of people are saying, "Wait a minute, we've removed too many of the Jenga blocks here. This thing's about to tip." And you know, the...

Brent Beshore

But this isn't a bubble, minority. This wasn't a bubble-driven thing. I mean, you know...

Sam Parr

it's a war

Brent Beshore

it it literally is a war like that I mean I think that's the best analogy for

Sam Parr

I think we're I think this is closer to pearl harbor than it is to 2008

Brent Beshore

Yeah, oh, I would absolutely agree. The issue is that, you know, for Pearl Harbor, obviously a lot of people went over and fought, but it never came onto, you know, home soil. I think this is the thing: everyone's fighting a war in their backyard. I don't think that's ever... I mean, look, you don't know what the death rates are actually going to turn out to be. You don't know what the infection rate's going to be. You know, I certainly don't want to be comparing it to things that are horrible traumatic events that affect generations and generations. Maybe, and God help us if it turns into that. But at the very least, I mean, the economic side of it is just absolutely unprecedented in every way right now. And anybody who thinks this is going to be short, like the recovery where it's going to just pop right back out of this thing, has never been in a business. Those are most of the people that I hear that are investors saying stuff like that. They never operate in a business. I mean, you guys...

Sam Parr

Well, if this makes you feel any better, Brent, I feel horrible right now. I called the hospital to get a test, and they're like, "Don't waste it on yourself," but it sounds like you have it. So, they think I have it, but it's not confirmed. It sucks. It doesn't suck that bad, but for a 30-year-old, it stinks. The way I describe it is that just yesterday, it crossed the threshold to where I would stay home from work and not exercise.

Brent Beshore

really so you think you have it

Sam Parr

yeah well me and the doctors but I just not confirmed it

Brent Beshore

pretty sure

Shaan Puri

he has it yeah

Sam Parr

Yeah, I mean, breathing sucks, but it's more annoying than it is scary. And yeah.

Brent Beshore

I am so sorry man I had I had no idea I mean I'm

Sam Parr

well I know it's not look no my. Is not to get sympathy my. Is to let you know

Brent Beshore

so you get

Sam Parr

even for most people it's not the worst

Brent Beshore

Yeah, well, that's great. I mean, I hope that's the case. I hope we can get back to some semblance of normal life. Unfortunately, the economic damage... even if you wave a magic wand and bring everyone back to these businesses right away, I think there's a lot of damage that's been done. It depends on how long your lead cycles are and all that stuff. But, I mean, it's just tough. As demand dries up, you have to think about the supply chain all the way back. People aren't ordering stuff from factories, right? Because their demand is dropping off on the other side. If the stores said, "No, no, no, we want all of your inventory now," they'd say, "We don't need anything to sell you," right? Because everyone's preparing for winter. So, yeah, the stop-start problems are just going to be tremendous.

Sam Parr

Wait, Sean and Brent, you guys are both... I mean, we are all... I have no idea where people are, but we all are people who probably aren't poor. Have you guys cut your spending?

Brent Beshore

oh yeah for sure

Shaan Puri

I did the first thing I cut was my exposure to the stock market, which I think is going to drop like a rock now. That was the first thing I did because that's more than spending; it's just wealth destruction. I wanted to avoid wealth destruction first. But the second thing I did...

Sam Parr

your monthly subscriptions I didn't I didn't go

Shaan Puri

Through that yet, but we have sort of like, my wife and I, now before we do something, we're like, "Yeah, do we really need to?" So, we're starting to creep in, but we haven't gone and audited and said, "Hey, necessary, unnecessary, necessary, unnecessary." But yeah, you know, we probably should and probably will.

Sam Parr

Even though I have plenty of money to last for a very long time, I'm like, "I don't... I want to buy the generic brand of this food."

Brent Beshore

We’re still spending on food, but if you look at our bills in the past, it’s been a lot around travel. And yeah, we’re not doing that. I mean, we did spring for, by the way, the best investment I’ve ever made. I’ve got three girls under six, and we just bought a bounce house and have it in the backyard. By the way, that’s the best $300 I’ve ever spent in my life.

Sam Parr

there's a business there's a business you should buy that sounds not sexy but interesting enough

Brent Beshore

exactly bounce houses for viruses

Sam Parr

Yeah, okay. My last question for Brent is this: You're 25, 30, or 35. Currently, let's just imagine you are... I have no idea how old you are. I'm 37, but let's say you're young enough to start. Okay, well, let's say you're starting your career or you're in the early part of your career. Now, knowing what you know about what makes valuable companies and what builds wealth, what are some businesses that you'd want to start right now? What would you optimize for, and what metrics would you try to optimize for, and how?

Brent Beshore

yeah I mean I I think it depends on what you're what you're trying to optimize for if you're just trying to build

Sam Parr

a house you well I'm asking you

Brent Beshore

For me personally, I really find value in balancing home life and work. Family is super important to me, so my answer would probably be a little bit different. I want to live not in a big city.

Sam Parr

that's okay I wanna hear what you would do

Brent Beshore

Yeah, yeah, yeah. So if I was starting over today, I would probably start something in the construction space or home services space. I mean, office services. I want to get into something that's... you know, I like competing in areas where there's not a natural selection of people into that. Right? So you don't want to be in the winery business because everyone in Silicon Valley that exits a business goes and buys a winery and pumps a bunch of money into it. Like, I don't want to be in the film business because everybody who... you know, every son of a billionaire makes movies. You know, owning restaurants is really difficult. I mean, separate from all the stuff we're going through now, because everyone that makes any money thinks it would be easy and wants to own their own restaurants. So I like the things that sort of have a natural selection bias against them. Like, nobody drives by somebody building a swimming pool in Arizona in the summer and says, "You know what? I really want to quit my job in the air conditioning and go dig a hole in the ground." Right? So we want to get involved in things like that. I would try to take something probably that is small and partner with them, that they already have the infrastructure in place, the technical side, and the systems there. Then I would really try to spend some time... you know, how can we use the latest technology to make us more efficient? Try to build something that's scalable, sort of beyond the geography, and get a model down—a billing model, a sales model down—that we thought was replicable and that really had some sort of moat around it. Then I would try to scale it over time.

Sam Parr

what specifically yeah anything specifically

Brent Beshore

I think it would largely depend on what I could find in the geography. Here in Colombia, there’s a fantastic HVAC service company that’s still fairly small, but they’ve got great systems. They actually develop their own software. That would be something I’d want to partner with and say, “Okay, look, I want to get my hands dirty. I want to get involved in it.” I’m not an investor by heart; I mean, I’m an entrepreneur. That’s what I love to do, and that’s how we think about our business—being operators and entrepreneurs. So, I wouldn’t necessarily get involved in finance. To me, finance is a mechanism that allows and enables entrepreneurship and running real companies. It’s not just trading paper back and forth. I would probably get far more involved in sort of non-tech entrepreneurship, which I know you guys are in Silicon Valley, and this can fall on deaf ears.

Sam Parr

No, I like what you're saying, but you... so you said HVAC. You said, "I'd say HVAC pool."

Brent Beshore

yeah pools lawn service I think I

Sam Parr

you know I like lawn service

Brent Beshore

Yeah, like lawn and garden care type stuff. I mean, have you ever tried to get somebody to call you back? It's...

Sam Parr

Yeah, you want to hear something cool? We had... So, Brian, you know who Brian Scudamore is?

Brent Beshore

uh-uh

Sam Parr

scudamore 1800 got junk

Brent Beshore

oh yeah yeah yeah yeah yeah

Sam Parr

Okay, so the guy who owns it, his name is Brian. He's Canadian and he's friends with me and Sean. I shoot the shit with him every once in a while. It's like a, what is that Sean? Like a $500 million a year company? He owns all of it. We either asked him or someone of us asked him where the opportunity is, and he goes, "Man, if I had to do the same thing, I would do 1-800-GOT-JUNK, but I would do it for lawn care or for irrigation."

Brent Beshore

Yep, yep, that type of stuff I'm talking about. Yeah, I mean, there are all these strange niches that you can get into. What I would do is probably take my time and talk to a lot of people who are already in business. I would ask, "What is your biggest problem? Who's the supplier that you're most annoyed with? What's the customer that you have that's just killing it?" That type of thing. I'd probably try to snake my way into one of those businesses. It's really just about getting a foothold, right? I mean, that's what you need. You need a foothold, and then you can start building on it from there. But yeah, I mean, the problem is if you have a boat that you're trying to row that's rickety, and it may look pretty on the outside, but it's just not going to go anywhere. It doesn't matter how hard you row it. I think that's how I felt early in my career when I was involved in more of the agency business. I could just row that thing as hard as I could, and I might get an inch further. That's where I just want to get out of businesses that are like that.

Shaan Puri

Alright, well we should wrap it up. Brent, thanks for coming, man. If you're listening to this and want to get a hold of you, what's the best way for people to follow you? You know?

Sam Parr

yeah

Shaan Puri

keep keep tabs become a scout whatever you want

Brent Beshore

Yeah, yeah, yeah. So, **permanentequity.com** is the website. I'm on Twitter at **@brentbshore** and on LinkedIn. I mean, just hit me up wherever. I try to be very available, and if I can be helpful, let us know. Yeah, it's been wonderful to have you guys on. Man, I hope you feel better. That doesn't sound like any fun. Now you're terrifying me, so I'm...

Sam Parr

Well, no, look, my situation was the opposite. I was trying not to terrify anyone. Do I seem sick to you? I mean, I... well, I’m sleeping in. I didn’t get out of bed; I didn’t wake up until about 9:30 or 10 AM this morning because I thought, "I’m just going to sleep as much as possible." I’m drinking a lot of water. I would not exercise today; that’s how bad I feel. I would not go to work today, but I definitely would not even consider going to a hospital. Normally, I wouldn’t even have gone to a doctor.

Brent Beshore

oh alright well

Sam Parr

So, this is how I'm trying to paint this in a positive way, as best as I can.

Brent Beshore

well sean don't don't you get sick alright

Shaan Puri

you can't get it through zoom so we're good

Brent Beshore

alright guys hey take it easy really appreciate it

Shaan Puri

alright take care bye