That's, I think one of the most challenging parts is to represent yourself. True Sellers is credible. We had that from the beginning.
Acquiring Minds
The Origins and Future of a 9-Figure SMB Holdco
Excerpts · 452 segments · ~1:49:39 long
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I think that was something we could always talk about our history and the way we, we would be able to get capital for the deal that it was there for us and that, that, that helps us a lot in the early discussions with, with Sellers.
Well, and so let's turn now and speak directly to the long term philosophy because that's what you're taught that you, you were able to say that to Sellers and say so credibly because a lot of searchers say it too, but perhaps less credibly. You had this track record, the family had a track record. And, and, and so you know, people will know.
We've already said the, the C word many times. The value of compounding, not only financial compounding but what, what did you say again? Experience compounding knowledge.
Compounding that, that some of the best performance doesn't happen until the middle or out years. So it years one through five you're just, you're just at the, at the flat uninteresting part of the compounding curve and the inflection point doesn't happen until later. What else, if anything about why you wanted to take a long term approach or did I, or was that it? It's a lot.
No, I think the what else is finding good companies is hard and why get rid of them? We have the knowledge we've created, the relationships with the employees and the other stakeholders and we view our jobs as to be stewards of these companies. Companies, they're not ours, they're ours to be stewards of.
And so as long as we feel like we can still be a good steward, there's no reason to get rid of it. And the compounding that happens year over year over year, both from a learning perspective, from a financial perspective and then not having to go redeploy, there's a big element of keeping that capital working in illiquid small to medium sized businesses that you know really well and have a great…
And I think that's part of it is also, you know, we make a commitment to our partners when we go into business with them. That is hey, we're getting married and we're in this with you for the long haul. As long as you want to keep doing this, we're going to keep doing it with you.
If and when you want out, we will figure out what's the best way for you to get out is that we hire a, hire a professional manager to come in and run this company. We buy you out, we go sell together like we're, we are operator first and that operator led is we're going to defer to our operators and then and help them figure out what makes the best sense for the company, for their family and for…
Well, so let's also hear more about the operating partner model. So when you were describing the structure of this whole project, what was the vision there of the operating model? What, what are the terms there? You've just started on it, but give us more, please.
So the, the, the overarching theme is, you know, we're looking for humble hungry operators who are values aligned with us and who want a operating company to make their life's work out of and that that's going to be their thing. And so with that we, our model has evolved somewhat from the way my dad initially did it, but not overly so. You know, we in general give 15 to 20% or 15 to 25% of the…
Sweat equity. We have senior debt that comes on the companies and then we put in preferred equity for the Elmore family capital. So there's no vesting on our operators equity but there's a waterfall in terms of, you know, the initial payouts before the common has, has real value.
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