Owned and Operated #48 - Emily Holdman and the Challenges of Running a Business

Emily Holdman is the Managing Director at Permanent Equity out of Columbia, MO, where she’s worked with her current business partner for 14 years. Her background is in marketing, as she also went to school for journalism. Hear about her super impressive career as she is going to be a keynote speaker at the HoldCo conference.

In her current position, Emily focuses on marketing and the individual opportunities that come their way, where she moves it towards diligence and takes everything through LOI. Emily talks about her experiences along the way and how they grew up in the market taking punches so young and how that has helped them get to the place they are now. She says, "We love running boring businesses, but running a business is anything but boring." Listen in as she expresses how she loves the intellectual challenges of running businesses and how they handle acquisitions.

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John Wilson: @WilsonCompanies on Twitter

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Brandon Niro: Welcome back to owned and operated where we dive deep into the businesses we own, the businesses we are acquiring, and we also bring on guests to talk about their operating struggles. If you like what you hear today, follow John and Brandon on Twitter. That's John at Wilson companies in Brandon at Brandon Nairo.

Brandon Niro: Also check out our weekly newsletter where we teach you how to be an effective operator. You can sign up by clicking the link in the description of this podcast or by visiting owned and operated. com that's owned and operated. com. Check it out.

Brandon Niro: John welcomes on the pod today, Emily Holdman. Emily is the managing director at Permanent Equity out of Columbia, Missouri, where she's worked with her current business partner for 14 years. Her background is in marketing, as she also went to school for journalism. Hear about her super impressive career, as she's going to be a keynote speaker at the Holdco conference.

Brandon Niro: Which is being held in Cleveland, July 24th to 26th. Head over to holdcocomp. com That's hold c o n f dot com. In her current position, Emily focuses on marketing and the individual opportunities that come their way where she moves it towards diligence and takes everything through LOI. Emily talks about her experiences along the way and how they grew up in a market taking punches so young and how that has helped them to get to the place where they are now.

Brandon Niro: She says, we love running boring businesses, but running a business is anything but boring. Listen in as she expresses how she loves the intellectual challenges of running businesses and how they handle acquisitions.

John Wilson: If you run a home service business like painting, plumbing, lawn care, or cleaning, you know the work never ends. Customer service, hiring staff, mountains of paperwork, the to do list goes on and on. And plus, you still have to actually do the work to pay your bills. Running your entire business with pen and paper is hard and messy.

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John Wilson: The U. S. based team has taken care of small business bookkeeping and taxes since 2005. Find them online at appletreebusiness. com or email patrick at appletreebusiness. com. Welcome back to Owned and Operated. Today, I know I'm a fanboy. We're all obviously fanboys. So I have my hero, Emily Holdman on.

John Wilson: Welcome, Emily.

Emily Holdman: Thank you. I don't know about hero status, but I'm happy to see you.

John Wilson: Yeah, no, totally hero status. Emily, how about you give us a little bit of an intro into who you are and what you're up to?

Emily Holdman: Sure. So I am a managing director at Permanent Equity. So most people, I think, in what you refer to as the fanboy kingdom would be most familiar with Brent.

Emily Holdman: Be sure who's our CEO Brent and I have worked together for 14 years at this point. So we know all the shortcomings on both sides and have had a lot of fun building up what we have today. So my background is actually in marketing. So I studied journalism and economics in school, originally got started in major motion picture publicity.

Emily Holdman: And then actually started working with friends when he owned an ad agency that he had founded. And I was looking for a reason to come back to Missouri. And he happened to have invested in this very specialized camera equipment and it made the news and I happened to read the article and then cold outreached him on LinkedIn and said, what are you doing?

Emily Holdman: What are you building? And, back then, even 14 years ago, he had. Pretty grand ambitions and a lot of energy and was super smart. And so it was fun to, just brainstorm back and forth and then, implement over time. So since then I focused initially, obviously within that agency.

Emily Holdman: And then, between 2010 and 2011, started to begin looking at the broader market for. For lower middle market companies based on our first acquisition, which I'm happy to talk about in detail if we want to, but that led to us saying that this was something we thought that we could do and do at scale over time.

Emily Holdman: And there were really interesting businesses. That had been stewarded by great founders who were in need of a long term value proposition. We never really thought of ourselves as private equity. We just looked at really interesting businesses that we thought that we could be a good home for, and it led to lots of different tech.

Emily Holdman: Kinds of conversations. So we were initially looking in the 500, 000 to 5 million mark. And so started in that and had lots of conversations with lots of intermediaries, advisors, founders. And that's what I've spent. The last 10 years focused on is getting to know the market and getting to know specific opportunities where we think we can be a good steward.

Emily Holdman: And so my responsibility is basically over the front end of permanent equity. So I'm heavily involved in all of our marketing efforts, as well as the individual opportunities that we initially assess and move towards diligence. And so obviously. I'm very fortunate to have really great partners and we kind of work in our unique disciplines.

Emily Holdman: So I take everything through to LOI, at which point Taylor Hall takes over. And that then goes down the succession based on us acquiring the company to Mark Brooks. And then Tim and Brent are involved throughout. So we are fortunately set up in such a way to really make sure that we can handle things as they come through.

Emily Holdman: So it's a lot of fun.

John Wilson: Yeah, that is a lot of fun and totally wild. One of the things which I've never actually been able to get Brent to answer. So I think you will though.

Emily Holdman: I

John Wilson: think you'll answer it. And I've asked him pretty directly. I am so fascinated by the start. So you came on You guys were running a marketing or event agency or something like that.

John Wilson: Those are two separate

Emily Holdman: businesses, but yeah.

John Wilson: Okay. And from that, you did what most people want to do, which is you became, at this point, a version of PE, but obviously that was a 10 year journey, right? That's wild. I feel like we all need to say that.

Emily Holdman: Look, like we had lots of experiences along the way.

Emily Holdman: Not everything worked. And I would say that we were fortunate to be fairly young and energetic and willing to, take some punches and get back up and keep trying. And at the same time, grew up a little bit with the market. So Had some interesting opportunities that I'm not sure would exist today, especially at the lower end, there certainly weren't as many independent sponsors and searchers as there are today.

Emily Holdman: And so it was a different market now is very wild West in 2011. And I had some really bizarre conversations, it was ultimately extremely fruitful for us, but yeah, I think if you boil it down, like we have the ironic saying, I'm saying we love boring businesses, but the whole idea is.

Emily Holdman: That operating businesses is anything but boring. And it is a fascinating intellectual and really like endurance challenge, as well as an exercise in extreme patience and self reflection. So if you take all of that together, it's I don't know that there is a better journey that you can go down.

Emily Holdman: And so for us it's just been absolutely fascinating to see all the different ways that businesses have been originated, how they've endured and survived certain conditions. And then ultimately, where there's still opportunity for them to grow and some of the ways in which we think we can be helpful over time.

Emily Holdman: And we've seen some of that pan out, which has been a lot of fun. So today, I think, It's interesting because we're continuing to obviously look for opportunities to invest. And we look in the, 3 million to 25 million range in terms of earnings. So different size of businesses than we were looking at 10 years ago, but to the extent that it's just interesting to see what you continue to see regardless of size and the similarities.

Emily Holdman: And then obviously like some of the sophistication of issues with scale comes different set of problems, but you still have problems. So you see, how that all pans out, which has been fun too.

John Wilson: When you guys first started, you said earlier it was 500, million. Is that earnings, revenue, enterprise value?

Emily Holdman: That was EBITDA essentially. Yeah. So we were looking at it at EBITDA, less capital expenditures.

John Wilson: So in those first couple of deals, was it all your own capital or were you already bringing on outside capital at that point?

Emily Holdman: No, we worked without any outside capital for the first nine years, so it was a long period of time in which we were self funding.

Emily Holdman: The initial business was bought with an SBA loan, which Brent took out directly, and it was an interesting business on which to take that out. They had long term contracts, two to five years in length, And just a really interesting legacy business model that, they had been doing for over 20 years at that point in time, and we're still, we still own the business today.

Emily Holdman: And so it's been a phenomenal opportunity to just see how a business endures over that period of time. And it's an example as well, that. When we invested, there were opportunities to release capacity constraints within that business. And so it's just a good example for us of if you're patient and if you partner with the people in the business, you can see that, flourish over time.

Emily Holdman: The woman that runs it today is someone that worked there prior to our involvement and led a major account for them. And she was promoted from within. And, that's a source of pride for us that we were able to retain leadership. Through that transition and ultimately for a very long period of time.

John Wilson: Yeah, that is amazing. I think there's a difficulty. There has to be a difficulty when you go to raise money. And you have a cap, like your own captive portfolio of companies and you say, Hey, I'm not going to let you invest in these, but we're going to set up this thing over here and you can participate in those.

John Wilson: That feels like a hard conversation where you've got something you own 100 percent of and then you have other people's capital. Like, how do you transparently steward both of those things?

Emily Holdman: I think there's a certain amount of authenticity in the conversation to begin with, right? So if you're going to find great partners, and we are fortunate to have great partners as investors, there's an acknowledgement of what got you here won't necessarily get you there.

Emily Holdman: And what's the shared goal and why is it a shared goal and talking through all of those elements. I think that, without a track Record to speak to. I would imagine that the conversation would be significantly harder. So I am glad that we have a record to speak to. And obviously it also is indicative of us following through on our strategy, right?

Emily Holdman: Which is to invest with no intention of selling. And so if you take those things together, if you are looking at us as a prospective investment partner, it would be important to see that we are who we say we are, and that we do what we say we're going to do, and that's held true throughout our operations.

Emily Holdman: And so I think it worked out fine for us. But from an ongoing standpoint, at this point, we invest out of the fund structure that was initially started with fund one in 2017, and then we raised fund to permanent equity to in 2019. So it was closed in December 2019. That's what we're actively investing out of.

Emily Holdman: So there's not, it's not like we are. Sourcing opportunities and then deciding whether they exist inside or outside of a fund model, everything at this point is oriented in that direction. And part of that is, one of the things I expressed frustration about for a long period of time is, for a seller, it's really important to understand the source of capital, the magnitude of capital available.

Emily Holdman: How to think about how long it will be available for just all the behavioral elements. And so those were things that, a fund model for us specifically helped us solve for in a way that could make us competitive against private equity offers, traditional private equity offers. And so the fund model has been extremely advantageous to us in being able to see other opportunities that we may or may not have been able to see as a pseudo family office.

Emily Holdman: A pseudo in the sense that as Brent would say, the smallest family office.

John Wilson: Yeah, that makes sense. So at this point, everything's in the fund and you just continue to hold your existing companies. How do they compare now to the companies that you're buying? Have they scaled up?

Emily Holdman: It's a little bit of a story, right?

Emily Holdman: So like our first acquisition was a significantly smaller company than we would acquire today as a standalone entity. But like I said, there are a lot of things about the organizations that are consistent. You tend to have, closely held ownership, obviously, but also a small, but extremely ambitious and passionate leadership team, tenured employee base.

Emily Holdman: Generally a community employer. And, we really look for a founder and operator who has a detail orientation and pride in the quality of offerings that they provide to the market. And so with that, they tend to be really passionate about. Doing what they do with excellence, which tends towards, a type of value proposition that will endure, right?

Emily Holdman: It's not flash in the pan. It's not following a trend of some kind. They really have something that they do and that they believe in and that they've continued to develop expertise and differentiation. In conjunction with, and so we look for, that type of organization. And that's been true since day one, our first acquisition, again, having these long term contracts had developed clear expertise and a, mutual dependence with some government departments that they work with on a consistent basis.

Emily Holdman: That's not developed overnight, right? That takes a long time to build up. And those types of attributes are still true for us today. I would say that, the major shifts are obviously magnitude of earnings. And in some cases, the scale of the leadership team and the familial involvement on a day to day basis.

Emily Holdman: It is more common now that particularly, and I would say the seven to 15 million in earnings range to have some family members potentially involved. It's not necessarily a foregone conclusion that they are the executive leadership of the organization. And we increasingly see a more common setup. Where they are partially involved but not necessarily involved in day-to-Day.

Emily Holdman: More involved in a strategic or visionary standpoint. And so you just have different dynamics, which generally is something that has been helpful to them as they've con continued to scale operations and has contributed to that magnitude of earnings. So it's not a negative in any way, but it's just something that, you have.

Emily Holdman: A different set of issues, as usual, usually tied to people in understanding the situation on the ground and how best to support the organization if we are chosen as the potential partner.

John Wilson: So right now, I want to jump back into a portion of that. In between that 7 and 15 million in earnings mark, you're finding more and more professional leaders and the family taking like board seats.

John Wilson: That's my abbreviated version of what you said.

Emily Holdman: Sometimes, right? So like you can have a founder who is extremely passionate about the product and great chief engineer. But at some point recognize that they probably are not best suited to be CEO or to be the external face of the organization if they're extremely business development oriented, right?

Emily Holdman: So in those types of situations, it's not uncommon that they have brought in somebody or Have, promoted someone from within to take on those responsibilities. And so the org chart is not necessarily indicative of what the cap table looks like is essentially what it is, right? So if we think about a traditional small business, and in the sort of sub 3 million range, it is very common that the CEO or president is also, if not the sole owner, the primary owner, and it's less, you just shouldn't assume that as you get above the 7 million range.

John Wilson: Gotcha. And you think that 7 million is the pivot point or does that pivot point happen earlier?

Emily Holdman: It depends on the, I would say both the scale of the business. So I don't judge a ton of things by the magnitude of absolute earnings because I think margin matters so much. You can have a 3 million earning business in which that's true. It's just generally going to be a lower margin business.

Emily Holdman: And so they've got the scale. And they have a ton of operations. It's just a lower margin for the scale of work that they have to complete. You can also see a 7 million business that, is a service based offering business that, is probably doing 12 million in revenue and is a very small team and maybe has two.

Emily Holdman: People that would be considered principles, right? I'm not sure that the magnitude of earnings is the actual indicator, but in general, if you think about scale being, relative, right? We tend to see more often that as you are producing that kind of cash flow, you have the luxury and the opportunity to You know, strategically think about reinvestment and allocation of time and duties between talent.

Emily Holdman: And, it's one of the things that we believe is critical in thinking through how you're going to create different access points to opportunities and different, velocity of opportunity for the organization. If that's all concentrated and, the bottleneck of one or two people.

Emily Holdman: It's just Naturally not going to flow as well. So think about it as you want to have multiple people who can drive the business forward. And when you have that kind of cashflow available to you, it's a little bit easier to make those reinvestments, particularly in the talent.

John Wilson: That makes sense. Okay.

John Wilson: I honestly always wondered. When that starts to happen. So I'm in a bunch of like group chats with guys who are around my size in earnings, revenues all over the place, depending on what you're doing. And it seemed to be like the five to seven mark where you step back and everyone wants the same thing in the chest that I'm in anyways, where everyone's Hey, I just want to lead the deal team and have a CEO deal with this nonsense.

Emily Holdman: Yeah. That's because you guys all like deals.

John Wilson: Yeah, it is. It is because we all like

Emily Holdman: deals. Yeah, exactly. This is, I think one of the things that we've tried to recognize within our team over time, but it's some of us like deals and we like negotiation and we like focusing on that side, but you really need people who are passionate about operations, right?

Emily Holdman: And you need that balance within the team and you need people who wake up every day and get. As excited, if not more about being the steward. And I will say like my heart's and, firmly planted at both camps most of the time. And so I just have particular things that I think I'm more or less helpful as it relates to operations, whereas like Mark and Tim and some of the other people on our team that are, they're just.

Emily Holdman: Excellent at it. And so leave it to the experts, if you will, is my philosophy. But on a broader basis. Yeah, I think, people want to specialize, right? And it's we have this thing that we talk about pretty regularly with some of our operators, which is around the idea of what's on your plate?

Emily Holdman: What do you want to be on your plate? And what do you want to see, what's taking up time that you would ideally not have on your plate? And then let's make a plan for that, right? And if you have that conversation regularly, you can get to a point where, It's pretty well understood. What are you naturally prone to do?

Emily Holdman: And what's a point in time stress that may be related to a material matter, but isn't really indicative of what you passionately want to do long term. And so it's sometimes people are like, I want all of this crap off. Because I've got all these problems right now, but generally it's also like their favorite area.

Emily Holdman: So like product R and D being a perfect example of that for a lot of engineering minded people. And so if you take all of that and you say, okay, what do you really want to do? I think even as operators, and I would imagine this is true of a lot of people in your group. It's I know things that I'm really confident about, really good at.

Emily Holdman: And I think particularly as you're scaling, you, Also get a lot of things thrown at you that may or may not be welcomed. And so it's like moment in time, you have to figure out, do I want to be an expert in this? And do I think that's the best use of my time and that we'll get the best result by it being on my plate or should it go to someone else?

Emily Holdman: And I think that's a super healthy evaluation to go through on a really regular basis. And then just figure it out in the sense of how do you respect people who would take that over and figure out how you're going to share those duties in a way that you're not stepping on each other's toes and that it's actually, in that positive for the organization.

Emily Holdman: So I don't know, I don't blame anybody who goes through that process, but I also think that deal people just are addicted to deals. So you're always looking for the next thing.

John Wilson: It's a problem.

Emily Holdman: Yeah.

John Wilson: Yeah, it's a problem. Can we talk about your career trajectory for a while? So I don't know. I'm fascinated by it.

John Wilson: And I think you said it and it's something that I say all the time, but it's what got you here won't get you there. And it's, I didn't know your origin story until a few minutes ago. And now I'm even more impressed because like you came in from, like nothing to do with what you're currently doing and that's a long period of time, but that's still an insane transition.

John Wilson: Like, how did you keep up with that? And what were the big inflection points?

Emily Holdman: Oh, all so I've always been super naturally curious, and I think that if you're going to be involved in multiple different types of businesses and business models, you have to be curious, willing to ask really stupid questions and just be a continual student.

Emily Holdman: And I think that anyone who knew me from a pretty early age would say that. I've been pretty naturally curious throughout my life. I went into journalism because I got a really good scholarship to go to journalism school, I had talents that didn't necessarily marry well, which were, I was a decent writer, not a great writer, but a decent writer, and I really liked math.

Emily Holdman: So those don't naturally go together. And so I. Got a great scholarship to go to journalism school. And so that was naturally where I went. But then in school, you had to take like your general requirements, which for me included macro micro and ended up, really being fascinated by that.

Emily Holdman: And then ended up adding econ because it was became a math oriented degree at the school I went to. And so I ended up, spending that time Just to exercise the math side of my brain. And at the same time on the journalism side, the sequence I ended up in was more about strategic communication, which is more journalism related.

Emily Holdman: And so what's fascinating to me, I would say is that if you take all of that and then follow what I did career wise, which was very much based on luck, random, opportunistic, risk taking and generous people, I. Just tried a lot of things, but ultimately not being a terrible communicator. I won't say I'm a great communicator, but not being a terrible communicator is generally a pretty good general skill set to have.

Emily Holdman: And in addition to that, like being able to quickly dig in on whatever you're looking at, investigative reporting style. What do I see? What questions do I need to ask? Those types of things. Again, like our broad skillset that can be applied to a lot of niche situations.

Emily Holdman: But then I would say that friends in particular gave me a lot of opportunity throughout my twenties to try stuff and to be fairly experimental. And I think that was, fortunate for me in the sense that he trusted me to do that. And I certainly wasn't always successful in doing it, but we navigated that and learned lessons along the way.

Emily Holdman: And, but from the same. standpoint, I think you just naturally compound upon the knowledge that you have. So what's fascinating to me is like it came full circle for me about 2015, 2016, in that we had recently made an acquisition. And one of the opportunities that we had within that business Speaking to capacity constraints was to focus on their lead funnel.

Emily Holdman: And it was a business in which, there was just a significant opportunity based on how they were allocating their marketing spend that we saw from the get go. So we saw it when we were getting to know the company and in our conversations with them in which they admitted, we are not marketers.

Emily Holdman: We are specialists in this. But we spend a significant amount of money on marketing and we don't really know what we're getting for it. And so it was like, Ooh, this is interesting. We could probably do something there. And it was, coming full circle back to putting ad agency hat on and saying, okay, what can we do?

Emily Holdman: What do we know to be true? And what experiments can we Run and not with confidence that there's a prescriptive plan, but that we can be experimental and also recognize that we don't have to be fearful of things. We don't know that we can just ask questions and keep testing and ultimately find the strategy that will work for this specific context.

Emily Holdman: And, with incentives, obviously aligned based on being invested in the company directly. And so it was just a really awesome opportunity. And from there. As we've continued to scale our companies, it just has compounded from there where, it's not every day that I use everything I've ever done, but I would say that, as with most things over time, the way in which you learn something is not the way in which you're going to apply it today, but it's likely not.

Emily Holdman: Totally irrelevant, particularly not at a narrative level. I feel like I oftentimes am commiserating with operators and owners about situations that happened during the great recession and situations that happened during COVID and, really understanding at a human level, Each other's experiences and what we collectively went through as people that is a true opportunity to just understand how people see the world that I think is really important.

Emily Holdman: And so I don't know. I always view it as it's a holistic person. What I studied is not representative of who I am, but to the extent that I think it's helped me for sure. It's just not the natural. Sequence and just throw a wrench in it. I don't need spreadsheets as a safety blanket the same way that some of my colleagues and some of my peers do, but I still know that they matter.

Emily Holdman: And they've certainly been helpful to us over the years. So I think you can just have, your own perspective and obviously respect the point of view of others at the table and it. Come to the conclusion based on that collective understanding.

John Wilson: The part I'm trying to get to here is what did it look like to make that transition for you, where you went from working on these businesses to, Hey, I'm going to be a managing director.

John Wilson: Like we can do this at scale. I'm capable, maybe not even capable. Cause obviously you're capable, but I can play ball at this 300 million fund size. Like to me, that's That's crazy. That's a huge jump for anybody, regardless of your background. Sure. Does that question make sense?

Emily Holdman: I think so. I think, I again would point to, I am fortunate to have colleagues and we are fortunate to have investors that trust us collectively and me individually.

Emily Holdman: And I can't speak to fully why that is, but I think that, I think again, sort of humility and asking questions is a pretty big component of it. And I also think that not coming out of the traditional financial background in some ways has served us well, right? So we, obviously the way our funnel has been built in the way that we think about how to pursue and how to form relationships with potential investment opportunities, I think is.

Emily Holdman: Fairly different than the traditional models of peers that I very much respect execute on a day to day basis. So a lot of people focus on going outbound. A lot of people focus on being really proud of a particular area of expertise or skillset or track record that they have. And the way we go about it is just.

Emily Holdman: Naturally based more on both who we are, and then also how we've naturally created that funnel, which doesn't necessarily adhere to the rules. I don't think that I'm a really great employee in the traditional sense. I'm not great at following traditional rules, but I try to think about what's the most effective way to get from point A to point B with the optimal outcome.

Emily Holdman: And so for us, that's not to win every deal that's to win the right deals in the right context. with the right people. And the way that you create that recipe, I think is a little bit different. And I think that, if I think at some level, we did that frequently enough and with enough success that it just naturally led to where we are today.

Emily Holdman: And based on the scale of the organization, we You know, I don't know that my title is as relevant as it probably looks externally. It's just I continue to stay focused on how are we going to build a really meaningful family of companies over time? The pace at which we do that and Sort of the overall scale of it interestingly enough is not like I don't worry about Assets under management.

Emily Holdman: I don't worry about how many companies we actually have on the board or how many acquisitions I have to my name. I'm more worried about at the end of the day what are we Yeah, what family of companies do we support? And how meaningful does that feel on a go forward basis? And so sometimes that means, we're chasing like, Really five or seven really interesting opportunities.

Emily Holdman: And sometimes it means we're working on one and, it ebbs and flows as I think most people, if they were being honest with themselves should say that they do, and I think it's probably the healthiest way to maintain opportunity as well.

John Wilson: When you guys went to change the model from captively owned companies to transitioning to taking on capital, I'm sure that was an emotional.

John Wilson: Yeah. Journey for everybody. It'll be an emotional journey for me.

Emily Holdman: Fear of the unknown is real.

John Wilson: Yeah. Yeah. Like how'd you get through it?

Emily Holdman: On a personal level or as a

John Wilson: business level, I get it. It makes sense. But like on a personal level, that's like a lot.

Emily Holdman: Yeah, for me personally, I was an advocate of it because I was also the person on the front lines, as I said before, dealing with the frustration of not being able to articulate the behavior of our capital in finite terms.

Emily Holdman: And so I was in favor of defining things in a way that. Better ensured we didn't miss opportunity we would otherwise see. So I was in favor of it from that standpoint, but also not without skepticism about, stories I had heard from others and just context around raising outside capital altogether.

Emily Holdman: So that's one of the reasons that I'm fortunate that Brent took the tax that he did and how he fundraised the first time, which was highly relational. And really thinking about it from the standpoint of we don't have to do anything. We were doing fine on our own. And so if we never raised outside capital, we would have continued to really love what we did, but we were seeing opportunities that we couldn't write a large enough check for on our own that we thought we would be a really good home for.

Emily Holdman: And so that was frustrating. And then again, from a competitiveness standpoint, you don't want to give people poor reasons why you're not a great fit if you are indeed a good fit. And so the context around those quantitative pieces were important. So once we went down that path, it was relationally done.

Emily Holdman: And so there was always a fair amount of care and understanding among our limited partners. That I'm not sure is true for everyone at a certain level. Obviously there is an LPA and there's a process that, everything goes through the attorneys and you deal with the realities of just being in business.

Emily Holdman: But that relational component has never left for us. And so I feel like among our limited partners, we're very fortunate to have. People who really are cheering us on and who ask thoughtful questions and who recognize that, we will make mistakes and aren't looking to shove it in our faces as much as be there to catch us when we fall and help us get back up.

Emily Holdman: And that's been true, right? So 2020 obviously was an environment in which I think LP reaction we're ranged across the board at a broad basis, and ours were universally supportive. And I think that, we just feel like that universally, it's been a good decision for us that they've been just incredible partners and that we've been able to see and seize opportunity we otherwise wouldn't have had.

Emily Holdman: And for that, we're just grateful.

John Wilson: I get that. This is like another question that I've always just been curious about because one of the things that we all hear about is permanent equities unique fee structure time length to 100 percent 27 and a half years is interesting. That's great. I'm super for that.

John Wilson: But the fee structure, I would love to know practically how it actually works to pay permanent equity. Like, how do you actually make money?

Emily Holdman: Yes. So we only make money when our investors make money, right? So we have a hurdle rate. And then beyond the hurdle rates, depending on the tier at which we're delivering a cash on cash IRR, there is a split on that basis.

Emily Holdman: And so it's all determined by the IRR rate outside of that. We do not collect fees of any kind. So we do not collect management fees. We do not collect deal fees. We do not collect dead deal fees. And, again, that was based on the concept that at the time at which we were contemplating raising a fund, we didn't need to raise a fund.

Emily Holdman: We were already self sustaining. And so we were able to make the decision that. We didn't want different incentives than we would otherwise have. If we were just investing our own capital, just because we raised a fund. I will say that, I've talked to others that have contemplated raising funds of some kinds and what their fee model should be.

Emily Holdman: And I think there are trade offs, right? You're trying to scale a team and depending on the rate at which you're deploying and the rate at which those organizations are growing and reinvesting back into themselves. There can be reasons why. Fee models are important in terms of recruiting the right talent and having the right capacity and capability to do what you want to do.

Emily Holdman: So while I think it worked well for us, I'm not sure it's the universal advice that I would give. I think, it's very much depends on what your circumstances are. And how well in other ways you align with your investor base, whoever that may be. So for our investor base, it did make a lot of sense and it does make a lot of sense and we are scaling well with it in place, but I've talked to others who, you know, especially if you're starting with one or two companies and trying to move into a fund model, you don't necessarily have the independent cash flow to sustain growing an operation of five to 10 people.

Emily Holdman: And so you really do want to think through that in a way that you don't under resource the organization and starve the resources of the companies that you're trying to contribute meaningfully to, just because you want to be able to feature that you have a no fee model to the investor community, because ultimately that's not really helpful to them either.

Emily Holdman: I think depends on how you couch it and how much you're asking for it. So I think, this past year, I was pretty frustrated at the rate at which some of the traditional private equity firms were deploying capital. And I had explicitly articulated to me multiple times that they were deploying at that rate because of, subdued 2020 capital deployment, in the traditional sense, and followed by a need to fundraise. Soon and get more assets under management to support the talent acquisition and the rising talent costs associated with that. And so it was a pretty explicit understanding that, they're writing bigger checks and more checks to go out and raise again so that they could get there to ish percent and begin to solve for those issues.

Emily Holdman: I'm not sure 2 percent is the universal answer, I think fees are an interesting topic and to themselves.

John Wilson: Yes, I was talking with someone. I never really understood one private equity. That's not my bag, but I didn't understand the variety of structure and how much more complicated it was if you want to be a variant.

John Wilson: So you guys came in with a variant fee structure, which I'm sure was super attractive. But you also came in with a variant time schedule, which sort of, I'm sure, equaled out the attractiveness. To some people

Emily Holdman: to plenty of people. So we had plenty of conversations that were like, Hi, private equities worked really well for me for decades.

Emily Holdman: Why in the world would I, upset the apple cart kind of deal, or it's just too weird and you're too early and, come talk to me when you have. 20 years of track record and tag. Obviously, like there's career risk for a lot of people that are underwriting those kinds of decisions in doing something that's outside the norm and that in and of itself can be a reason why the conversation can't progress.

Emily Holdman: But outside of that, I think we generally respect that private equity at certain sizes and in certain situations is a really good answer, right? So I don't negate that private equity should exist. I think private equity and the leveraged buyout model Is a specific solution that is extremely broadly applied.

Emily Holdman: And so it's one of those things that I think, when people equate selling to either selling out to a strategic and being absorbed or to selling to private equity and an LBO model, I think they're limiting their choices. And I think there are a lot of other options for them that exist in the market that just aren't as well articulated from a.

Emily Holdman: Story standpoint. And I think it's because particularly with private equity, you've seen the extremes, right? So we've seen the phenomenal successes with bogus, just bogus in the sense of just outrageously valuable returns for everyone and really great success stories for the companies that were initially required.

Emily Holdman: But on the other side, you also hear about the absolute dumpster fires, right? Where everybody is out of a job and, great businesses become. Obsolete and then non existent based on mismanagement and, financial calculation over a proper understanding of the operational dynamics.

Emily Holdman: And when those extremes exist, they drive the narrative and get talked about more. And so when things are just like humming along, it's harder to get that story across in a broader sense. And I think that's one of the things that from a content standpoint has been a long term ambition of ours is to say again Boring stories are, they're not extreme, right?

Emily Holdman: They're not as dramatic, but they can be really good. And so it's the context around that.

John Wilson: Yeah. I'm going to jump backwards to our previous question of how do you actually make money? And I'm just going to, this is for my own clarification. You make money when investors make money. Is that in literal cashflow distributions?

Emily Holdman: It is. Yeah.

John Wilson: Okay. I got you.

Emily Holdman: So we make distributions twice a year. Not all the companies participate in every distribution. And that's why, it's a mutual choice made with the operators of the business and with our team. So it's as anything you're thinking about your cost of capital and you're thinking about what's a healthy balance sheet and how do how do Manage through and think about the opportunities that are in front of each individual business.

Emily Holdman: And so what's nice is that, we're in a wide variety of industries, wide variety of size of companies, and have operators who are, optimizing for different things based on the state of the company and the lifecycle, so we have some companies that are in heavy growth mode with heavy reinvestment.

Emily Holdman: We have some companies That are pretty mature with limited opportunity for reinvestment, particularly in the service side. And then we have companies that are volatile based on certain market dynamics and how things are going. And, in some companies you want to keep a heavier cash balance and some companies, they don't need that much of a cash buffer.

Emily Holdman: So it's all a matter of what is the cost of capital related to that? That individual entity and what is the best use of that capital? And then when, and if it is appropriate to make distributions, that's what we're doing. And in general, like I refer to it when I talk to sellers as taking the family dynastic approach, if your entire family has lived off of a business for, Generations, then you clearly taken distributions, right?

Emily Holdman: But you've probably done so inconsistently, at least in magnitude, based on both how the company is operating and what you need as a family, right? And trying to think about what are the opportunity costs associated with that. So we do the same thing as a family of companies, and we're able to based again on their non correlated nature, like When one is in a really good position to make a meaningful distribution, it doesn't necessarily mean that another one needs to be.

Emily Holdman: And so they can balance each other out over time. It

John Wilson: makes a lot of sense. How do you, I'm going to say share resources, but that I don't mean like people and talent, because I think I get how the permanent equity model works. How do you share? Like balance sheet resources between the companies, like I'm just going back to, in that same scenario, one company can't make a distribution because maybe COVID hit it like crazy or, how do you get them help?

Emily Holdman: Transparently, we've been really fortunate in that. The company is based on how we do manage the balance sheets are never in a position to be extremely vulnerable. So we don't use leverage in our transactions, right? And so that's principle number one by which to enable them to, not be beholden to covenants in terms of how they operate on a day to day basis.

Emily Holdman: And to really think through what they know to be true of the patterns within their business specifically, and the KPIs for their business specifically, and not about the industry or about the macro trends, period. And so I think that in and of itself means that we interpret the balance sheet probably differently than you would if you're even like a bank commercial banker, right?

Emily Holdman: But on a capital allocation standpoint, we've consistently been in a position where our businesses, we don't invest in businesses that don't produce free cashflow. And so from that standpoint, like we've never been in a position where a business. Doesn't have options, right? As an individual business.

Emily Holdman: And I think that's a sign of being a healthy individual business. Now, where we do see opportunities sometimes is where, your reinvestment opportunity outsizes, obviously the end year cashflow from that business. And that's where we can be more creative, especially depending on the type of reinvestment we're talking about and the conviction by which we have that.

Emily Holdman: Consider what all options exist in front of us in terms of how to make that reinvestment, right? And so that may include, using a line of credit, right? If the cost of capital associated with that is significantly lower than it would be using fund capital, right? But, certainly there are benefits to the magnitude of scale that we have today, including just really phenomenal banking relationships and the ability to negotiate great terms for things like lines of credit and, processing international wires and all of the stuff, that as a, an individual operator. Particularly in a smaller size, you sometimes, have the frustration of friction and just being able to handle those things. So I would say that, I'm not sure that on a day to day basis, our companies would say the biggest feature is being part of the scale of the funds that we have, but it certainly hasn't harmed them in any way.

Emily Holdman: And it does give optionality to say, if we ever really did have a crisis, In a company from a capital standpoint, there would be legitimate and favorable options for them to be able to work through that. And we would be there to support them through that. But if you take like 2020 as an example, we're not stupid, right?

Emily Holdman: We didn't make a distribution in June of 2020 and we circled the wagons and we waited it out to see what was going to happen. And I would say that the same is true for most families that operated businesses independently, right? When there are too many unknowns, you just. You don't do things that are going to somehow under resource the business.

Emily Holdman: And I think that's being, again, patient and long term oriented in terms of thinking about how you're stewarding that business, not just through that situation or that year, but thinking about it in a longer term horizon.

John Wilson: How do you actually build out a team? Like it started with how many people?

Emily Holdman: So when we were at ventures, which was the original name of permanent equity, there were five of us

John Wilson: working at the portfolio level.

Emily Holdman: Yes. Yeah. So those

John Wilson: roles.

Emily Holdman: So the roles were Brent was essentially CEO, CIO. Combined right. I was running the front end. So managing both our deal funnel and then initial negotiations up to the point of L.

Emily Holdman: O. Y. And then we were more reliant on our external parties to help support friends and I as we entered into diligence. And then we had Suzanne who led operations and then Sarah and Lori who are both still with the organization as well. Sarah was focused exclusively on accounting and Lori was partially benefits and partially accounting.

Emily Holdman: And you had a group of people that could support a certain size of portfolio with obviously like heavy reliance on having a, a, a. Personal relationships with the operators at each one of the companies and, being utility players across the board.

Emily Holdman: Those roles existed, but I would put like heavy quotation marks around them in the sense that everybody jumped in wherever you could be helpful at that point in time. And so there were times where you were doing things that were certainly not defined well within that role. But would serve the overall intent of the company.

Emily Holdman: And so we operated that way for quite a while. And I would say that, I believe in being scrappy and I believe in learning your way through things. And I. Believe that when find a discrete role, then there's an opportunity to really resource that well and bring through the talent fit.

Emily Holdman: I don't know how much everyone is going to like me saying this, but I feel like our first fund, we went through the period of you're awkward in the sense that you're trying to, Figure out how many people you need and what side of the team makes the most sense to resource up first.

Emily Holdman: And I think that we kept circling back to what we've known to be true all along, right? So if we think about, businesses as collections of people, The people side of the business and the post close operations tied to people are really the area in which you can never under resource and you can always think about their opportunities you're not getting to, right?

Emily Holdman: Particularly when you have good value propositions, driven operators, and people who want to do a good job, right? And so it's always a question of like, How much do you put into that and who sits in that seat that from a power dynamic standpoint understands the servant leadership model, right?

Emily Holdman: And it's helpful to the companies, but not in a way that, feels like we're pushing in ways that we shouldn't be right. And so we were highly sensitive to the pace at which we scaled and the types of people in the types of roles that would be most beneficial. But if you look at our growth, Over in terms of team size, over the past five years in particular, most of the growth has been post close operations oriented.

Emily Holdman: And really thinking through how to resource that size of the business well, and thinking through the ways in which we can actually be helpful to them. So within our businesses, if you think about, they all have these disparate value propositions, they're not related. We want the operators of those individual businesses to be really good at that.

Emily Holdman: And then our responsibility is to help them with things that they encounter on an infrequent or one time basis, right? So those can be legal matters, those can be talent matters, those can be, overhauling lead funnels, right? tech stacks, like those types of things. And so if you look at the growth in our team, it's to help resource the organizations in, as Brent would say, that tastes like chicken level of business, right?

Emily Holdman: It's to really think through how can we provide resources that are useful for the vast majority of our businesses if you normalize them out over a year. It's going to be at one point or two points in the year that they actively use that resource, but when they do, man, it's critical. And those are the types of things that we want to continue to build out within the team.

Emily Holdman: On a capacity level, we are getting to a point where We are making more frequent acquisitions. We are more frequently at, based on the fund size and sec stuff and all of that, like we have things that we just have to do. So that capacity has certainly created, just needs for other types of functions within our organization as a whole, but naturally almost everything funneled towards post close operations, as if the deal side of it, there is a certain amount of capacity, depending on how much deal flow you're handling that you need to solve for in some way, whether external, internal, how you organize that, I think it's totally dependent on what you're looking for.

Emily Holdman: But. That team doesn't need to be nearly as large in my opinion as, the team that's actually supporting your portfolio, particularly if you intend to hold them long term.

John Wilson: How many people are on the team now?

Emily Holdman: So we're at 18.

John Wilson: That's

Emily Holdman: big.

John Wilson: Yeah.

Emily Holdman: Yeah, it's big. It's gotten to be a team that doesn't fit super well inside of our house we've been operating in.

Emily Holdman: So I may be the most vocal about the fact that we may need to move soon and recognize our size. But I say that half jokingly. We love our office, but it's getting to be tight quarters, I think people are there because they love it. And while I know a lot of teams that are still, half remote or fully remote, like We're all in the office any day we're in town, and it's just because we, I don't know, we actually each other and we think we get a lot of work done well in person.

Emily Holdman: And yeah, it's a good team, like the talent side of things is just critically important, and we've been really fortunate to attract some really interesting experienced talent, and they've recognized that they're joining a team and have, Yeah. Become awesome contributors to that overall shared goal.

John Wilson: That's awesome. This was an awesome conversation. I enjoyed this a lot.

Emily Holdman: Good.

John Wilson: I end every episode. Thank you for having

Emily Holdman: me.

John Wilson: Yeah. I end every episode with the same question. What is your single biggest challenge right now?

Emily Holdman: Interestingly enough, I think it would relate to the topic that we were just discussing, which is talent.

Emily Holdman: Obviously, talent market's been super interesting the past year. Our companies are fortunate in that they're facing a lot of opportunity in front of them, but they're looking for a wide variety of skill sets. And I think at a broad level, we're trying to, as people on an individual basis are looking at with, especially if they come from a broader corporate environment, a bigger company scale, they know some of the shortcomings of that.

Emily Holdman: And we're really trying to push the understanding of there are really awesome opportunities to contribute meaningfully inside of smaller organizations and help drive growth and really interesting outcomes. And we've been fortunate to see that continue to come true. We have the orbit which is essentially Kelly Morgan on our team manages all the relationships with people who are members of the orbit.

Emily Holdman: But these are, operators of all different disciplines who have raised their hand and said, I think maybe today, maybe one day I'm interested in working in a smaller company or contributing to a smaller company in some capacity. And for us, those are the challenges. That we're trying to solve for most actively right now, I think the last time I looked, we had, I think it was 12 active, what you would consider to be leadership opportunities within our portfolio, across the U S really interesting teams and meaningful ways to contribute within them.

Emily Holdman: And yeah, talent, I think is the thing that we're most challenged with.

John Wilson: That makes sense. That seems to be when I met Kelly last year. She was awesome, but I walked away from, I walked away from that conversation, like so depressed because I had thought there's some challenges that you're like, Oh, scale, we'll solve that.

John Wilson: And I guess I assumed that operators would be solved. Yeah.

Emily Holdman: Yeah. There's such a tipping point to that because. I think almost the inverse is true, actually, of probably what you're assuming, or at least that's been my experience. We had several situations in which we were recruiting like a CEO, CFO candidate.

Emily Holdman: And in those instances, I can't tell you the number of people That we talked to who I would consider to be highly mercenary, right? So they are used to a very traditional private equity model, both in terms of incentives, length of tenure that they're going to stay and expectations around, what's going to be provided to them, both in terms of autonomy to do what they want and how they were going to guide the business from a cultural standpoint.

Emily Holdman: There's such a nuance to like, Are you coming into something that's broken versus are you coming in to steward something that's already good? And in general, we try to get involved in situations in which we're stewarding something that's already good. And so if you're going to be an executive in one of those organizations, we really need you to understand.

Emily Holdman: And, the role that you play, which is definitely not mercenary, not short term nature, and definitely not to go in and change everything and overhaul the business. And so it's interesting in that you can read resumes that are really impressive, but when you talk to people stylistically scale doesn't necessarily beget that.

Emily Holdman: So you want people who are contributing to the broader meaning of the company, right? And so they understand that they're part of that team and that they're making a mutual commitment to that team, particularly because you've got a lot of people within those organizations who are well tenured been there 10, 20, 30, 40 plus years in some instances, and being the new kid on the block, like you have to understand and be self aware that's who you are and that you need to gain their trust.

Emily Holdman: And, versus being like a fixer who comes in and can show KPIs really quickly, which you sometimes see, particularly, I think we will see soon in public markets.

John Wilson: Yeah, that was a great challenge. And it totally makes sense. And I'm still depressed. It doesn't get solved with scale.

Emily Holdman: People are people, they're always messy, right?

Emily Holdman: But the good part is you get to, I would say with scale becomes. More opportunity to meet more people, right? And interesting ones. And I'm not sure that, as with anything you scale that you're going to see things you don't like, but there are, yeah, in some ways I would say it's not totally untrue.

Emily Holdman: We've been blessed to find some really great people along the way.

John Wilson: That's great. I appreciate you coming on today. This was awesome.

Emily Holdman: Yeah, absolutely. I'm looking forward to seeing you in the summer too. Oh, hi, July.

John Wilson: Yeah. I got to put a plug in Emily's. One of our keynote speakers at whole co conf in July in Cleveland.

John Wilson: That's going to be awesome. And I don't know if there's probably negative 200 seats available at Capitol camp, if you can bribe Clayton, maybe you can see her at Capitol camp too.

Emily Holdman: Yep. Yep. We've got some good parties coming up this year. It's nice to be back to a point where we can all get together.

Emily Holdman: So I look forward to seeing you in person.

John Wilson: Awesome. Thanks.

Emily Holdman: All right. Thanks, John.

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