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- [00:00]
A
What Alex and I did is that, you know, we worked first of all really closely together on the bankruptcy of Hostess brands at the manufacturer of Twinkies and Wonder Bread. And that was really fun.
- [00:09]
B
As like AI becomes like so leveraged in a lot of places. Like, first, like, how is it changing what you look at, what you buy, things like that.
- [00:16]
A
AI is absolutely a part of team shares in multiple dimensions. Yeah, right. Like it's accelerating the back office stuff. Our bank recs, right. For our year end audit. That was like a six week process three years ago. It takes minutes now. So I think that the narrative around private equity is wrong and out of date. Like it still hearkens back to the vulture days of breaking up companies and firing tons of people. Roll ups do fire a lot of people. All of a sudden it became a third derivative AI play. Yeah, I mean, you can't make this stuff up. I mean, but like, you know, they literally. People are buying H vac companies for 12 times EBITDA. More or less easy. No. Or is it? Yes. We'll debate the tech that's best when we get more. More or less. Dave and Grip. No Salmon Jess. Put it all right to the test. More or less.
- [01:10]
B
Hello and welcome to a very special edition of the More or Less podcast where you only have one less. But I'm here and I'm very excited to be having a conversation with Mike Brown of Team Shares. Mike and I got to know each other now seven years ago when we put our. With the first check and I think in the history of the company. Although he can correct us into team shares.
- [01:32]
A
That's right, yeah. First Institutional Investor.
- [01:35]
B
First money in. So there's some non institutional. First Institutional Money.
- [01:38]
A
A couple of angels. First Institutional Investor in Team Share.
- [01:42]
B
Fair enough. And now I'm talking to you on the eve of you guys being publicly listed seven years in. Congratulations. Thank you. It's exciting. I wanted to take the time, Mike, just because it's kind of like a momentous moment or like checkpoint in a long journey. Both in journey to this point and journey forward just to check in. And I thought it'd be fun to kind of go and just reminisce and tell the whole story of how on earth we got from where we were seven years ago to where we are today and then kind of get into like where we're going, if that's cool.
- [02:16]
A
Sounds great.
- [02:17]
B
Amazing. So first, you know, take me and everyone listening back to the earliest, earliest days here even before you and I started chatting when you were just, you know, you know, starting to think about doing team shares or what it would be or the opportunity.
- [02:33]
A
Totally. Yeah. So even just a very quick origin story before that. Right. So although three founders of the company. Kevin is our cto, Alex who's our president, and then I serve in the CEO seat. So we. We met together at investment banking. So they were analysts, you know, putting together presentations and spreadsheets. I was, you know, an associate turning vp also doing that type of stuff.
- [02:58]
B
And so it doesn't get much more glamorous.
- [03:01]
A
It's extraordinarily glamorous. But the. Kevin realized that he'd made a career mistake and he left after his first year as an analyst. And he joined General assembly as the fourth employee.
- [03:12]
B
Right.
- [03:13]
A
Actually when it was actually still a co working space. It hadn't pivoted to add, which is how we.
- [03:17]
B
And partially how I was diligent at the company early on because Brad, who founded that, is a good friend. Totally.
- [03:22]
A
Exactly. So he joined when it was actually still a co working space on the thesis that like, oh, he'll meet a company. And General assembly itself was reaching product market fit in edtech in real time. So he was their first product manager. He eventually learned to code and he's a great designer, so he's like a renaissance tech person. We stayed in touch as friends. Right. What Alex and I did is that we worked first of all really closely together on the bankruptcy of Hostess Brands, the manufacturer of Twinkies and Wonder Bread. And that was really fun because all the partners are firm. They didn't really want to go spend time in Kansas. Right. And so we got to go for two years working on this bankruptcy, working really closely together, learning from the CEO and cfo. And that was kind of how our partnership and friendship really started to develop. And then we eventually realized, like, look, we'd love to go and buy a small business together. And so that process started in 2013 when I left. Basically I resigned in good standing the day I made vice president and went on to go buy a business called Altape Electric. And I was going to run it. Alex invested alongside me, a couple of friends and family as well, and moved out to Western Canada to run it, and then made the transition from spreadsheet people to operators and did the transition from Wall Street M and A to Main Street M and A. And really, I never went to business school, so that was kind of my mba.
- [04:46]
B
Right.
- [04:46]
A
Like we learned how to.
- [04:47]
B
So yeah, talk to me about that. I mean, that's such a. You know, again, like there are people On Wall street, especially these days, are always talking about this. But you guys, you know, now, many years ago, went out and actually did this, right? It went from being junkies to like operating a small business. Like what were like, what were kind of the most shocking realizations doing that? What did you have to learn? Totally.
- [05:05]
A
I mean, like, as a bigger version, I know you're not the biggest, biggest fan of Y Combinator, but the, you know, there's some really good writings about like how, you know, like Paul Graham's done some essays of like, hey, like real innovation comes from sort of becoming an expert in a space because you're so enthralled with it.
- [05:21]
B
Yes, right.
- [05:21]
A
And that part I agree with. And that, and that's exactly what, what happened. Right? So we just went in. There was no, we weren't trying to build a public company. We were inspired by Berkshire Hathaway. We thought that was really cool. We thought compounding was interesting.
- [05:34]
B
Of course you are, you're bankers. Everyone, every banker is inspired.
- [05:38]
A
But, but, but I actually think that Berkshire is kind of the anti banking company. But anyway, setting that aside, so, so, so yeah, so we went out there and like, you know, day one, it was like a rude awakening, right? The first day they were like, oh, Michael, we have a safety decision for you to make. I was like, what is safety?
- [05:54]
B
Right?
- [05:55]
A
Like, I have no idea what a safety is. And I realized, oh, I'm running a construction company. And so it was really cool because I kind of got out there and I viewed it as a blank sheet of paper. This was like sort of at the time, it was like 5 million of revenue, 500k of EBITDA, you know, 15 employees, 4 people in the office, 11 people in the field, right? And 2 owners that were retiring. And I moved out there. My first job, I was so insecure at the time. I called myself VP of finance. I bought the company. I call myself. I didn't sit in the owners say, or whatever. I just did spreadsheets and tried to learn from the former owners who were still running the business for six months. And then. Okay, and then we're like, hey, got got my hands around sort of the, the business cycle, right? For I think it takes six months. And you're doing everything from like payroll to invoicing, everything nitty gritty stuff. And then it was. The business has three divisions, right? And you know, one of it's kind of light manufacturing, one's projects, one's service. And so we had to figure out how to do a transition of two Owners, not one, but two business partners who were intimately involved in the business. Make some key early hires, retain everyone, build trust, and then start to work on, okay, how do we take this great, relatively small business? First I'll sustain it, but then now start to try and grow it and improve it. And so did things like identified in the, in the light manufacturing business, you know, just pick up on things from talking to people like, oh, yeah, if we go to like, so and so publicly traded supplier and we ask for OEM pricing, we can save 30% on our input costs. I'm like, well, let's set up a meeting. So you go. So I just viewed it as like a blank sheet of paper. We would go and like, you know, implemented ERP and negotiated pricing and hired. You'd have these other things like they would do, the company would do work in like the oil sands region. And they're like, oh, we could do like 10 times the revenue, but we can never get a hotel room up there. I'm like, let's rent a condo.
- [07:50]
B
Right?
- [07:50]
A
Like, just like it was really cool, like white sheet, like problem solving. And so that then. So that was the first few years and then it was like, okay, like, what next? And what became, what was natural was, okay, keep buying more of these businesses again using our money, our own money, friends and family, that kind of thing. And eventually, over the course of 2013 to 2018, we had bought and integrated six electrical maintenance firms. Right. And Alex jumped in in 2015 to start running the business as well. Right. First as sort of like, you know, equal, active, equal financial partners right from the start, but sort of like equal leaders. Right. And we figured out pretty quickly that he was much better at running the businesses day to day and really integrating all these different companies and getting the people to get along. I was not as good at that and it was not as much where my interest lies. And so what we decided to do is, why don't you keep integrating and improving these companies? Why don't I go work on the more scalable version of what we're doing? Right?
- [08:53]
B
Yeah.
- [08:53]
A
And that took a couple of years, but that was what became team shares. And I think at the time we originally thought that, like, oh, we had more of sort of a marketplace style idea at the time. We were called exitplace.
- [09:07]
B
Right? Yeah, I remember that. That was the first pitch you gave me.
- [09:10]
A
That was the first pitch. And actually when we first met, we said, I'm just going from memory here, but I think we were like, hey, I met one of your Colleagues, I think it was Alex Marcos. Right. And then we were going to do a meeting with you and then we realized we pivoting in real time. We're like, hey, we actually discovered that Eggplace is not the right model. It's not the company we want to build, et cetera. And the eureka moment was that, look, this is a supply demand equation. There are just never going to be enough buyers for these businesses. There's a huge opportunity to help try and help these businesses overcome succession, have a permanent ownership model, bring employees in that's great for retention, it's great for growth, it's great for people, it's great for shareholders. It's obviously table stakes in venture capital is table stakes in private equities, table stakes in public companies. People get stock, right?
- [09:59]
B
Yep.
- [10:00]
A
And our thesis was like, let's bring this into a small business economy. Let's transit, let's buy and transition these businesses into a Berkshire inspired holding company. And then do this, you know, start with one and try and scale towards thousands and then let's use technology to address, you know, the many, many repeatable processes, have great financials, have great data, and even over the super long term, actually trying to create financial products which we've done some early stages of. So that was team shares and that was 2019, I think was when we met. And I remember you called me the day we came home from the hospital with Edward, our youngest son, and said, we want to invest. And I was like, great. And then I think you threw out a valuation range. You're like, let's meet in the middle, let's go.
- [10:46]
B
Things that were surprising, at least to me as an investor on the outside, along the way in the journey. The first I remember was very early on you had this thesis which is, is you had to build the marketplace yourself and you weren't going to use brokers. Then you realize there are plenty of these businesses out there that you can just work with. Brokers, like, you didn't need to compete with the whole broker instance. Totally. Right. And that was like a really interesting evolution. And the second evolution I remember, and this is, I think that a little bit what you're talking about here was, I remember the initial idea being, well, all these businesses have number twos and they'd love to own the business. Right. And it turns out that that wasn't quite right. Right. When you got into the really studying the business. First of all, are those two recollections of those two important chairs? Right. Yeah.
- [11:29]
A
The core idea of team shares has Been pretty similar, but like, there's a lot of execution tweaks that have happened along the way. So. Yeah, the first idea was that we, we thought that there would be a value prop to sort of going direct that was like. So I think when you guys invested, like, the main question was really, okay, like, what's the distribution model? What's the go to market going to be? Right. Like, that was the main question. And we thought, because in the early days, we thought, oh, well, the fees that you, that you pay when you buy a business are really high. So if you. To give the audience like a sense, if you, if, if a business is bought for $1 million, the transaction fee may be $100,000.
- [12:06]
B
Yeah.
- [12:06]
A
And this is paid by the seller at closing. If you buy a business for $5 million, it could be, you know, you know, it could. Wait, what did I say? No, that's right for a million dollars to be 100K. Right. And it could be 500K.
- [12:19]
B
Yeah. So it's about 10%. I mean, it could be 10%.
- [12:21]
A
It starts just 10%. Right. But it starts to slide as you get.
- [12:25]
B
Yeah.
- [12:25]
A
Shows how good I am at mouth. But the, but the issue is that that kind of like for sale by owner FSBO and the home market, it's a false value prop. There's a reason why people pay those fees. So that was sort of on the seller side. There's a reason why people say those fees, you kind of only. It's even harder than selling a home. Right. So Fizbo should work. And it's never worked. Maybe someone will figure it out. But it's when I say it hasn't worked, has not worked at scale.
- [12:51]
B
Right.
- [12:51]
A
Like, there's no sort of like, real.
- [12:52]
B
Which is. I mean, look, it's even. That's kind of true in the home marketplace as well.
- [12:56]
A
That's what I'm saying. In, in the home market, I'm saying Fizzbo in home.
- [12:59]
B
Yeah. Fizbo in home. Yeah, yeah, yeah.
- [13:00]
A
Fizzbo and home, like, should work. And it hit. I'm sure there have been successful, like middle market Fizbo things, but there's no, like, you know, remax Fizbo. Right. So. So that should have been a warning sign that like, oh, yeah. Like, hey, there's a reason why it sort of hadn't worked. But so people need that expertise. They need the help. And then there was our perspective on it too. So on our perspective is that it takes so long and you only buy a business once. So the person needs to be ready to go. Right. And so if you're going to do this at Velocity, right, like that's why a Stanford search fund takes two years and one in three Stanford searchers doesn't close a transaction two years to buy the same type of businesses we buy every month, right?
- [13:38]
B
Yeah.
- [13:39]
A
So that was one bit. And then the leadership piece. So it ended up being a hybrid solution where we thought again as we set off and we were realizing real time like wow, there's real product market fit here. And we were assembling elements of how to go and do this thesis and we tested each one of those elements and you thought about how full stack it is and how complex, I mean Teamsters is a full stack that is very simple to understand as an investor. What we've had to build both online and offline is meaningful. Right. And so we were trying to think about how do you simplify the business. And you know, we had had a good experience promoting people from within. As we bought and integrated the six companies, I thought, oh yeah, look, we did it, that was fine, we'll do that. And I think, you know, we did that in the first four and we had mixed results. Right. And I think we found that like, okay, maybe sometimes you need to hire someone, maybe sometimes you don't. And we went through a lot. That's probably where most of the sort of like iterations were or the first three years. The default we landed on is that in the smaller businesses, sort of like up to a million or two, they're not generally someone who's ready to take on the financial responsibility for running the business. And that's why externally 4 out of 5, 3 out of 5 businesses, we need to sort of hire an external president from the now the right hand who's the director of ops or general manager, they also get a step up in responsibility and if that president were to ever leave, they're sort of the natural successor in the future. But what we found was that it was actually just sort of too much to ask to take on the next role while they already have a full time operations role to then be in charge of all that. So those are sort of like two of the main evolutions since the sort of day one three page deck version of team shows.
- [15:24]
B
Fair enough. So you've gone out now and remind me, what's the business count? How many businesses have you bought at this point?
- [15:30]
A
90, 92 and about 60 million of consolidated EBITDA from the segments from all the companies.
- [15:37]
B
So from that, I mean, so you bought A lot of businesses now. Right. And you're on your way to buying a lot more. I'm kind of curious, like if you think about what you would have told yourself seven years ago as you're getting going 90 businesses in like what are some of the kind of like the lessons Learned from the 90? Yeah.
- [15:53]
A
Well, just as a general. Aside from sort of like the details of change, one is to just sort of like be patient. And I think that like we were both trying to really move assertively and build but I think, you know, everything takes longer than you think it's going to take. Right. So that's sort of a good generic thing. I would tell myself, look, I think that I wish I knew from inception that the slightly larger. We've talked about this publicly that we focus now on sort of half a million to 5 million of EBITDA businesses. I actually think so. Where we started was in the sort of the long left tail, like 2 million of revenue, 200k of EBITDA business, 10 employees, that type of business. These are more like 25 to 100 employees. Right. So we started there because that was sort of where is what we could afford. It's just what our thesis was. And that's kind of what we had bought before. And I think when we were doing it in low scale, when Alex and I were buying and running these businesses, it was pretty consistent. Yeah. When we started doing it at scale and we went, as you remember, we sort of launched our first. So that the sort of pre seed stuff. Right. Was in 2019. And then we launched with our first acquisition doing one per month in 1Q of 2020. Right. As Covid was starting. So and then we paused for the rest of the year and then we did like one more end of 2020 and then like 20 acquisitions.
- [17:14]
B
Right.
- [17:15]
A
In 2021. Like that's when we started scaling. Right.
- [17:18]
B
Yeah.
- [17:18]
A
So as we started doing that with that size range of company, kind of 2 to 3 million of revenue, 10 employees, 200k, 300k of EBITDA. There was a wide variance of outcomes. Yeah. So you could actually build a venture. I'm just talking about portfolio theory. These are subsidiaries or team shares. They're not portfolio companies. But like you, you could build a quote venture style portfolio I think around the 200k kind of EBITDA company. That sort of size of profile. That's not what we're trying to do. We're trying to have real consistency, predictable financials compounding. And so I think that is one thing. And then I'd say like the other thing I think was, I don't know. I obviously I wish we sort of knew the leadership model from inception, right? Because there was a lot of iteration there.
- [18:03]
B
But
- [18:06]
A
that one's more just like it's kind of like knowing that like XYZ stock went up 10x last year. And you wish you knew that. Like you, you can't really know that. We could not have known the exact leadership model without going through all the little iterations and micro mistakes. So that, that one, that one, I, I'm sort of like, hey, that was, that was a journey that was worth kind of.
- [18:24]
B
Well, let's talk about the leadership model. Cause I find this totally fascinating. You know, when I graduated college, you know, I didn't do banking, but I did banking light. I'd call it a Bain and company, right? For a few years, consulting dirty.
- [18:37]
A
You were probably the last era of consulting before it really changed. Like I think it was like, that was like peak, peak old school consulting before.
- [18:45]
B
I mean, honestly, the consulting that you. I look at the people I work was kind of associates with at Bain, you know, a year ahead of me in my class or whatever in New York. It's a killer group of people, right? And so, you know, you can talk about what the work was, but at the end of the day, and I don't know how it's evolved, I mean, I still see Bane people popping up, but there's no question there was a killer group that came through those pipelines when I was around. But I'm really curious because we've talked about this before and you've seen so much now. One of the things I thought was exciting in the business was you said to me one day, you said, look, what we're finding is that there's an enormous demand of really smart kids who are ready to go. They're green in a lot of ways, but they don't want to go to consulting and banking anymore. They like the idea of dropping into like small businesses having more ownership, control, et cetera, et cetera. Can you kind of tell me kind of the story of that and your discoveries around that and where it works and where it doesn't and things like that.
- [19:40]
A
Our lens on everything, right? Just to sort of like to understand the framework was the Toyota production system. It was all about applying technology and people, right? And how do you keep making things repeatable? We looked at the tech enabled factory and how do you make everything really, really, really repeatable and tech enabled? And so for us. So when that, like, if you inspect. So the, like the leadership component of building out team shares though we said, okay, what are going to be as we scale, how are we going to be able to predictably and repeatably like bring in successful high quality leadership candidates every month? Right. And the places that are natural to look and think through that are, you know, firms like consulting firms and sort of on campus business school recruiting. Because there are, you know, for people who are less familiar, like there's a repeatable funnel of people graduating. There's a repeatable sort of class of people.
- [20:31]
B
Yeah, they all look kind of the same.
- [20:32]
A
They all look kind of the same. But there's, but, but even think about the cycles, right? The, the graduation bit is obvious. For people who don't know Big three consulting, it is like literally like you have a two to three year contract and then you leave. So there's like a repeatable. So the issue was in that. And again we went back and we sort of looked at like when Alex and I were running these businesses, we came from investment banking. We were very young, we were in our sort of like mid to late 20s and we were generalists, we were not industry experts at all. And so we're like, oh yeah, like we figured it out. Other people can too. And the again the results were very uneven. And so the sourcing was very predictable and repeatable. The financial sort of like outcomes from those early hires were not right. There was a wide divergence. So we learned that look, okay, when we sort of work a couple years in and had now enough Data points, so 20, 30 sort of data points have said, okay, there's a set of playbooks, but each company is going to be a little different sometimes where it really can be an internal promote. Right. It's a little more rare, it's one in five. But it's when it works, it works really well.
- [21:41]
B
Yeah.
- [21:42]
A
And then you figure out like what's the right back backfill hire there. And then if you're going to hire externally, it needs to be on average an industry specialist. It's someone who's local, it's someone who's been in the industry. It's someone who's had P and L responsibility. And I think one of the things that we under. So there were elements that I'm describing of the learnings that we didn't quite hire the right group in the beginning. We didn't have the right sort of characteristics. That generalist model didn't sort of hold up all the time. But what we did in the process though is we actually were able to bring, we were able to build an incredible demand for the role.
- [22:22]
B
Yeah.
- [22:22]
A
So when we have a team shares president opening, we have like generally at least 50 applicants. Sometimes we get hundreds of applicants for a single opening.
- [22:31]
B
Yep.
- [22:32]
A
And there are people. And so then you know, when you get down to five finalists, right. And the one person who's picked right. They, you know, there'll be another couple other people that like maybe they were not quite the right person for that job. But then you've got four other people in Cleveland ready to go for the next companies. So there's a real flywheel.
- [22:50]
B
Yeah.
- [22:51]
A
To the whole sort of leadership model. And then of course then internally it's a really interesting value prop because you've, you've had pinel responsibility, you've run a company, you've obviously you're, we think coming into this a great leader and you get to sort of see how they perform and but now you get to be, you get to be the leader and have the ultimate task to financial accountability. And then if you do well, right. Like then there's a, there's a chance to continue to grow and it's not out, you're not running company out there on its own as a single isolated business. There's almost like an internal YPO young president's organization. Right. Where we have like, you know, annual get togethers and sock community and it's very vibrant. And so I think that, that we always had the community sort of YPO vision from the beginning. But I think we just sort of had to, had to find the right model and we do. And now over 80, over 80% of our president hires work out which we think for hiring leaders. We think that's a very strong track record.
- [23:44]
B
Yeah. And I mean talk about it because it's such a fascinating model on the talent side for me because it's like I can totally imagine you're young or you're, you know, whatever you want. One of these roles. The old version was like the GE thing. Right. Where you go and you rotate through a few departments and you know, you don't really have full respons but you have to see a lot.
- [24:01]
A
Yeah. Like a rotational program.
- [24:03]
B
Now your version is. No, no, no. Like you can actually have real full P and L responsibility. You know, you can own, you can look at the full stack. You can be, you can learn true entrepreneurship in a lot of ways. But then you're not necessarily stuck if you're an ambitious person running one, you know, electrical company in Milwaukee forever. Right. There is the ability to move around, to move up, to do more businesses, et cetera.
- [24:27]
A
So it's, yeah, we've been able to develop a great career. So I'd say the majority of presidents are running a business that they will run. Like if they're doing well and they're filled and we think they're doing well, the team on the ground thinks they're doing well. There's people that have been in seat already for six years and there's great sort of, there's companies that we buy that are sort of GDP plus growers and there's companies we buy where the EBITDA growth potential is literally 10x. And so there are lots of presidents running businesses that have a very significant growth potential just in that first business they take on. There's others that may be buying more sort of, they're not buying. So they're, they're jumping into businesses that team Shares has bought for them to be the day to day leader. And you know, they're, they're gifted with the, the humans or EQ elements and the financial performance elements. But the business itself, like hey, there's, there's, there's capacity to kind of run multiple businesses in the same industry. Right. And that's what we call a group president. And then for, for the people that are really, really financially inclined, maybe like, maybe the people management side of it is less their thing though we have a role there called industry lead. And they're almost like a sort of a super CFO or sort of like a, you know, you know the equivalent of like an industry pm. Right?
- [25:41]
B
Yeah.
- [25:41]
A
And their job is to be all they have financial accountability and responsibility too, but their job is to be all over the numbers and like taking and like really understanding every lever of the business. And of course there's a flywheel for them helping us underwrite businesses in that industry. Right. So, so I think that that's what we found is that we have a career path for everyone. Because I think that like running one business, there's again, there's businesses that, there's businesses that we, we bought at 1 million of EBITDA that will we think become meaningful middle market.
- [26:12]
B
I mean it's amazing. It's also like, I mean look, we were talking before about yc. There is like a YC flavor to this as well. Right. Which is you build up this community. Right. I've really switched on people who really do have business building and leadership experience in these types of things to help you evaluate things, to help you, you know, like there's so many opportunities in community around that.
- [26:31]
A
Well, the other thing. Yeah, so there's, there's the canon of knowledge and all that stuff. Both like from, you know, from YC and so the founders. Right. And that's the same thing. We think about team shares. The, the parent company is almost like the State Department or we think of the presidents as like the, the ambassadors. Right. The embassies. And there's a healthy relationship between the two. It's all team shares. But that's how we kind of think about the two roles. The other came out of YC that probably wasn't planned from the beginning, but. But was planned from the beginning from team shares. And it's still very nascent, but I think could become very meaningful over time. If you remember yc, how a lot of those startups got their first customers they sold into other YC companies.
- [27:07]
B
Sure.
- [27:08]
A
Right. Different context here, of course, but like we own a mattress manufacturer and we own furniture retailers. Yeah, right. So you can im and when we buy businesses, we don't underwrite into that growth. But that sort of. There's a Canadian hold who I think called the Irving Group or something. And they're like famously only buy within the sort of try and buy within. And so those things are super nascent, but we have a box company and they try and do as many of the boxes across the network as possible.
- [27:39]
B
So that's the talent side. I mean, talk to me about the technology side. And especially as AI becomes so leveraged in a lot of places, like first, like, how is it changing what you look at, what you buy, things like that. And then really interestingly, how do you think about like with the points of leverage with the presidents, with the businesses of like applying, you know, centralized technology versus letting them kind of, you know, YOLO things, et cetera.
- [28:05]
A
Totally.
- [28:05]
B
Yeah.
- [28:06]
A
Yeah.
- [28:06]
B
Great.
- [28:06]
A
Okay. So I think let's start with actually just like the durability of the businesses. So we've always, I mean, the tech disruptions change year to year, but like it's something we've always started off with. Like one of three questions ask myself is like, will this business be around in 50 years?
- [28:22]
B
Right.
- [28:22]
A
So before, you know, people, whatever, since chat GPT people have been talking about AI, but before that there were all kinds of things. Right. So we've always been really focused on durable businesses that we think you don't have a crystal ball. But we really think that we, we ask these really banal questions like do we think people eat cheeseburgers in. In 50 years.
- [28:42]
B
Yes.
- [28:43]
A
It sounds like such a stupid question, but we'll start with that. And they're like, okay, well they may also be eating impossible meat burgers too. Okay, this can evolve. Right. So we start with these reason to exist. Right, to exist. Why does this business exist? Kind of questions. And we don't like. So I always think about, I think most people would go and try and buy a pickleball company. We would rather buy a tennis oriented company because I personally just believe that it's more likely that tennis will endure for 200 years than something that could be more fatty. So that has always.
- [29:18]
B
Also tennis is just a better sport. But yes, point taken. Correct.
- [29:21]
A
Yeah, but the point is that I'm not trying to pick on pickleball. It's more just like we don't like fads. We like things that we think are evergreen businesses that are going to be around forever. And so that helps you endure through technological change and say, okay, so we don't think that there is a revenue challenge today for any business that team shares, like literally not one. In fact, actually AI is and has been for multiple years of team shares. We don't try and overreach on this, but AI is absolutely a part of team shares in multiple dimensions. Yeah, right. Like it's accelerating the back office stuff. Our bank recs, right. For a year end audit. That was like a six week process three years ago. It takes minutes now. It's amazing to do a bank reconciliation for an auditor. Like our tax returns longer than Berkshire Hathaway.
- [30:11]
B
Yeah, right.
- [30:11]
A
Like this is there. There are like almost 100 subsidiaries in this company. Right. So, so the natural place for us to build our own stuff there was really in the accounting. Right. And the financial reporting and performance and tasks and all that stuff. We don't build software if good software exists. So anything to do on like the marketing or revenue growth side, we just install it now. Whereas team shares build its own software at the platform level that's around transactions and that's around financial performance, cash flow management, all this stuff. So again the underlying companies, right, like they'll be on NetSuite or QuickBooks Online or whatever their accounting system is. And then if they're, you know, it's pretty rare for most of these companies to be on a modern API centric operating system like let's say TOAST or Service Titan, but they'll go on to that within the first year.
- [31:02]
B
Yep.
- [31:02]
A
And then we're able to get, we're able to then conform all the financials to us. GAAP Right, Dry topic but important thing for us as a soon to be a public company and then have really great operating data and then layer analytics on top of that. So that's what allows us to move cash around by standardizing the banking, standardizing the financial performance, having all the types of financial analysis and operating KPIs that would be table stakes in a venture backed company, in a private equity company, in a public company and bring that down to small business. Right. And then on the transaction side up front, it's all the sourcing, 75,000 leads per year of actively for sale businesses, the valuations, the Lois, the legal documents, that there's a human process. And that's what I've always thought about the Toyota production system. We need to meet owners, we need to hire presidents, we need to have relationships with the companies.
- [31:53]
B
Right.
- [31:55]
A
It's the industrialization of all the repeatable processes and data visibility and it's really, I mean even now we're into the point where like the data engineering team is helping us identify so much across the board. So anyway, it's one of those things that's super exciting and obviously like, you know, like any software oriented company, like you're building more software faster as well too. So.
- [32:19]
B
Fair enough. And how do you think about there are now? I mean even for the last several years, right. There's been a boom in roll ups of all sorts. Right. The roll up story, I mean has gotten even more intense recently and bigger. Right. With like accounting firms or whatever people like think that they're doing this. You guys are fundamentally far broader and more generalist in your approach. Right. And so I guess I wonder like when you think about how that especially changes the software picture of where there's leverage and where there's not and how you think about it like you know, I, I assume that part of the story is there isn't really a box production roll up to do easily. Right. And so you catch all the things that are less similar. Right. Which means there's a certain types of software to do. I also just wonder like are there places where you think that the people who are trying to do pure play roll ups and pay the premium for that in terms of like accounting firms or pool cleaning or whatever it's going to be where they're kind of misaligned or missing the boat in terms of what you can and can't do with software?
- [33:16]
A
Yeah, I think that. So first of all, as you know, I run team shares along with our colleagues and parent William and Edward and try and Be at these. I don't pay attention to what's going on. I've got my hands full. So we just do what we do. Right. So I don't even know the other sort of parties out there. But what I would say when I hear people ask me these questions is like, okay, because we have bought an integrated companies.
- [33:44]
B
Right.
- [33:44]
A
Integration of small businesses, like integrating large public companies is hard, right?
- [33:49]
B
Yeah.
- [33:50]
A
Integrating small businesses might be harder. I don't know. Like it might be.
- [33:55]
B
It's, well, certainly harder per dollar. Right.
- [33:58]
A
So I think that if you look at some of those things, what's actually going on is they're buying the revenue and firing all the employees.
- [34:05]
B
Yes.
- [34:05]
A
That's not what team shares does. Yeah, Team shares buys businesses with 25, 50, 100 employees. Everyone gets stock, people are staying, people are happy. It's a very high satisfaction rate. So team shares.
- [34:18]
B
Right.
- [34:18]
A
And then everyone gets to see the numbers, everyone gets to grow. So what I think people will find is that integrating disparately runs well. Because if you just take accounting firms, if you take five different accounting firms that are small business in nature, how they're running is so different. Just set the software aside just like the standard operating procedures and stuff. So I think that people will find that integrating because bolt ons are very hard to integrate. But I think also the other thing is that that's why we've always been. Because even before some of these sort of more recent things come along, there's always rollups. Rollups are 50 years old. That's not like a new thing. There's a couple of things. I think that the work first of all to sort of create sort of Sarbanes Oxley style numbers is a lot of work and that's hard to do. And I think there's a lot of reason why people that typically do roll ups, they get in and get out in the private market, they're just like, hey, buy a bunch of stuff. They're playing a multiple arbitrage game. Public companies like Danaher, Constellation Software, Berkshire, all the great sort of programmatic requires. You're playing a different game. You're owning that cash flow for life. The incentives are different. You're not doing short term incentives, you're doing long term incentives. And the standard of the financials is totally different than the private markets where you can have really aggressive add backs. Right. Then there's the case of, look, the reality is that roll ups come and go.
- [35:44]
B
Yeah.
- [35:44]
A
Right. And so we've seen this, we saw it in 2020 with landscaping it was like one of the only things with revenue growth in 2020. We stayed away. Yeah, Let it cool off. We bought a few H Vac companies early on. Right, what, two? Two of 90. Right. All of a sudden it became a third derivative of AI play. Yeah, I mean you can't make this stuff up. But literally people are buying H Vac companies for 12 times EBITDA. These are businesses that are project based businesses. And now you're seeing chapter seven liquidations of private equity backed H Vac things. So we purposely have always been diversified. We're structural. Our acquisition right here is structural. And we deliberately want diversification, both for economic cycle management, but also just so that we're just not going to be subject to the whims of a single industry. Even if you look at something like Constellation Software is one of the most amazing public companies.
- [36:43]
B
Yeah, I remember you've told me before, it's the only stock you would buy.
- [36:46]
A
Very few people, there's only like three or four stocks that we sort of own at any given time. But Constellation is amazing. Very few people. Like it's shocking how many people don't know Constellation Software. Maybe because it's Canadian, but it went public at a $500 million valuation. I think it at some point hit 80 billion in market cap. And it's been clobbered over the last six months because of the AI perception, threat and like, I mean, look, they're hopefully stoic enough that they're, you know, sort of not bothered by that and going to just keep on trucking. But like that sucks when you just have this, like this existential shock happen in a single, if you being a single industry strategy is great until it's not. That's what I would say about that.
- [37:27]
B
Yeah, fair enough. So, okay, so let's talk a little bit about the future because again, it's been a hell of a journey so far. You're at 90 plus businesses. You know, it's, it's, you've learned a ton. You have your engine running, you're going to be a public company very soon. That's exciting.
- [37:43]
A
Yeah, super cool.
- [37:44]
B
Where does it go?
- [37:45]
A
Yeah, so let's kind of break it down into sort of short term over the next few years and then kind of long term. So we put out a forecast to go from 19 million of corporate EBITDA. So there's like segment EBITDA. So it's just roughly 60 million. But then after our parent overhead of 90 people that propel the machine towards thousands of companies, it's 19 million of EBITDA on a pro forma basis last year, 2025. So the plan is to get to 100 by the end of 2027. So 5x growth over the next two years. So that I think was already a good, pretty starting point for growth. But everything we've done has really been to set up the business to be able to sort of grow in a very sustainable and repeatable way. And we put out there publicly that our ambition is to over the long term help thousands of businesses be a part of team shares. So I just, personally I'm 42. This is an incredibly fulfilling, intellectually fulfilling, great people we work with. We think it's good for small business owners, we think it's good for small business employees, we think it's good for small businesses themselves to be a part of team shares. And it's an interesting thing, is a little bit like even though people would never ever in a million years compare team shares to Amazon, culturally, it is
- [39:07]
B
actually,
- [39:10]
A
at least from the entrepreneurial, it's one of the mother sauces of team shares. What I mean by this, that we're never done innovating. We're going to continue, we're going to continue on this very sort of focused path over the next two, three, four years and really continue to just stick to that knitting and execute well, build market trust and work towards issuing over the long term, sort of issuing bonds. That's the end sort of financing goal, team shares. Right. And a range of tools. I think most companies that go public, it does not directly help the business grow. But if you take something like Kinder Morgan Direct Benefit acquisitions, acquisition financing. Okay, so back to the Amazon bit. Team shares internally is a very innovative culture, right? Like the question we asked all the time is what if we just. The premise of what if we just is like asking radical questions, just change a variable. The biggest transformative breakthroughs that come come from that question. And so I think that over the ultra long term, I think in 20 years, like I don't even want to describe the things that are things that we could go and do because they're just going to sound kooky in the way that if you went back to the early days of Amazon and described Amazon today, back then, it would sound nuts. But there are so many other adjacent businesses that we can build in a really tangible way over the long term. But over the short term we are really focused on growing the business, hitting our plans, making our stakeholders happy, creating shareholder value and just continuing to grow.
- [40:44]
B
So let me push on that, though, because the Amazon thing is interesting. Amazon, you guys are kind of in some ways the opposite of Amazon. Right. Because you produce ebitda. Right. And you're very focused on that. Right. And like. So I guess the question for me is, like, when you think about the guardrails, obviously, like when you're building a big, you know, there's a big thesis, broadly around small businesses of the future of them, et cetera. Right. And, you know, I would argue there's some conversation you'd say that the problem is like in most problems, the middle drops out. So you're going to have the behemoth platforms of the world. You know, we'll see in a few days where there's SpaceX is on that list, et cetera. And then you're going to have like a ton, a ton, A ton of small businesses. Right. And very little in the middle. Right. As a potential configuration. So you guys are going to be like, you know, the champions of. And the platform for a lot, a lot of small businesses. Yeah, I guess I was. How do you, like, there's so much you could do with it. How do you think about, and I understand the short term is just plow money back, grow, get access to cheaper capital, prove you can keep making it productive, etc. But how do you put guardrails on a thing where you really could do anything?
- [41:50]
A
Yeah. So I think, first of all, it all comes down to really good capital allocation, which is a discipline that we really pride ourselves on. Again, there's multiple core competencies to team shares.
- [42:01]
B
Right.
- [42:01]
A
Everything ranging from acquisitions, operations, technology. Right. And capital allocation is a thing that people, you know, I think in the venture community, people think about a lot. But I think even amongst public companies, there's a range of how much companies focus on it, and that's something we're very focused on.
- [42:17]
B
Well, this is a classic Will Quistism, who's my partner and you know, Will, which is like, basically CEOs are just capital allocators.
- [42:23]
A
Yeah, well, yeah, and actually our, our lead investor at hero, David Drew, so he actually wrote a book on capital allocation. It's a, it's a, it's a, it's a really good book. But anyway, so already today, just to sort of talk about how we think about this today, is our primary capital allocation is to new acquisitions, Right. And then our secondary is to organic growth, where capital would help further accelerate growth with really good paybacks. One, two years. So that's a good example. There's like opening a new location. If it's a unit based business. Right.
- [42:56]
B
So, and internally. So I want to hear the whole story, but just because it's an interesting one, like internally, is that literally like one of your presidents? Like they come up with like, here's my wish list and like what my. What I'm. What I'm effectively what I can do. And you guys allocate centrally what gets approved or not approved.
- [43:10]
A
So that's a bit where again, there's sort of like three or four mother sauces to team chairs. That's a bit where we drew from, from the Berkshire principles of decentralized leadership, centralized capital allocation. So by default all cash flow comes up. And again, employees benefit because of the dividends, all stuff, but cash flow comes up. And then to invest back for growth, that's a reallocation decision. And there's a separate sort of reinvestment committee that's Alex, our CFO and a few other folks, but it's competing for the sort of same returns on equity. Right. So. So I think it's about having the same discipline, Right. And doing things that are germane to what you're doing. Yeah, Right. So I could make a case over the ultra long term that incubating businesses at one time's EBITDA is germane to what we do. It's not something we're doing right now.
- [44:03]
B
Yeah.
- [44:03]
A
But I could make the case of a long term, right? When you get to a point where you say, hey, actually, because there is a point that the whole sort of true Berkshire, true constellations, like your free cash flow, far exceeds the amount you can do. Right, Right. And what did Berkshire do? Berkshire famously went bigger, bigger, bigger, bigger. Now they buy like railroads. Okay, that is not our strategy. Our strategy is not to work towards buying American Airlines. Right? Like, yeah, we think that the, we think that the, the SME space, right. Like we've done the $7 million EBITDA. Will we do a 10? Probably eventually. Right? But the litmus task that has to fit the unit economics. And each business we buy is not financial material. Right. So if that's your core competency, if that's your core focus, right. Then you could imagine over the medium term or certainly over the long term that actually it becomes some of those things have to be buy versus built, right. Of like, hey, if you could start this business for one or two times EBITDA in a really risk adjusted way. And we're not talking about like venture risk, we're talking about like a digital billboard company just to make it up, right? Like something like the market exists, but we notice that South Carolina is undersaturated. Right. Like, you know, just making it up. Right. That's something that feels germane. You know, these business owners, Right. They have massive liquidity events. A lot of them don't have wealth planning and tax planning. I think that there's a number of ways you could execute that. Right. Those are things that are germane. There's a whole, what do I think you called it? The private economy.
- [45:33]
B
Yeah.
- [45:34]
A
In fact, there's like a whole list. We've done really nascent early tests with, you know, business insurance and health insurance taking over those products. Yep. We'll continue to do those. And so I think that those things are just super germane to what we're doing. Yeah. So we're not. We're not like freeform diversification, like, let's start a biotech.
- [45:53]
B
You know, it's a tight. It's a tight target. Do you want to own all businesses forever that you acquire?
- [46:00]
A
We think so. We think that there's a very clear shareholder answer to that. And we think there's a very clear sort of answer for the business itself. And then there's the promises we're making to the stakeholders. So just to take those in order. So a lot of people ask this really thoughtful question and they're surprised by the answer because people say, oh, you're buying it five times. You could totally sell to a local competitor for, you know, or to pe.
- [46:26]
B
Right.
- [46:27]
A
And you're like, okay, well, let's walk through the map. Right. So you buy something at five times local competitor made. Remember the beginning problem was there's not enough buyers and it's really hard to sell a small business. But we'll just, we'll just ignore that.
- [46:39]
B
Ignore that part. Yeah. So.
- [46:42]
A
So let's say the competitor is able to. Local competitor is able to sort of muster up sort of six times EBITDA to buy the business, Right?
- [46:49]
B
Yep.
- [46:49]
A
And bet the farm on their company. Right. Well, why would you do that? The business. The market will value team shares however it does. But typically public companies are valued way in excess of 6 times EBITDA. Right. So you will be harming shareholder value and you'd be losing hundreds of years of cash flow. Right. Then there's the business itself. So I think that the narrative around private equity is wrong and out of date. The narrative around private equity is like, it still harkens back to the vulture days of breaking up companies and firing tons of people. Roll ups do fire a lot of people. That's a core premise of an industry roll up. Okay. Single low, sort of like highly contradicted 10 portfolio companies. There's not. They're generally net job creators. I think the issue with private equity is twofold. The returns are really bad now. And so for that's again the capitalist argument, the returns are terrible. Now generally the median fund, there's obviously alohrs. Right. So it's almost, it seems like it's become venture like or you've got a top decile that's really good and then everyone else is underperforming the S and P. Right. Then there's the health of the business. And so you sell a business to PE with 10 million of EBITDA and you sell it again at 25 and you sell it again at 75 and then 100 and 200. So you can have businesses that are for sale three, four times and that means the day you close the transaction, the company is already for sale.
- [48:17]
B
Yep.
- [48:18]
A
That's not healthy. Yeah, that is not healthy. It's so much worse than house flipping.
- [48:23]
B
Yeah.
- [48:23]
A
Like house flipping might happen like once, right. Like someone transforms like a home, they renovate it and they sell it for more. And so I just think that that is just not a healthy thing for a company. Creates a lot of uncertainty. It creates really like short term thinking
- [48:40]
B
again.
- [48:41]
A
Look, we've just always tried to be really rational and practical and I guess Swiss about things as sort of neutral. But that's our perspective. There's a reason private exists, it's a reason why PE exists. It does create value for endowments and all that stuff. But it's not good investing and we don't think it's healthy for companies. So. No, we think that permanent ownership is good for team shares, shareholders. We think it's good for the businesses themselves, not be for sale. And these are the promises that we're making when we go and look an owner in the eyes, that we're going to buy the business, we're going to bring in the employees and there's going to be employee share ownership and it's going to have a permanent ownership model and we're very proud of it. But all of those things line up together.
- [49:21]
B
Yep, fair enough, Fair enough. So last question for you, which is again, you're about to be public, which is exciting.
- [49:27]
A
Yeah.
- [49:28]
B
What's the first thing you do?
- [49:31]
A
Have a good night's sleep.
- [49:33]
B
It's been a while.
- [49:35]
A
Yeah, it's been. I mean, yeah, it's been so seven years, but we sort of launched six years ago. With the first acquisitions and I think it's been. And then of course before that I like, I left my job in 2013. So I think I feel like I've been sort of on a long run since 2013. And there is long run ahead of us too. Right. And so very motivated and fulfilled and excited by that journey. But I think we want to sort of also recognize, look, we've done something that is something like 1 or 2% of venture backed companies go public. Yeah. Right. So we're extraordinarily proud as a company and we've done this in pretty challenging. There's been a economic headwind du jour or policy uncertainty for the last two or three years. Right. So I think the first thing is to just sort of have a good night's sleep and sort of a weekend with the family. Right. And then go and execute our plan. I know it sounds like a boring answer, but like boring is sometimes good. Team shares is just focused on just continuing to do what we do and you know, we don't, we don't really look out at what other people are doing. We just focus on what we're doing. So.
- [50:44]
B
Fair enough. Well, it's been a really fun journey to be on with you and be watch you if we're being really honest, watch you do since the early days and kind of get the updates on and congrats to you and the team for making it happen. It's going to be really fun to watch and I'm excited to. I'm excited to see what the next 20 years brings because you guys are, you guys are marathoners.
- [51:03]
A
Yeah, no, we're excited. I think it's cool. Like I've found my dream job and recognizing to keep re earning the right to be one of the leaders of the company. But very excited about what's ahead and I think that we can continue to do what we're doing for decades to come.
- [51:19]
B
I love it. Mike, thanks for taking the time. This was fun.
- [51:22]
A
Thanks.
- [51:22]
B
This is our first ever special edition, more or less. I hope you enjoyed it. We'll do more with awesome people doing awesome stuff. Thank you.
- [51:29]
A
See ya.
- [51:29]
B
If you enjoyed this show, please leave us a virtual high five by rating it and reviewing it on Apple Podcast, Spotify, YouTube or wherever you get your podcast. Find more information about each episode in
- [51:43]
A
the show notes and follow us on social media by searching fororless avemorin, essenlesson.
- [51:53]
B
And as for me, I'm Brit. See you guys next time.