Podcast Summary: My First Million – "I Make $50M/year Buying & Running Boring Businesses"

Release Date: February 28, 2025

Hosts: Sam Parr and Shaan Puri
Guest: Brent (Founder of Permanent Equity)
Platform: HubSpot Media

Introduction

In this episode of My First Million, hosts Sam Parr and Shaan Puri welcome Brent, the founder of Permanent Equity, to discuss his journey in buying and operating "boring" yet highly profitable businesses. Brent shares insights into his unique approach to private equity, the principles that guide his investment decisions, and the lessons he's learned along the way.

Building a Diverse Portfolio

Brent begins by outlining his impressive portfolio, which now includes 16 companies generating over $350 million in annual revenue and producing approximately $50 million in free cash flow. Sam and Shaan express admiration for Brent's ability to identify and manage businesses across a variety of stable industries.

Brent [01:09]: "We’ve got everything from a children's clothing brand to a military recruitment firm to manufacturing, construction, business services. It’s like the island of misfit toys for us."

The Golden Goose: Sam’s First Acquisition

The conversation shifts to Sam's inaugural business acquisition, a military recruitment firm named Mediacross, acquired in early 2010. Sam recounts how, at just 24 years old, he stumbled into buying the business almost accidentally—a scenario Brent refers to as "stacking geese."

Sam [03:43]: "We’ve been fortunate to actually, like, stack golden geese on one another is how I would describe it."

Sam explains that Mediacross operates under a fixed contract with the military, ensuring predictable profitability and defensibility, which Brent identifies as key strengths of the business.

Sam [05:33]: "Once you get that business optimized and you get great people in place... it just clicks."

Navigating the Private Equity Landscape

Brent delves into his transition from a founder to raising substantial funds for acquisitions, initially securing $50 million and later expanding to $250 million. He emphasizes his departure from traditional private equity models by eschewing debt and reducing fees, instead opting for a performance-based approach.

Sam [16:42]: "We take no fees of any kind, no reimbursements of any kind... If we make money, we want to share in that making it together."

This innovative structure allows Permanent Equity to maintain flexibility and reinvest cash flows directly into the businesses without the constraints imposed by debt obligations.

Investment Strategy and Returns

When pressed about his fund's performance relative to the S&P 500, Brent cautiously shares that Permanent Equity targets a minimum IRR of 30%, with historical returns significantly exceeding this benchmark.

Sam [23:19]: "We target a minimum of a 30% IRR and we've historically been pretty significantly above that."

Brent attributes his success to a combination of strategic market selection, high-quality leadership hires, and a bit of luck. He underscores the importance of operational excellence and the ability to scale businesses without the burden of debt.

Sam [29:04]: "I’m pretty decent at putting the puzzle pieces together and then negotiation... deal making becomes really the dominant skill set."

Leadership and Hiring the Right People

A significant portion of the discussion centers on hiring practices and leadership evaluation. Brent advocates for comprehensive personality testing and a deep understanding of candidates' motivations and behaviors to ensure alignment with the company's values and goals.

Sam [51:04]: "We use a combination of Disc, Myers Briggs, and Habit Story to get as close to a 360 view of who they are."

He emphasizes the necessity of finding humble leaders who acknowledge reality and are open to feedback, which fosters an environment conducive to growth and resilience.

Sam [38:44]: "Humility is acknowledging reality for what it is. And if you don’t acknowledge reality, you can’t get better."

One-Liners and Business Philosophy

Throughout the episode, Brent shares several notable one-liners that encapsulate his business philosophy:

1. "All businesses are loosely functioning disasters. Some just happen to make money."
   [36:57]
   Brent highlights the inherent chaos in business operations, stressing the importance of embracing and managing dysfunction to drive profitability.

2. "The more humility a leader has, the more their business can grow."
   [38:44]
   He underscores humility as a critical trait for leadership, enabling continuous improvement and effective team collaboration.

3. "We either operate with high authority, top down, or delegate in authority. Hell is in the middle."
   [43:28]
   This reflects his approach to leadership—either being actively involved or empowering leaders without micromanaging, avoiding the pitfalls of inconsistent management styles.

Lessons Learned and Final Insights

Brent shares valuable lessons from his journey, advising aspiring investors and entrepreneurs to:

• Focus on Stable, Growing Markets: Identify businesses in industries with consistent demand and growth potential.
• Prioritize Leadership Quality: Invest in capable and aligned leaders who can drive the business forward.
• Maintain Operational Flexibility: Avoid heavy debt to retain the ability to reinvest and capitalize on growth opportunities.

Sam [36:20]: "If you really just want to be in the investor seat, it’s very difficult... the first three to $500,000 of cash flow... require a lot of sweat equity."

He also touches on the significance of risk management, long-term commitment, and the role of luck in achieving business success.

Conclusion

The episode concludes with Brent encouraging listeners to explore his blog and follow him on Twitter @BrentB for more insights. Sam and Shaan express their appreciation for Brent's candidness and the depth of his knowledge, reinforcing the episode's value for anyone interested in private equity and business operations.

Notable Quotes

• Sam [05:33]: "Once you get that business optimized and you get great people in place... it just clicks."
• Sam [23:19]: "We target a minimum of a 30% IRR and we've historically been pretty significantly above that."
• Sam [38:44]: "Humility is acknowledging reality for what it is. And if you don’t acknowledge reality, you can’t get better."
• Sam [36:57]: "All businesses are loosely functioning disasters. Some just happen to make money."

This episode of My First Million provides a comprehensive look into Brent's successful strategy for acquiring and managing a diverse array of businesses, emphasizing stability, strong leadership, and an unconventional approach to private equity. Listeners gain valuable insights into building a profitable and resilient business portfolio through practical advice and real-world examples.