Dan Cremons Reveals the TOP Strategies for PE Backed Company Success

Summary

In this conversation, Dan Cremens discusses his book 'Winning Moves' and the evolving landscape of private equity. He emphasizes the importance of value creation in a competitive market, sharing insights on practical strategies for private equity firms to enhance their portfolio companies. The discussion also covers the significance of leveraging platforms like LinkedIn for B2B success and the nuanced understanding of acquisition strategies and synergies in business growth. In this conversation, Jon Stoddard discusses the critical elements of private equity, focusing on the importance of company culture, the role of CEOs, and the attributes that contribute to successful leadership. He emphasizes the significance of emotional intelligence, adversity quotient, and the necessity of building trust in business relationships. The dialogue explores how understanding people and their dynamics can drive performance and value creation in organizations.

Takeaways

Private equity is more competitive than ever before.
Value creation is essential for driving returns in PE.
Many firms lack a structured approach to value creation.
Practical strategies are needed for immediate implementation.
LinkedIn is a crucial platform for B2B engagement.
Acquisition strategies should align with overall company strategy.
Knowledge sharing can lead to significant synergies.
Synergies often appear more attractive on paper than in practice.
Understanding the market landscape is vital for success.
Creating a knowledge-sharing network can enhance business operations. Private equity firms must balance centralized and decentralized management.
The right CEO is essential for effective decision-making.
Attributes like emotional intelligence are crucial for leadership success.
Adversity quotient helps leaders navigate challenges effectively.
People are the core of business success and value creation.
Trust is foundational in business relationships.
Shared purpose fosters collaboration and trust.
Establishing trust can be achieved quickly with the right approach.
Understanding team dynamics is key to organizational health.
Building a culture of learning is vital for growth.

Watch the Interview:

Transcript:

Jon Stoddard (00:00.246)
Welcome to the top M.A. entrepreneurs today. My guest is Dan Kremens. Dan wrote this great book called Winning Moves. One hundred and five proven ways to create value in private equity backed companies. Thanks for being on the show, Dan. Thank you for having me, John. Yeah, I also want to do something new that I haven't done in 70 episodes is introduced a guest host. Carol S. Mann. Carol has been involved in.

So many, think like 50 or more turnaround situations, distress companies, private equity backed companies, distress that needed to be turned around. So welcome Carol also. Thank you for having me. Dale, let's get into this story of you working in private equity and what was the reason for writing this book? Let me give you a quick bit on the story of how I kind of got to this point. I'll try to keep it brief, but I think it sets some valuable context for

how this book came about. So just to take you back to the way beginning, I grew up in Cincinnati, Ohio in the Midwest. Cincinnati is not exactly the epicenter of private equity and &A. And so growing up, didn't, for all I knew, PE and &A and ETA were just collections of random letters. So I started my career in institutional investment research, lucked my way into a role in private equity in

I think it was 2007. And from 2007 to today, I've done a bunch of different things in the PE world. I have led investments in companies. I sat on the board of companies. I've stood up different portfolio operations and portfolio support capabilities within a private equity firm for the benefit of its portfolio companies. And I've been a CEO and a CXO in different PE backed companies. that collection of experiences

doesn't necessarily mean I'm really good at any one of those things, but does mean I've seen the same movie from a few different chairs, which I think has given me kind of a unique perspective on this topic of private equity value creation. And about 18 months ago or so, this will set the stage for how the book fits in, about 18 months or so ago, I...

Jon Stoddard (02:17.134)
I spun out of a full-time role within a private equity firm and started my own thing, an advisory practice focused on serving private equity firms and their recently acquired companies. And as I got out there and just started to, know, in the early innings of any new venture, whether it's a new company I've jumped into or starting my own business, you know, I've known that the first thing you do is go out and talk to customers and try to understand.

What is going on in their world? What are they up against? What are their challenges, their needs that I can serve into? And in so doing, I really quickly, in talking to just PE firms and the professionals in those firms, I quickly realized two things that set the stage for this book. The first was, we're living in an era of private equity that we've never seen before.

trillion dollars of capital waiting to get deployed into PE-backed companies. There's seven to 10,000 private equity firms out there that are all vying for the same companies. It is a ruthlessly competitive market in a way that the same could not be said when I first started in PE 15 years ago. so gone are the days of being able to out, cost cut and financially engineer and value buy your way to alpha. The market's just too competitive and efficient. And so

That became really clear to me as I was talking to PE firms, it's really competitive out there. The second thing that became clear to me is if we take as a given that against that backdrop, value creation is becoming more more important in terms of how do we actually drive returns in these companies. I also came to realize that a lot of firms just aren't really well set up to make value creation happen consistently, predictably, reliably in the companies they're investing in.

There are of course, big firms out there like Vista is a great example that's often referred to as a firm that really has a playbook and approach that's tried and true on how do we drive post-closing value creation in our portfolio companies. And there are other firms like that that have really led the pack in this area over time. But as you start to kind of work your way down the market and look at mid-market and certainly lower mid-market investors.

Jon Stoddard (04:25.902)
the level of intentionality and discipline with which they're approaching value creation. There's just a lot of opportunity for these firms to up level. And so I said, competitive market and there's a need for value creation to come to the fore in driving returns. And there's a good chunk of firms out there that could really stand to raise their game in this area. And this is one area on a very short list of areas where I actually think I have something remotely intelligent to say.

on the topic of how can we equip investors and their portfolio executives with some tools and some winning moves that can help them more predictably, more consistently make value creation happen in their companies. So enter the book. was really the... So that is interesting because I did have a conversation with Adam Coffey. You have him as an endorsement in your book. the first company he worked for, I can't remember the name of the PE firm. There was only five people in that company.

And so there's nobody there that says, hey, you need to do, you know, five of these 105, you know, levers here. It was just like, all right, you're in charge, Adam, do what you do best. Right. Bingo. Yeah. Yeah. I think, you know, they're depending on, depending on the firm, we're talking about the segment of the market we're talking about again, to pay respect where respect is due. There are firms that have teams of people that are responsible for it.

that once the wire is clear and the deals close, they go in and their job, their mandate is to make equity value creation happen. But then there's also a big number of firms, especially smaller firms, this just isn't a point of emphasis for them, whether by not having the resources as you suggested, or not having the expertise, not really having that time, or not actually paying attention to this area. A lot of firms that could really benefit from getting marginally better in this area.

Yeah, I just want to bring up a point. Yeah, on LinkedIn, you do. You had this post like 6000 firms, PE firms chasing a small pool of prospects out there. Antidotically, I was following a company on Woodbridge is $26 million playground maker. it like it's sold and got an L.Y. in a really short period of time with so many people chasing them. Isn't that doesn't it sound like there's.

Jon Stoddard (06:50.817)
some kind of opportunity. guess this is where you're creating here is like some kind of opportunity where, you know, all that money, all those firms chasing just a small pool of prospects to create more value.

Yeah, I think that's right. mean, that that stat or this kind of realization that there are lots of, you know, there are lots of private equity buyers, seven to 10,000 of them, depending on how you define the market, chasing a relatively finite pool of companies is a wake up call for buyers to say a couple of things. Number one, what is demonstrably different about your approach such that if a highly attractive company, the type of company that we all want to be investing in and are pursuing?

is on our list, we actually have something that's different about our approach or what we're doing that will cause their ears to perk up or cause it allow us to kind of rise above the fray of in the noise of all the other buyers out there in the market. And number two, and relevant to this book, being able to come to the table and say, hey, we're not only a source of commoditized capital in the way that you can get it from anybody else out there, but we have a repeatable, predictable playbook.

for leaving your company stronger and bigger and better than we found it. And here's what that looks like. And here's how we approach that. And here's how we blend into our approach, your expertise. And here's how we work with you to bring all the things that we've learned over time to bear. To your point, that has the potential to be a major differentiator in a competitive market. Are you at the table with a private equity firm when they go looking for an acquisition? I mean, I get the financial interest.

If you're at the table and part of your value proposition for the sale is, okay, we'll buy 60 % of your company and you're just going to roll over 30%. And here's what we're going to do with that 60%, which is Dan Kramann winning moves, 105 proven techniques. Yeah. I mean, when I was in house in private equity and you know, was on the squad of people that are going out there and doing management visits and presentations and the like.

Jon Stoddard (09:04.717)
We were very conscious of articulating what we thought was a pretty compelling point of differentiation around how do we make these companies better when we buy them. And I can talk more about that if that's useful. that, know, so certainly involved having that discussion when I was in house and private equity. And nowadays, although, you know, I'm 18 months into starting my own advisory business, my how I'm engaging with PE firms and their companies is changing, you know, and evolving over time. But I'm

typically not there in the early days, providing that point of differentiation, but coming in a little bit later, once they're committed to doing the deal and helping the private equity group and their new partner, their new management team figure out where are we gonna take this thing together? Enter winning moves and some of the frameworks and approaches we talk about in the book of how do we approach this topic of value creation proactively, intentionally early days? Yeah, I love this part because

You know, one of my favorite books and I recommend this all the time as outsiders, know, a conventional unconventional CEOs and radically rational blueprint process. You're you're really getting into they list like five or six things every CEO does. You get in the nitty gritty about each of those five things. Right. That's amazing. I love that. That's that's it's a great book. Outsiders is one of my most recommended books, especially the first time CEOs. It's it's great, especially on the

And highly relevant to a buy and build audience. know that's a lot of the, your audience, the buyers and builders and outsiders as it talks about capital allocation is just a, a credible resource for those, those folks. But, yeah, I mean, the idea with 105 winning moves is the world doesn't need another private equity business strategy value creation book. It's long on, you know, heavy on theory and light on applicability. So I kind of maybe over in.

over indexed in the other direction to say, I want to chalk this thing full of things you can go do tomorrow. think that's great about the book. I think that a lot of people, you know, we acquire and we always go to these owners and they're like, well, I heard that because a fence company that I know sold for 10 times and we're going to get 10 times. So this is our price and this is what it's going to be.

Jon Stoddard (11:27.853)
And then we go in and say, well, you're not really worth any more than four and half times earnings. So here's some things you can do to fix that. First of all, go get right now for yourself, a quality of earnings report. So we're talking about fact instead of fiction and sort of ego. And if I always feel that if you're trying to sell a company for 50, $60 million and you're not willing to spend $75,000 getting a Q and E, we don't need to talk to you anymore.

I'm finished. We got to push you onto the next guy because you have an unrealistic expectation. And if we can't provide you with some fact, some type of fact to show they got 10 times because they had, you know, completely integrated vertical products. have complete supply chain control. They have things that you want to have. It's like you, you're a teenage and you want to be a woman or a man and you're not there yet. Like when your braces are off, you're going to be cute. But right now

So it was like, appreciate that very much that you have strategy of here's what people do. Here's where it came from. And here's what you can do to get the quick fix to get yourself more money. If you spend a year or two doing these things. And I think you're right. think practical advice is so needed. And one of the things that, just was interesting to me is that, was that you talked about using LinkedIn as a strategy.

And I'd like to hear little bit more about that particular piece. Yeah, that's I want you to, when he moved number 44, be to LinkedIn to be a centerpiece of your strategy. What are you talking about there? I feel like I should dish this one over to you, John. I want to move up a little bit. So I want to be asked you where you're, how are you using it for, you know, your private equity B2B companies? Yeah.

I'll give you a little bit of wisdom I have on this topic. logically, I think the point I make in the book is if you want to sell, if you're trying to sell Bibles, go stand outside a church. If you're trying to sell margaritas, if that's your product, go stand outside a Jimmy Buffett concert. So what's the same equivalent for a B2B audience, which is the audience for this book? If you're trying to sell something B2B, go to where all the B2B people hang out, which is LinkedIn.

Jon Stoddard (13:54.381)
And so that's kind of just the, maybe the headline of the whole topic is like, if you're not on LinkedIn, get in the game. And for those of us that are very active on LinkedIn and, you know, it's, probably a foregone conclusion or an assumption rather that everybody in B2B land is actively engaging on, LinkedIn. My experience has taught me two things. Number one, especially in small midsize company land, a lot of business leaders actually aren't on LinkedIn.

So step one, sign up for LinkedIn and actually get in the game. And number two, being on LinkedIn doesn't necessarily mean that you're deriving any value from LinkedIn. I saw a stat on this at one point, but something like, I'm gonna make this up, 80 or 90 % of people on LinkedIn are just effectively bystanders. They're watching, but they're passive on LinkedIn. And yet the audience, if you're a B2B,

person on LinkedIn and you're a bystander, you have to recognize that people in your industry, the customers you're trying to pursue are actively trafficking on and engaging in LinkedIn. And so get in the game and start a conversation. And there's all sorts of tactics I've learned. I'm probably like a purple belt at LinkedIn. I'm not a novice, but I'm definitely not a black belt like you, John.

But there's all sorts of tactics we can talk about about how do you do that? Many of which I'm learning real time. But I think that the overarching message here is, if you're selling something B2B, you gotta be leveraging that platform. Yeah, agreed. That doesn't mean you just work with private equity backed B2B companies. It just means, if you're a B2B company, use one of these strategies or five of the strategies and LinkedIn being one of them, right? LinkedIn being one of them, yeah. And LinkedIn is a very,

LinkedIn is an admittedly very tactical specific quote unquote winning move in this book. There are others that are a little bit higher altitude but still actionable. But it was one that I just couldn't pass up including in this for the very reasons I mentioned. It's just, if you're selling something B2B, you have to be learning how to engage in that platform. Yeah. Well, I agree with you. Yeah.

Jon Stoddard (16:11.009)
So I got a question about chapter 11, page 22, and on the acquisitions. know you talked, you got this quote from this, somebody here, and I recommend you think of strategic acquisitions not as the strategy itself, but as a means of achieving or accelerating your overall strategy. This may seem like semantics, but the distinction is important. One mega successful &A executive.

put it well when he said, our acquisitions don't dictate our strategy, our strategy dictates what we acquire. Can you give me an example of what you're, there is a slight distinction in the semantics, but I'm trying to understand where you're coming from the story or the narrative, why you added that, shared that. Yeah, and let me just, I'll share the narrative and the source of that company, which is the person that,

The two people that provided those quotes both hail from a highly, highly successful prolific buy and build story where they've grown equity value many, many times over last 10 years. So I can provide a little of that story in a moment, but I think it's important, this idea of strategy and this word strategy gets used a lot and kind of thrown around, but I like to define it a little more specifically, which will set the, kind of set the stage for how this.

this interplay between acquisition strategy and company strategy really works. But to my mind, strategy, I'll borrow from the book Play to Win on this, it's a great book by A.G. Lafley and Roger Martin. And they say that strategy is really answering, they have four questions, but I kind of boil it down to three. What is our winning aspiration as a business? Where are we going to play? And how are we going to win? And here we're talking about

your company's strategy, not an acquisition strategy, but your company's strategy. What is our winning aspiration? Where are we going to play and how are we going to win? And I offer that framing because, you in the course of figuring out where we're going to play, you're oftentimes defining the answer to that question by the markets, the geographies we're gonna play in, the segments, the product categories, the use cases. So getting really clear on that in your strategic rationale for

Jon Stoddard (18:32.353)
Where are you choosing to play and making really clear choices about that and why? Step one. Then step two is where the acquisition strategy fits in, which is to say, where could buying instead of building or partnering, where could buying another company accelerate our entry into or enhance our positioning within one of those, where are we going to play areas? But.

but it never quite made sense to me to do that in the inverse, to just to declare that, buying things is going to be our strategy, which begs the question of like, well, what are you buying? Where are you buying? And why? Like that seems to be an enabler of a strategy, not a strategy in and of itself, if we look at strategy through the... Let me give you an example of the why that's kind of questionable, because I do talk to a lot of buyers, they're not private equity buyers, and it's the first acquisition

is like the hardest. like the virgin and you're trying to get over to talking to the girl. And it's just like, okay, that wasn't as bad as things, but I should have tried somebody else and there, she's going to be dating somebody else or she's going to go somewhere else. And it's just like buying a company. man, I want that company. Well, I didn't get it. I got outbid. So I'm settling with this company.

I mean, you do try to go after the strategy on that, but the alternate is some other company that you didn't have your first set or your eyes on. I think that's an important point, because whether you are an independent person trying to buy companies or you're a private equity firm trying to buy companies with the intense competition that there is in the marketplace, like you said, Dan, and the money that's out there.

You're going to have to create a different strategy than to just go after everyone because, know, my little firm is if it tries to buy a company and, you know, LLR comes in and they're also bidding for the company. I can't win that war. There's no way I can win them. So we've taken the strategy to go for lower middle market and sort of group three or four companies together to make a platform company, which is harder.

Jon Stoddard (20:50.731)
It's more work and sometimes it's less money, but it's, mean more money, but it's the way to get a deal done instead of spending three years, you know, pitching five deals that you never get. And I think that I'd like to hear how you feel about that and what your experiences with talking to people that are doing that. Cause there's a lot of people doing that right now because it's there's too much dry powder and there's too much competition for the true middle market. Three million, even thought above kind of deals.

Yeah. I think that's a totally fair point. mean, you're highlighting the realities that buyers are experiencing and navigating today. And just to say it for the, if we were to draw, sit here and draw up the scorecard for the paint, picture of the ideal acquisition candidate, you know, 100 % recurring revenue and at 15 % growing more, all that kind of stuff. that'd great. And, know, you're going to have a

you're to have buyers lining up down the street for that asset, for that business. We're just having to get more creative about where we're looking, the deals we're going to take swings on, having to relax some of our criteria. There's of course a balance here between remaining a disciplined investor and also thinking creatively about how could we make this deal work. That's a delicate balance to strike, of course.

This isn't a backdoor way of making a pitch for this book, but it is to say that in order to get creative on deals and buy some things that may not fit your profile tightly, you have to be confident in your ability to do something with those businesses once you own them. Whether that's, have a great management team in place and we have confidence in their ability to take it to the next step or...

you know, some more active management and partnership with them on what's our value creation strategy and what are the winning those we can deploy. It's becoming a lot more important in light of what you've described. Yeah. I'm going to go to the next page, page 224. When you talk about the synergies that you can come in, like the rep for a serial acquire platform company or accumulator, you talk about revenue strategies, synergies, cost, synergies, financial strategies and knowledge.

Jon Stoddard (23:15.161)
couple examples of you coming into a company and how you brought those in. The reason I like bringing this up is I just follow Mark Leonard and Constellation Software. What to me, whatever he's done is just simply amazing. And his financial statements at the end of the year are just like Warren Buffett's, like they're homespun like, hey, we tried this. How about a thought experiment? You know, it didn't work. They're pretty real.

Right. Well, it's just tell me about a couple of stories where you came in and and and showed people that these are the synergies you're going after and these are the winning moves you can bring in. Yeah, a couple of things come to mind. And first, I'll just say off the bat that center and I talk about this in the book, but synergies oftentimes look a lot more attractive and slam dunkish.

on paper than in real life. They look at where we're attracted. here's what we're going to do. We're going to get cut, 10%. And everything's going to, in our profit, it's going to go up 90%. Well, yeah. OK, right. Well, I talk about this in the, this is just important to kind of just reckon with as we're talking about synergies. And I share a couple of examples in the book. But one overstated synergy thing I see on a bunch of investment committee decks is,

Cross-sell, up-sell. Hey, we've got a sales force. We sell an education product to schools. We're gonna go buy another provider of education products to schools and we're gonna push their thing through our pipe, through our distribution and voila, it's gonna create, we won't need their sales team anymore. Our cost of acquisition will be low because we already have the relationship with the, so like that's an example of on paper, synergy seems like it makes a lot of sense.

Reality, however, in some of these cases where you're banking on cross-sell upsell synergy to win the day is, like, do the schools that you serve, do the buyers that you serve actually need this newly acquired product? Or is the buyer that you're selling to in that school, the one that you have the relationship with, are they actually the same economic buyer for this newly acquired product? Or is somebody sitting in some entirely different office in the school district?

Jon Stoddard (25:38.197)
So this is just an example of where there's more than meets the eye when it comes to the synergies we kind of draw up on paper. So, you know, there's different philosophies on how realizable revenue synergies, cost synergies, financial and knowledge synergies are and what the playbook is for actually realizing those. And I don't claim to have the secret formula, but one thing I will say is,

the flavor of synergy among those four that has tended to most consistently surprise me. And I'll give an example of this in a second is knowledge synergy. It's, hey, let's not, before we talk about, you know, trying to cross sell into the existing base and, you know, cutting a bunch of costs by merging sales teams or merging, you know, operational centers or whatever, let's just talk about.

What are the things company A or the acquirer is doing that could be really valuable to company B? And conversely, what are the things company B, the acquired company is doing that could be really valuable to the acquirer? And how do we just let those bubble up, name them and start cross sharing, you know, in an informal or formalized way, cross sharing the things that one another is doing really well. We, I talk about this example in the book, but I used to be involved in a kind of a buy and build of a

residential plumbing and HVAC business, residential services company. That's different than Adam Coffees or is that? different than Adam Coffees. Okay. All right. This company that was led by a guy who was really successful at leading this strategy, was very intentional about, despite the fact that there are theoretically revenue and cost synergies we could gain by smushing these businesses together, his

thesis was there's also some risk to that. And the best service we could pay to these acquired companies is share the things that have served us really well and help them bring those to bear in their company and learn from what they do really well and kind of bring that over to our other companies. And so they created this knowledge sharing network and system. There's an example in the book of this

Jon Stoddard (27:59.817)
One company had a, this is a very tactical thing, but it was very valuable, had a sewer cam where they would take the sewer cam into a residential customer's home and for free, they would run it through their pipes and they would figure out where the pipes leaky or at risk or where's there's a, where's there a tree root growing into one of the pipes? And they would use that as a way to number one, identify a customer issue and potential pain point and number two, sell into that.

And so they had generated a bunch of revenue lift from this very specific tactic. And we said, cool. If we can get the rest of these companies, know, $300 sewer cans and get the same benefit like no brainer. And that didn't require us to merge, you know, go through the brain drain of merging teams and systems and all that kind of stuff. was a quick win that came by way of just some good old fashioned knowledge here. I've seen, actually seen those commercials on Tucson for those cameras, like to get business here in Tucson. Yeah. Yeah.

Right. That's very interesting. How I got a question about how much do you look at a company that you're going to work for and and know that these are the people we want to work for. And the reason is I'll go back to reading, you know, his Mark Leonard's financial documents and he starts putting a lot of trust in his business managers and moves them down. He actually allows each business unit to invest capital to

acquisitions and it's not really required to run it up the flagpole. What do you look for and you know, hey, Mr. Private Equity, you got 10 companies, I know that I can work with you because you've created the culture of trust between the acquired and the acquisition.

man, yeah, a lot there, a lot there. I'll just have some thoughts on that, but I'll say at the outset that, you you're raising a question that private equity firms are having to wrestle with, whether they're doing so consciously or not, which is this distinction between centralized and decentralized management and decision-making. Are we at the private equity firm really owning the value creation agenda and we're getting the company to do that? Or are we, you on the other end of the curve, the way that you've described, John, are we

Jon Stoddard (30:17.357)
decentralizing responsibility and decision-making down to the portfolio company CEOs. And where do we fall on that spectrum? how do you know? So this is like, I find myself having this conversation with clients often of everybody around the table, the leadership team, the board, the investors knows that the agenda is value creation, the agenda is creating equity value. But there's oftentimes not really clarity on like, well,

who's bringing what to that party and who has the ability to make what decisions on that. And Constellation and Alpine, my old firm has a couple of firms that have done this really well, believes in hiring great people, making sure we're aligned with them, which was the crux of your question I'll talk about in a second, and then getting out of their way and allowing them to make the call and own the results. Right.

But, know, so in terms of what does it take to be able to do that as a- Let's say if somebody says, I have a desire to do that, but I don't have the skills right now to do that. Yep. I think, you know, what comes to mind, there's a few things that roll around in my mind as you ask this question. The thing that comes to mind for me is simply ensuring you have the right CEO. And that's not a panacea. That's not-

It's not to say that if you get the right CEO, everything else is magically gonna happen and you as a board can just kind of let go of the reins. But it is to say that, you know, the CEO being the primary point of contact for a primary partner for a private equity firm, if you don't have that person right, then it's gonna be really difficult to let go of the reins and let them do their thing. So that of course begs a question of, what is the right CEO? And I have a lot of...

This was a topic of immense study for me over the last 10 years. When I was in private equity, I'd led our CEO hiring for a while and led our, we created this program called the CEO and Training Program, which was all about grooming the next generation of CEOs for our portfolio. And so I both studied a lot, all the research and perspective out there on what makes a great CEO. And then I just observed a lot of CEOs myself.

Jon Stoddard (32:42.891)
I think a couple of things really bubble up for me as being the most important things to see in that person to know that you can give them the reins and still trust in them. And these are, we at my old firm distinguished between what we called skills and attributes. Skills being classically thought of as the hard stuff and attributes being classically thought of as the soft stuff. I don't like that language, but you get the point.

Our view was that getting the soft stuff right, getting the attributes right was considerably more important than getting the skills right. That's not to say you couldn't have a, you could have a CEO that was just, you know, didn't have the skills required for the situation. But it is to say that there are lots of people out there that will have the skills required for the situation. And the thing that can really be a make or break factor is getting the attributes. So what do we mean by attributes? We, we boil it down to three things that we had to have in every CEO we worked with at a sufficient degree.

that we call them the EQ, the IQ, the EQ, the AQ and the GM. The EQ being emotional quotient, emotional intelligence. And emotional intelligence tends to be to your earlier point of like trust. Having high emotional intelligence tends to go hand in hand with a really trust trusting relationship in terms of, know, CEO is very self-aware, they're very forthcoming with you.

can understand their investors' needs and work within those. And those tend to be the types of behaviors you see with a high EQ executive. So EQ is number one. AQ number two of being a, AQ being an adversity quotient, the run through walls factor that I'm not gonna let anything get in my way of delivering results factor. And when you had a CEO that had that, we knew that if they got knocked down or we had a bad quarter, they were gonna get right back up. And we didn't have to worry about pressuring them or.

yelling at them. just knew that because this was in them, they would, know, when the next wall or hurdle came up, they would run through it and figure out a way to get around it. And then the GM was the growth mindset. And this has, you know, become a little bit buzzwordy and cliche out there nowadays, but the growth mindset is working with CEOs that are always learning and have this like insatiable appetite for learning. Masterminds, consuming books, going to, you know,

Jon Stoddard (35:05.599)
learning for somebody else. Yeah. was a podcast of people that have done it. Listening to great podcasts by people named John Stoddard. Who do you like as far as looking at for CEOs? mean, if I go way back, say, John Wooden. I look at him and I go incredible because years ago when Lou Olson came to the University of Arizona, there's a legend has

this part of the attributes, right? The legend has is recruiting his high sought after recruit and they took him to dinner. He was rude to the waitress. He did not get a scholarship. And from Lutolson went on many years later to win the national championship, but one of his star students, Steve Kerr, who runs Golden State Warriors. So all of that, that lineage from how learning that attributes came from John Wooden, Lutolson, Steve Kerr.

Yeah, so on the question of like, who do I look to as the prototype of those attributes? I have people in my career who are probably not famous to the degree that John Wooden is, people in my career who have very powerfully demonstrated a model of those attributes for me, which your audience will not know, but the pictures of them are flashing in my mind. And I think, if I were to think about somebody who's out there and well-known, Steve Kerr is a...

is a great example of somebody who, you know, from an outsider perspective, seems to have a pretty healthy dose of each of those three things. He is a high, and his players, I think, would attest to this. I've seen some interviews to this end, but would attest to the fact that he's a really high EQ guy. He knows how to read the locker room. He knows the unique personalities of his people and how to work with them and play to that and play to what they're good at. Those are kind of EQ-ish things.

He's a high adversity quotient guy. You've tracked his career and even some of his health issues. mean, he coached, may have the timing off on this a little bit, but he coached an NBA championship team when he had a horribly challenging and painful health issue. If that's not, if that's not a Q adversity quotient, I don't know what is. And growth mindset strikes me as a guy who's just a real learner and student of the game. so, you know, again, outsider view in looking in, he seems to be a guy to

Jon Stoddard (37:33.343)
all kind of hold ourselves up to as a model of, of these three attributes. Yeah. I have to tell another story about what I was working at Autodesk long time ago. Carol Bartz told a story when she had cancer and she would be laying down in the limo driving to work when she was building Autodesk and just trying to make phone calls. And she did a fantastic job at Autodesk. Yeah. Yeah. You know, in the reality of somebody in that position or somebody in a leading a small, midsize

company in a competitive market is, and this is a little cliche, but you're gonna get kicked in the teeth. Yeah, have to kick in a lot of times. A lot of times. A lot of times in one day, in a lot of cases, I've been there. As a guy who's led turnarounds before, I get that. And adversity quotient is not just some feel good, we want somebody that's

Push through adversity, all the things that, you know, all the cliches and bromides that get tossed around there about getting up when you get knocked down. it's like, no, this actually getting knocked down actually happens daily for these people. And your ability to be successful is in a way dependent upon your ability to stay in the game. I was going to say to let it roll off, let it roll off your back and don't take it personally. find that people, it sounds crazy that you have to say that, but in my experience, people take it personally.

and they get super defensive and then you're not going to make any progress. And so when I find someone like you say, who's a lifetime learner and can take constructive criticism well and doesn't take it personally, that's keeper. Like if I can have five of those, we'd be good to go. And they're tough to find and they're tough to keep, I think in certain circumstances, because if they lose faith, they tend to be like Jen, Y and Z years, right? And if they lose faith in the management for whatever reason.

And that can be you, but it also is the leader of the company. They lose faith in the process and they just don't believe they'll be taken care of. they become, you know, they act as, as if they are the chat that they are, and they don't appreciate being the chattel and they know it. They just don't really know what to do about it. And I've seen some situations where you get to the table and they go, yeah. Like one crazy situation, the craziest that I did was.

Jon Stoddard (40:00.553)
one of the largest publishing companies in the world and they were acquiring a company and they said, you know, we're going to give, you know, I was with a large firm and we went in and said, I think we need to do the analysis and understand where you're making money. it's KPMG by the way. And the client was like, that's not in our budget. We have a budget for 400,000 and that's what you're going to spend. And I said, okay, and 400,000 is a big job, you know? And so

You go back a day later and I said, you know, it's interesting yet you've had a, a data room set up with your lawyer for a year and a half and countless amounts of hours to put that together and to have everybody look at that. And we could go in and look at that too. And I said, how long did you have your management team meet with the people and the management team of this new company?

And I was shocked when he said we had five people and we each spent an hour. Like you bought this company for $75 million. And I'm here to tell you that I've been here a day and we need to have a meeting because you didn't buy one company that was integrated. You bought a company that had on its own, but 15 other companies that had never integrated anything. You really bought 16 companies. You have like.

Literally 27 bank accounts and you have different payroll systems and you have all these different things that are not, you know, making it for you. And they were just shocked about that fact that they couldn't believe that they didn't know that. And I was I was shocked. I thought, you know, it's a big company there funded by the Janice fund. Like what's happening? Why are we not? Why are we not seeing this? It just was shocking to me.

when you go to a large company and you think that because they're bigger and because they've gotten it together that they're going to be so much more sophisticated and I did not find that to be the case. What's your experience?

Jon Stoddard (42:10.399)
man. What's my experience been on that? mean, a couple of thoughts that you're prompting. One is the companies that we're acquiring are oftentimes messier, more complicated than the SIM leads on. No surprise. Is that because they don't get their first second choice because trillions of dollars are chasing one company and you know. Exactly. Exactly.

Yeah. Do you think that that's one of the reasons, right? But I think the other reasons are when you find a really well-run company, that's that's the anomaly. Like that's maybe it's my perspective from my, you know, the body of work that I've, you know, we've been a part of. But I find well-run companies are an anomaly. And the other thing that I find is that which I really liked that you touched on in your book, the value of the people. And that's one thing like.

I got a lot of flack in sort of the turnaround world because I would go to my boss at BDO and he was the CEO of the firm. And I'd say, hey, this company has a contingent liability. I see this company and there's a contingent liability because there are a number of women who are in their 50s who feel that they're objectified, they're not listened to and the company is not addressing that. So in my report, I'm going to put in, that is a risk that needs to be mitigated and that's a contingent liability.

He came back to me and said, I didn't hire you to be a social service agency. I hired you to, know, get numb, know, beat, beat the waste out of the company. said, we did all that. But about two years from now, if you don't pay attention to this, you're the contingent liability. And I put it in the report and sure enough, they didn't do anything. And two years later, all these people sued the company. And I think that the people part that you talked about, is the, that's the hair on the deal.

many times. Yeah, think you know, to sort through that. So I'd love to hear your view on that sorting through that. Yeah, I mean, this is a lot of the work that I do. Some of the work that I do with private equity firms nowadays is pre closing, helping them to actually get under the hood on a classically referred to as or due diligence, get under the hood on the talent, the leadership, the culture and the capabilities in the business. And so it's been really, what's been really cool is I spun out and started my own firm is just seeing that

Jon Stoddard (44:39.021)
I think by and large private equity has really woken up to the importance of understanding these factors before they buy a business and woken up to the importance and value of getting these dialed in once they own the company. Some firms are not especially good at this today, because it's just not in their DNA. And that's where a guy like me can be helpful. But I do think we're moving in the right direction as an industry in that there's some real recognition that having the right

people in place and having them surrounded in the right culture and developing the right culture is really important to returns. And so- I'd love that. I'd segue that into your section on the first 90 days, which for me is important. Of course you have the financial piece, but that the piece of that org, know, understanding and development and plan is the most important part to me. Not that the numbers aren't important, but-

Private equity has their arms around the numbers usually pretty well. Well, I think about the way I reconcile these in my mind is I frame this out in this sort of way in the book, but think about inputs and outputs. Much of life can get reduced to inputs and outputs. Numbers are outputs. So the question is, well, what are the things that actually drive those outputs? Just paying attention to the numbers in and of itself doesn't really do anything. The question is, what are the inputs that drive those numbers?

And if you believe in this sort of reductionist view of this reductionist definition of a business, which an old mentor of mine told me a long time ago, he said, look, a business is nothing more than a bunch of people working with other people to do stuff for people. Exactly. know, and at the time, at the time it kind of whizzed by me. was like, yeah, okay, whatever, dude, next question. But then like here I am 15 years later after he told me this and I constantly coming back to this piece of wisdom to say that people are the

the atom that makes up or the cell that makes up the organism of a business. So if you want that business to be healthy and performing, you have to go back to the atomic level, the cellular level and say, how do we make the cells healthy? Get the right cells in the organism if that's even, know, metaphor breaks down a little bit at this point, but you get the idea. you want the numbers to look pretty, go back to the people and say, do we have the right people focused on the right things in the business?

Jon Stoddard (47:04.427)
Well, that's you brought that up, but that's almost like your last chapters is people drive performance. A weak team is a drag on value creation. A great team accelerates value creation, but you have that. It is the hardest subject to accomplish and get great at, but you have it in way back in Chapter 15 or something. So why was that so late in there? Is it too hard to talk about that at the first or what? It was like the mic drop moment.

The first 70 % of this book is building the case for the importance of taking an intentional approach to value creation. How do you actually do that? How can we help leaders and investors expand their arsenal of winning moves they can use to make that happen? Then you get to the 70 % mark, you get to this chapter. The point I'm trying to make in a provocative way is to say,

Congratulations, you've made it this far in the book. By the way, none of what we've covered up until this point, which you spent however many hours reading, none of it matters a lick unless you get the right fit for purpose team in place and you surround them in a culture that's conducive to growing and winning. like, and you know, this is kind of a...

this is not supposed to be contrived, but like it's also the area where I can have the most impact in working with PE back companies. It's like, you're great. You can kind of self-service your way through the winning move exercise and the value creation planning exercise. But when it comes, when you reach the realization that you actually have to get the right people doing these things, and we may not have that today, know, guy like me can be helpful in that area. Is it because you're an outside guy and you can come in and read people?

and say, well, he or she's the obstacle and you need somebody different or that he or she can be trained to see a different perspective. can be either of those two things. Or both, right? Either or both. I both will have a different, perhaps more objective view on that because I'm not in you know, in the.

Jon Stoddard (49:27.501)
You're not in it and it's easier for you to call it than it. Yeah, like it's easier to read the label if you're not inside the jar kind of thing. So it's easy for me to see it, but I also have years of experience and training and playbooking and approaches I use to get to the heart of this question of how do we get the right people focused on the right things? Yeah, I think that's really important. I mean, it's almost pedantic to say it, but

It's very important. People don't realize by the time you're, you know, old and gray like me, and you've been consulting for 35 or 40 years, I can't even count the number of deals I've done and people have analyzed. Like it's so many, you have tiny engagements, have huge engagements, but at the end of the day, the guy that you're, you're buying his company, he's had one, maybe two companies he's bought. He just doesn't have this background of knowledge and experience and what can go wrong.

You know, we see things 10, 15 steps down the road because we've seen them all go wrong before. We know what to do this time. But one of the things that I think is so important that, that I can see a guy like you coming into a company is it's very, very important to establish trust immediately. Like we don't have three weeks to establish trust. We have five minutes to establish trust. And that's really as an outsider, you have a, you have a

sort of a honeymoon grace period where they'll listen to what you have to say, but that you have to get them to trust you right away. And that's not a manipulated trust, that's a real trust. And I see a lot of deals, they don't take that step. They spend a lot of time with the owners, but with the people that have actually execute on these strategies that you create, they fail to establish trust there. And that's very important. The people need it as much as we need it, right?

Definitely a hand in glove situation because they need somebody they can go to. And if you can establish trust frequently, you'll hear, well, we told the owner we wanted to do this before. And so so glad someone's coming in to help us do this. Is it going to work? And I'd like you to speak to that little, that trust piece. I think that's so. Dan, let me ask you, you believe in that you believe that's true. And if it, if it is, how do you develop trust in five minutes? I mean, I, I'm sure the book helps. It's a precursor.

Jon Stoddard (51:52.299)
Like you're, you're, you're, pre-convinced that, you know, he's telling what he's telling is true because you can look at it and go, yeah, you know, I know how that works. Yeah. Unless you have a situation where you are a totally passive investor and you have high confidence that we can just write the check and know that this company is going to continue to crush it. Then,

By definition, you are therefore an active investor, one that's going to take an active role in the success of the company you've just purchased, then trust is the price of admission. If you don't establish a trusting relationship with the people you need to work with and influence, not only in a board or investor and CEO context, but just in general in life, then good luck with everything that follows. I guess that's a long way of saying I agree with the premise that building a trusting relationship upfront is very important.

And so begs the question of like, how do you do that? And I don't know of a five minute version of that to your question, John, if there is one, I'd like to see it. But there's two things that are ringing around in my mind as you're talking. One is shared purpose and a second is mutual understanding. And shared purpose is we are after the same thing here. If I'm the investor and you're the CEO that I just partnered with, establishing shared purpose says like,

we're both trying to accomplish the same thing. We want this business to be wildly successful and you know, all that's, so that provides a really solid foundation from which to build a trusting relationship is knowing that we're in the same game together. The second thing is mutual understanding. My view is that trust can only be created when you have a deep understanding of the other person whose trust you're trying to gain. And so I have this exercise,

that I do early in any new business relationship I have, whether it's a new employee I just brought on or a new CEO that we just bought their company, where before we get into any of the discussion on the value creation plan, et cetera, I sit down with them and I have this single sheet of paper I've used for a long time that says the guide to working with Dan. And it has like six boxes on it. Here's what I think I'm good at. Here's what I think I'm not as good at. Here are my triggers.

Jon Stoddard (54:08.589)
Like you're the things that would quickly set me off or frustrate me. Well, what are those? Just curious. man, how long you got? So you're prickly? Weak podcast guests named Dan Kremen tend to be a trigger for me. Interrupting me when I'm trying to talk. A major trigger for me. But so it's a guide to working with Dan on one sheet of paper.

The idea is for that guide to facilitate a conversation. And so I have my own guide and I asked them to put forth the time to come up with their own guide. And this isn't a seven hour exercise. This is awesome. And we sit down and we say like, here's mine, here's yours. Like tell me more about yours. Here's what interested me about yours. Let me tell you more about mine. Let's talk about like, where are these really harmonious and congruent? Where might they be at odds? Where might we?

Might we be prone to getting sideways together? And what are we gonna do when that comes up? And this conversation is consistently like 45 of the highest value minutes that I can spend. And for a variety of reasons, not the least of which is the mere act of sitting down and having this conversation is inherently trust building in and of itself. Exactly. When you're engaged in that,

exercise. Are you just listening or are you trying to get at least, you know, 22 minutes out of them asking you questions that they don't have the skills to ask you the questions to open up? Both. I mean, it's a conversation, right? Of how interesting we have two really interesting human beings sitting here. We've kind of on one sheet of paper, tried to characterize who each of those people are like, let's talk about it. Tell me more about what I'm looking at on this sheet of paper. Let me tell you more about

Some of the things you see on my guide to working with Dan and let's just talk it. Let's just socialize. And the point isn't necessarily to solve for to understand with 100 % precision everything that's on their list. And the point is not to solve for, you know, where are the 18 areas where these might be at odds and what are we going to do in each of those situations? But it's merely to open up a dialogue and create some understanding of one another. Yeah. Yeah. You know, and I think that's a mic dropper for me. That's a mic dropper.

Jon Stoddard (56:34.605)
If I have nothing else that's useful to give to your audience, if I had one bullet or one thing I could leave them with to just say, if you take nothing else from this and do nothing with the book, if you do this one thing, it is that. In any business relationship you have, new employee, new partner, whatever, just take 30 minutes and do this exercise. Have this conversation with them.

To your point to tie this all back, Carol, if you buy the idea that trusting relationships are the key to everything that follows in a business, this is a great way to accelerate that trust, I have learned. Beautiful. We're already up on the hour, so I want to thank you so much. Dan, this is a great book and I appreciate you coming on our show. Thank you for having me. Carol, thanks for being a co-host today. Hey, thank you for having me too. was great to meet you, Dan.

Good to meet you too. All right. Thanks, Dan. Thanks. See you. right. See you. Bye now. Thanks for watching this video. Make sure you're a subscriber by clicking on this button right here down below. And if you want to watch more Serial Acquire interviews, click on this button right here. If you're ready to buy your first business, get my course at dealflowsystem.net right here. Take care. Cheers, John.