#428 on Inc. 500: A Decade in Reflection
WHERE WE'VE BEEN
In 2011, our team celebrated after hearing we’d been ranked #28 on the Inc. 500. For those unfamiliar with how the Inc. rankings are determined, it’s based on rate of growth over the previous three years. At that point, we were technically four years into the journey of adventur.es (now called Permanent Equity), and had worked hard to build the organization. The Inc. designation served as validation that our day-to-day efforts and challenges, which often felt sporadic, hectic, and inconsequential, really were building into something of value.
If we’re being honest, though, we were a fledgling. We had added to our entrepreneurial ventures with our first two acquisitions, but our processes were far from streamlined and our judgement was largely untested. We were still determining how best to partner with company leadership, how to think about the family of companies, and if/how they should interact. We were unfocused, constantly battling opportunism and a profound fear of missing out (FOMO). We prioritized shiny objects, sexy industries, and joint ventures. When things got hard, we tried to “hack” our way out or look for greener grass.
That said, we also recognized that we didn’t yet have it all figured out. This was likely our saving grace. We read voraciously, debated passionately, and continuously explored the investing marketplace, trying to determine where we could establish a niche expertise and competitive advantage.
Fast forward six years (and 20 lbs) and we’ve been ranked #428 on the 2017 Inc. 500. Our reason for applying and reaction to the news were quite different this time around. We applied primarily to help give those who are unfamiliar some context. And rather than rush to place a badge on a website or book tickets to the celebratory event, the recognition has given us an opportunity to reflect on the journey from 2007 to 2017, as well as the many adventures still left to unfold.
WHAT WE'VE LEARNED
Adventur.es is now ten years old. It has been ten years of testing, feedback, challenges, successes, and failures. Ten years of health scares, anxious moments, disappointments, and overreactions. Ten years of babies, marriages, big wins, epiphanies, and wonderful relationships. Ten years of red-eye Southwest flights, office moves, and late-night conference calls.
The last ten years have taught us a great deal about ourselves and how the world works, as well as a hint of what may lie ahead.
WELL-REASONED, BIGGER BETS
In our earliest form, we made lots of smaller bets, providing early-stage capital and incubating our own ideas, while dabbling in real estate and trying to find acquisition candidates. If that sounds schizophrenic, it was. It’s impossible to develop much muscle memory when you’re switching between appraising a nascent biotech company and trying to help operate a marketing firm.
The only upside was exposure. We saw a lot and did a lot, most of which didn’t go anywhere. But it provided a plethora of feedback loops and learning opportunities. We got to see what worked and what didn’t, and why those outcomes differed from our expectations. I watched an acquisition we passed on get sold for 10X in two years and ran into a couple painful buzzsaws of greed.
Ultimately, we learned to focus and chose a nontraditional path. We narrowed down the intersection of our skill sets, lifestyle, opportunities, and areas of enjoyment, arriving at our current mandate: private companies with $1 million to $10 million in pre-tax owner earnings, known as the lower end of the lower middle market in the investing world.
Today, we make very few bets, investing only in profitable private companies when the right cocktail of circumstances presents itself. We look at thousands of deals each year, only to get serious about a few dozen. We no longer have FOMO, and instead are terrified of getting involved in the wrong thing. We aim to do less, better.
ACTIVE PATIENCE
The temptation to look and feel busy is real and ever-present, especially when you’re young and trying to prove your value. Early-on, we fell prey to it like most do. We intervened unnecessarily in portfolio companies to help “save the day” and listened to low-probability pitch after pitch to make sure we didn’t miss something. We had packed schedules, big to-do lists, and zero time to think.
If you read our 2016 annual letter, you know we didn’t make an acquisition last year, and, so far in 2017, we haven’t closed one either. From a surface-level standpoint, it looks like we’re either too selective, or complacent. Neither could be further from the truth. Patience is a luxury that few enjoy and we relish it. As we’ve said before, we’re happy to do five deals in one year, or one deal in five years. It just comes down to finding the right economics, personalities, and circumstances.
Personally, I don’t think I’ve ever worked harder in my life, nor been more bullish about the future. We have plenty of promising opportunities. We’re just practicing active patience. It’s an intense focus on the process and not the outcome. If the pitch isn’t fat, we happily keep the bat on our shoulder.
IMITATION AND AUTHENTICITY
We like to think of ourselves as students and the most successful investors in history as our teachers. From Fred Wilson, Marc Andreessen and Brad Feld to Sam Zemurray, Henry Singleton, and the Pritzkers, we’ve studied what makes each tick and click. Through the years we’ve experimented with imitation to little success and have learned the best path for us is the trail we blaze. As Nietzsche said, "One does not repay a teacher well by remaining a pupil."
While we’ve always been proud to be based in Columbia, MO, for a long time we didn’t try to highlight it. Most investment firms are based in big cities on the coasts. We knew that. The people we were trying to connect with knew that. We wanted desperately to be “legitimate” and feared our location would prove to be a problem. But people can smell fear, and it smells like crap.
Another fact we tried to hide was our heritage. Private equity is packed with Ivy League educations, immaculate pedigrees, and heady connections. But in the words of the great poets Donnie and Marie Osmond, we’re a little more country than rock and roll. As we’ve gotten our footing, we’ve learned that most of our potential partners would greatly prefer us to share a good meal than a buttoned-up PowerPoint and a financial model. And, no one seems to give a second thought to our lack of traditional private equity experience.
As you age, it becomes tiresome to pretend to be anything other than who you authentically are. After a while, we stopped hiding facts about ourselves that could be contextually misunderstood, or viewed by some as a weakness. We started being, unapologetically, us.
There are admittedly lessons to be learned from others, but once we stopped trying to imitate, our actions became increasingly fruitful. Over the years, this has led to far more meaningful relationships, greater enjoyment in our work, and widely read pieces like “The No Asshole Policy,” “EBITDA Is ‘BS’ Earnings,” “The Ceiling of Brute Force,” and “Risk, Return, and The High Wire Act.”
STRONG FOUNDATIONS
One of the most challenging aspects of growth has been honing the appropriate amount of preparation. I once joked that it felt like we were the best-run irrelevant organization in the world. From day one, we have tried to build systems, relationships, and talent that far exceeded our current needs.
From the outside looking in, this philosophy looks silly. Investing in infrastructure creates a major drag on current earnings and can be a distraction from short-term important activities. But opportunity isn’t presented in regular intervals and we knew we needed to be prepared when it comes knocking. It’s like dressing for success, but for organizations. Behaving more professionally is the only opportunity to be a pro.
The past decade has been a constant struggle to underperform the short-term in order to over-perform for decades. While it’s hard to know how prepared we are, it feels like we’re in a good spot. As Jeff Bezos once quipped, “If we have a good quarter it's because of the work we did three, four, and five years ago. It's not because we did a good job this quarter.”
NATURALLY ALIGNED INCENTIVES
Creating a win-win deal is an art, and unfortunately rare. When we started evaluating opportunities, the standard deal felt like an obvious win-lose. If we found someone desperate to sell, we could offer a pittance and hope that cigar had a few puffs left in it. Or for a quality company, we could pay a big multiple, plunk down a ton of cash at close, and start saying our prayers.
Neither is the right way to operate. As we like to tell sellers, “We’re not trying to get a great deal, and neither should you, because that means the other party is losing. We want to craft a good deal for us both.” And that’s what we’ve learned how to do.
Most win-win deals have a few of the same characteristics: 1) a fair price; 2) shared risk, especially in areas of asymmetrical information; 3) and shared upside. Ultimately, it’s a lot more fun to win together and it’s a lot less stressful not to bet the ranch. And because we aren’t locked into set timelines, corporate structures, or minimum returns, we have the flexibility to craft something bespoke -- something that fits the preferences, personalities, industry, and circumstances.
BORING IS SEXY
One of the most dangerous inclinations is the need to be impressive at a bar. While it can be helpful in finding a mate, in the short term, it’s financially destructive. Very few sexy-sounding ideas work out well.
In my humble opinion, finding and building your niche over a long time horizon is the sexiest thing in business. Six years ago, we could brag about investing in seemingly attractive businesses and putting money behind one of our own “brilliant” ideas. It all sounds promising -- good “bar talk,” as they’d say.
Today, our bar talk would be about the economics of some “boring” industry, or the nuances of incentive compensation. It’s probably not sexy to anyone but us, and that’s ok. With two young kids, thankfully, I don’t get out much.
WHERE WE'RE GOING
We’ve never been more excited for the future, and if you’ve met any of us, you know that’s saying something. Yes, the acquisition market has plenty of dry powder trying to chase down a deal and seller expectations in certain industries are unsustainably high. But, we’re practicing active patience.
Adventur.es is a family of companies, a support system, for teams that believe in the future of their seemingly boring business. We don’t like being pitched about how your company could grow twofold in three years. If you really believe that, you should hunker down, execute, and give us a call down the road.
But if you, or someone you know, are the owner of a healthy business looking for a good, long-term home, please don’t hesitate to give us a call, send us an email, or just ring our doorbell in Columbia, MO. We pledge to treat you, and your employees, customer, vendors, and community, with integrity, responsiveness, transparency, and kindness.
The best fits for the adventur.es family will have, at least, three years of $1 million to $10 million USD in pre-tax net earnings, benefit from staying independent, have a competitive advantage, and have a skilled leadership team in place.
If that description reminds you of someone, please have that someone get in touch.
A BIG THANK YOU
On a personal note, I want to thank those who have believed in what we’re doing and how we’re trying to do it.
Thanks to the adventur.es team for putting up with my consistent barrage of nutty ideas, occasional overconfidence, and a profound lack of attention to detail.
Thank you to our portfolio company leaders who work tirelessly, and largely thanklessly, to immeasurably improve the lives of their employees and clients.
Thanks to all the friends of adventur.es who have picked us up when we’ve stumbled and fallen, who have cheered us on when we desperately needed it, and who have celebrated with us upon the completion of a milestone particularly well done.
Most of all, thank you to our families who love us despite our long hours, unpredictable schedules, and rollercoasters of emotions.
Cheers to the next ten,
Brent
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