Going Deep w/ Aaron Watson podcast

269 & 270 Going Deep with Brent Beshore

12/21/2017

Brent Beshore invests in family-owned companies. Unlike the venture capitalists, private equity firms, and crypto traders that fill up headlines and seek an audience, Brent humbly goes to work uncovering value in the boring spaces missed by others.

Beyond his impressive financial results, he’s assembled a talented team that complements his skill set. While he’ll humbly point to luck or colleagues for credit, his diligent assessment of thousands of deals per year has left him with a unique perspective on investing, entrepreneurship, and business.

His companies have recruited doctors for the U.S. military, provided online public relations to some of the world's largest organizations, manufactured cutting-edge home solutions, created software products for small businesses, curated the latest in women's fashion on the internet, and even helped make a couple of blockbuster movies.

I’m sure you’ll learn something from listening in to this interview.

Brent’s Challenge; Diversify the geographic location of the people you associate with. If you live in a metro, more people from the middle of the country and vice versa.

Connect with Brent
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If you liked this interview, check out episode 55 with Morgan Housel where we discuss cognitive biases and writing effectively. Here are the best finance-related and blockchain podcasts I’ve done.

I would have never gotten Brent to come on my show if I had not first heard his excellent interviews on Patrick O'Shaughnessy's Invest Like the Best. Check out all three episodes;
Ep.10
Ep. 22
Ep. 30

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Going Deep

Watson: Well, thank you so much for hosting me here, and thank you so much for coming to my show, Brent.

Brent Beshore: I really appreciate it. Thanks for having me on.

Watson: I think that the best way to make your work and your business accessible and understandable for my audience is to perhaps do a little compare and contrast between the terms private equity and venture capital.

Brent Beshore: Sure.

Watson: And compare those worlds to what you're doing with Adventur.es (now Permanent Equity).

Brent Beshore: Yeah. So, private equity and venture capital they're obviously worlds apart. They deal in both of them are private equities in the sense of you're buying small equity, stakes, or large equity stakes, depending on the situation in private companies.
So sort of private equity as an overarching umbrella, certainly covers some of what we do. Well, actually, to be honest, product income is all of what we do. The term private equity though, typically comes with you, raise a fund and you deploy that fund over a period of 3 years. And then you harvest that fund over the course of say, 7 years, maybe up to 10 years and return that capital plus a return back to your investors.

And so that's very different than what we do in the sense of how it's done at the size it's done. So it's very different rhythms, very different interests, very different ways of creating value. Venture capital's very, very different from what we do in the sense of, you know, venture, you're taking a minority stake in a typically high growth company that you're trying to get a multiple of your money back over a 10 year time horizon. So you're looking for a high failure rate. Small success rate, but those successes are, you know, sort of following a power-law distribution. And so what I would say is , we more closely mirror private equity in the sense of, you know, we're buying a, usually a majority stake, not always, but a majority stake in most. So the situations and. You know, we're buying them from private closely-held business owners, which, you know, private equity does the time horizon in what we do is very different and the way in which we go about it's very different. So, we like to tell people, you know, we have no intention of ever selling an investment when we make it.
So if functionally, our time horizon is infinity. Now we obviously everyone's going to the same place, right? No one gets out of this life alive.So we do have to sell at some point, but we never go in with an intention of selling and we're not returning money back to investors. There's no pressure to create a return over a certain, you know, defined time horizon. So it's functionally a very different mentality, that allows us to go after things that are very different. And I can go into those details depending on how interested your audiences in the nitty-gritty,

Watson: I think we’ll build on that a little bit, but I really want to build context for people about how you get into this world in the first place, but just to hone a little bit further on your philosophy. In terms of a philosophy or a mindset that would guide the investing decisions of affirm to compare with a venture capital firm like Andreessen Horowitz, they say
everything is changing, so we're going to invest in these technologies or notions that are going to be the sweeping changes, versus Warren Buffet and Charlie Mongers, Berkshire Hathaway that says, well, these things really aren't changing anytime soon. So, we feel really comfortable and confident in investing in these, or perhaps a 3G, which says, these companies are bloated and we need to kind of cut some expenses and then slash and burn and improve our profitability.
How would you, if you can distill it into something succinct or more broadly, explain the philosophy that you're taking to the businesses that you look to invest in a partner?

Brent Beshore: That's a great question. I would say that our overarching philosophy is we want to invest in things that are enduring human need.
So, if I think about the companies we're currently invested in the companies that we have sort of on the horizon, all of them are providing a function that is fulfilling a need that people have had for a really long time and we think they'll continue to have for a really long time.
To give you an example, one of our portfolio companies is the nation's largest direct to consumer. Pool builder. So swimming pools, right. We're digging holes in the ground and filling them with concrete. It's a lot more complicated than that. It's gorgeous the work they do, but the functionality, what we're banking on there is, until people stop dipping their bodies in water for pleasure, we'll be okay.

Watson: Yeah.

Brent Beshore: What's interesting though, is comparing venture capital on Andreessen Horowitz or 3G. Everyone is functionally doing the same thing. They're trying to predict the future and they believe they can predict the future better than other people.
And so they're trying to get into situations where their predictions of the future are more accurate rather than less accurate. So, Andreessen Horowitz is a good example of how they have this philosophy; they do think the world is changing at a much faster rate than most people would consider it to be changing.
So, how do they create value in that? Well, they back companies that they believe are causing the change in the world, or that are going to be able to piggyback on the back of that change that they see in the world. And most of the time they're dead wrong. But, a couple of times based on the entry price they get at and the growth rate they're right and the power-law distribution kicks in.
I think Andreessen Horowitz will probably generate decent returns, specifically for that firm. And so it's all just about how do you overlay your sort of overarching philosophy with being able to accurately predict the future through getting into situations that will reflect that.

Watson: So, I think that where we can go, that can be really helpful for particularly a lot of the young ambitious people. Who listened to this show is getting into the nitty gritty of how one develops their own investment philosophy and what information or resources or processes you've gone through to develop your own and what is required to reach a point where you can do that with any degree of confidence?

Brent Beshore: That is incredibly big. How do you learn is really the question. So I think the best learning is from experience. Hopefully, it's positive learning, not negative learning. Books can serve a great purpose. I think there's a challenging philosophy out there that you can learn everything you need to learn from books.
And I think it really doesn't serve people very well. You can read about doing a deal, you can read about making an investment. Until you put your money on the line, until you've gotten the muscle memory of what it feels like until you've hit your face on the pavement a few times, it's really, really challenging to make good decisions.
And so what I would say is. Getting your footing into an area. A great way to do it is read blog posts, read about every person who's in their Twitter feed if they have one. Read books about the topic, knowing that really the only thing that that book's going to do is give you a broad framework for what to watch out for, how somebody else would think through the problem, or at least how they want to present to you, how they think through the problem. I'm super skeptical now reading most people's biographies or memoirs or anything like that because I can't remember what I had for breakfast yesterday, right, or lunch yesterday. Like, I don't know. If I'm trying to go back and recount something that happened 40 years ago with any level of detail, I have no doubt that people aren't trying to lie, it's just the memory of what the important factors were and like how it all went down, I am not confident that those are very accurate.

Watson: So, are you more likely then to seek out a biography that's written by someone else than an automobile?

Brent Beshore: Yeah. To some degree. Although I think that it's impossible. If somebody wrote a biography of your life, it wouldn't be accurate.

Watson: Yeah.

Brent Beshore: Same thing for me. So, you get an approximation and everyone's trying to write a good story. Most of the time, you're eating a meal and distracted with something and crossing the street in traffic and, I mean, it's just we live fairly boring lives, right? The norm is sort of a boring mundane.
And so, to only hit on the high points and to try to get those accurate, like it's without the context around a normal and ordinary life. So, if you're going to read about a Rockefeller or something like that. How did he decide to get into the oil well in Pennsylvania too, that kicked off the empire and all that? I have no doubt that maybe he was some random cousin of his wife's that he met, and they were like, “Hey, I think there's some oil lot in Pennsylvania.” And he's like, “cool, let's go out.” That's not how it's represented and maybe it's completely accurate. I just have high skepticism that what actually happens is somehow reported back with any degree of accuracy.

Watson: Gotcha. So let's go back a little bit in terms of developing the philosophy or the virtues of the principles that would inform an investing decision. I do know you're influenced a lot by Buffett and Munger, but given how often they're reported on, are there other investors that you've found that you, not necessarily are trying to emulate, but have stolen ideas from or really like the way they frame some of these types of decisions?

Brent Beshore: Yeah. I'll hit on the highlights that most people know. Henry Singleton Teledyne was a huge influence on the way I thought about creating value. I would say Howard Marks was another really big influence on how I think about risk and sort of probabilistic thinking,

Watson: When did you start doing that?

Brent Beshore: Specifically investors? I would say when I was in my late twenties. I got interested in how other people allocated resources when I had a few resources to allocate. It's really in theory before then it doesn't really matter. Before then, I was much more interested in value creation through entrepreneurship and operating a company. I spent a lot of my time doing those.

Watson: Let's talk a little bit about what those entrepreneurial endeavors were if you're comfortable talking about both successes and failures associated with that.

Brent Beshore: Yeah, no, I'm happy to. So the first endeavor is getting a law degree and an MBA. I had a friend with his wife, and we were out having dinner one night and she said, “I want to start a company.”
It was an event marketing company. So this is in 2007, I don't know if you were in the flow back then, but back then, event marketing was sort of the avant-garde thing, creating experiences around brands.

Watson: Okay.

Brent Beshore: And this is pre social media. So, I said, “well, that sounds really cool.” And I was sort of desperate at that point to not be focused on school anymore. I was just burned out on the environment of learning. I wish I had a different attitude back then. If me now could go back, I would learn a lot more and I would treat people very differently. Back then I was young and dumb and arrogant, which is a dangerous combination, and thought I knew enough and was just chomping at the bit to sort of play real-life instead of play game.

And so I said, “let's do it.” She said, “well, great. You'll be the business side of things.” And I still don't know what that means. It was a great lesson in how you would design a really awful business. So, a lot of the things that I've done, I basically, the framework of how I built to date is I do something, if it goes well, I figure out why it went well. And if it goes poorly, I try to figure out why I went poorly. Knowing that you can't perfectly fit the curve. Then just do more of what works and less of what doesn't. And when you sort of get into something, you see a new world open up to you.

And so I got into this world event marketing. It was a subsegment of marketing. Didn't like the business for a variety of reasons: incredibly labor intensive, very locally driven, very low perceived value, just really challenging business to make work to scale, really hard, selling lumpy revenues. All the things that make for a challenging business.

That led us to seeing the broader marketing space. I realized that some of the agencies we were working with through that company were getting paid a lot more to do stuff that seemed a lot more fun. Naturally we kind of said, “well, why don't we do more of that and less of this.”

That led into launching an agency, which is also a very challenging business, but it's a less challenging business than event marketing. So, I got into that and I'm trying to get back to my mindset.
That led into these really interesting little niches that we found. So, we hired a great guy who was a film fanatic. Very talented, had gone to film school, and we hired him to kind of come on and be the creative guy on the team. He was doing some graphic design and we're doing some video work for clients and he said, “Hey, there's this new camera technology that's coming out called red one digital cinema technology.”

And it was the founder of Oakley Sunglasses dumping a boatload of money into trying to develop a film camera, a digital film camera, that looked as good as a digital SLR still camera. He did it. It cost him a ton of money and I think we were the first commercial application in the country with that technology.
And all of a sudden, we started making money and making more of it and it was easier and it was a lot more fun. And so we started doing more of that and we turned into this interesting digital film studio doing high end commercials. We were able to pick up some pretty large accounts because we could come in and drop their costs dramatically.

In fact, we learned huge lessons on how to price things. We lost out on a huge project because we priced it like 40% cheaper than everyone else. You know, supply and demand. You’d think that's like a great thing, right? You're going to be 40% cheaper. Why would you not go with us? Look at our quality. And they said, “we just don't believe you so we kicked you out.” We lost the account. We lost the job, which was multiple hundreds of thousands of dollars because we priced it too cheaply. And I said, “I can raise the price, you know?” And they were like, “no, we just don't believe that you can get the job done because of the price.”

Even though we had a great reel and we had been shown it. Anyway, I just repeatedly learned a lot of lessons about how to bring people on to an organization, what to look for in hiring, what traits we valued over other traits, how to structure an organization, what promises you shouldn't/should make. I hit my face on the pavement over and over and over again.

Watson: When you're looking at potential bids now. I don't know how often that's a part of what you're doing, but do you feel like you use that similar type of framework where you'll disqualify a company because they under-price?

Brent Beshore: Oh yeah. I mean, unfortunately the way that I think almost everyone operates. I certainly do. You associate the price somebody is willing to ask for with the quality of their work. And so heck yeah, for sure. If somebody comes along, and it's a really important job- so if it's not an important job, you're gonna go to the lowest bidder- but if it was an important job, you probably don't want to go with the discount LASIK. In fact, there's a sign in Southern Missouri. I was driving there a while back and it said “discount LASIK eye surgery.” I think it was like $1,100 an eye or something like that.I was like, “oh my gosh. Does anybody actually do that?” Even though I'm sure their quality is as high as 5,000 or $10,000. I have no idea what it costs, but your vision is not something that you want to sort of get into a discount. So, I think that's sort of the mentality. When the stakes are high, quality matters and unfortunately it's really hard to compare apples to apples.

Watson: Gotcha. So did the agency reach a point where it was starting to cash flow and you now had the assets to then go and invest or make capital allocation decisions?

Brent Beshore: Yeah, that's a great question. So yes, the agency started early, but it started becoming successful. I mean, what’s a definition of success matter, right? It wasn't like we were rolling large, but we grew the team very fast. We brought on some really nice accounts and we started performing. It was a nice start to a business.I think it made me realize, and you can talk about the quality of business models matter, right. We did great work for some clients and they kicked us in the teeth and we did terrible work for other clients and they praised us and gave us more money. I think that that fundamental disconnect between the quality of work that we felt like we were producing and the outcome was super frustrating.

That's one of the things I like least about sort of the artistic driven beauty pageant businesses, kind of a way you can describe them. Marketing definitely fits in that. Obviously the lead gen is different to some degree. It's really challenging to get yourself in a situation where clients are like no,I want a lighter shade of red for that. Right. You're like, “no. Why are we talking about this?” We're all losing money as a result of this. So, I learned a lot about just what businesses at different levels and sort of ironically, what we learned was the bigger the client, the easier they were to deal with the larger the client, certainly the more profitable they were. The larger the client, the more respectful they were.

And, and this never made sense to me, right? Because I'm like, that's, that should be the opposite, right. There should be harder clients to work with, but intuitively now, if you think about it, there's a selection bias that if a company is small and stays small, there's probably a reason why they're small.
And a lot of times, the reason why they're small is because the people that are at the helm of the company have some challenging personality traits and working with those people makes your life challenging or more challenging.

And so that's been another hard earned lesson that I've learned over the years is to really look at the selection bias that you're getting into in every situation. But to go back and answer your question about the agency was doing well. We were having a lot of fun. It was also a lot of pain and then I had an opportunity to make my first acquisition. We sold that company today. It's called Media Cross. Wonderful team providing incredibly valuable work. They're a military recruitment firm. Their client is the United States Navy. I recruit all of the civilian Mariners that resupply the ships that never come into port.
It's a really, really cool job. It's meaningful work, great team. We're lucky enough to come across it at the right time and the right circumstances that made the acquisition. That kind of opened my eyes to a whole nother world. It was sort of entrepreneurship through acquisition.

I felt like as much of an entrepreneur in that world as I did starting my own company from scratch. It just was a 26 year headstart with some debt. I think at that point, anytime you get into something and it goes, “well, you think it's easy?” And I've learned that anytime I think something's easy or anybody tells me something's easy, they either got lucky or they don't know what they're talking about. I got lucky. So then I really spent a number of years kind of looking at the opportunity costs between acquisition and starting companies. Fast forward to today. And, you know, we really focus on exiting, closely held businesses, the owners of those, and really trying to help successfully transition their legacy, and prove the quality of those employees lives and improve the quality of the community. We truly try to take a sort of holistic look at everything from vendors and customers and making sure it's a win all the way around.

Watson: There's a really important component to that, that we can break apart, which is what makes a company a good acquisition target? Is that they're not overly reliant upon this owner who you are buying out or who might be leaving the company and the nature of the business that you are running? So, you are not out there actually operating the recruiting business and the other folio companies. I'm curious if you can illuminate that a little bit further in terms of if there's like a hard line or a line in the sand of where you're stepping in and changing things versus this is working, let them do their thing.

Brent Beshore: Yeah. So, there's a lot of different components to what you just asked. So one is, “what do we look for in a business? “I think that may lead into how we interact with the businesses. So, what we look for is a business that would be successful without us, that's sort of the baseline.
So, if we need to be involved to make the business successful, It's just not a situation that's going to bear fruit for anybody. So, we look for our competitive advantage: some sort of mechanism that they've developed over time. It could be proprietary processes, it could be a patent, it could be their brand or their reputation, or their somehow entrenched in their market position. So, some people call this moat, which is really challenging. In most cases, I don't even think an owner of a company could tell you what their competitive advantage is. They're like, “I don't know. It just works. What we do, we do it right.” So, technically high returns on invested capital over a long period of time is sort of a technical definition of competitive advantage. How that plays out over time is how do they make money and how can they reinvest that money back into the business over a period of time to make more money.

And so we're trying to figure that and a lot of times we can't and we deduce that the businesses really the outgrowth of the personality of the primary owner or owners and that if they left the business would implode. And I think that's what you see most of the time in smaller companies. It goes through a period of flourishing under a specific personality that built the company a specific way that works. They probably didn't intentionally build it that way, but it just sort of evolved over time. And then when you try to transition it to somebody else's ownership, it's just very rare, and very difficult. So, we try to go and find a competitive advantage so that we can either immediately separate from the ownership that is selling or over a period of time transition that competitive advantage to someone else or to some other group of people and sort of diversify itself is how we think about it.

Of course, we got to get a fair price. We want to de-risk the deal in a number of different ways. But, how that leads post-close is, our motto is we want to help if we can be helpful, otherwise like let people who are the experts do their job. It would be pure insanity if somehow I decided that I would come to a swimming pool builder for instance, and tell them how to build a better swimming pool.
Like these people have been doing it for 30 plus years. They're amazing at it. They built a great business. It would be pure insanity if I came in and thought I could do a better job. I think where we come in, and there's a governance aspect. So, obviously we want to make sure that things are properly counted for and information is flowing appropriately, just sort of the standard business hygiene. Occasionally we might have a good idea. Occasionally we might help question maybe a questionable idea that they might have.

So really it's all working together. We're all on the same team. We're trying to work together over a very long time horizon to create an environment of success and sometimes it works better than others. It depends on the business model and the people and how everything kind of comes together. But it's very different how we think about that than traditional private equity. So, we're not coming in and saying, “okay, what can you cut? And how fast can we grow and where can we step on the gas and bring a bunch of resources?” We're typically saying “let's stabilize.” Anytime there's a transaction, there's going to be anxiety and rightfully so. We want to have people feel comfortable that we're going to treat them well. We want to stabilize the employee base. We want to stabilize the customer base. We want to develop good relationships with vendors. We want to just have the company sort of go to a new normal. And then over time, we might be making some decisions in concert with the leadership of the company. It's never, that we're forcing an opinion down. In fact, we often ask them, “what is something that we can invest in today that we wouldn't see fruit for maybe 10 years?” So, we're trying to have a very long time horizon. We're trying to help pull them out of the day to day operations and sort of make longer strategic decisions. And then everyone goes to work. Like my job is not to operate the company. And if I did that, that would screw up their job. And if they relied on me to operate, the company would screw up their life and it's sort of symbiotic. We try to treat them extremely well. I mean, how we treat the leaders of our companies is how they're going to treat their staff and how you treat your staff is how they're going to treat their customers.
It's only logical to me that if you treat people well- again, we don't always nail this, we're flawed, we have plenty of shortcomings. But we try, we're really trying. We're trying to treat people fairly and consistently and be a kind voice in their life and be a thoughtful helper at times. And genuinely just try to do it together and in a way that lets them do their thing, we do our thing and sort of meet in the middle.

Going Deeper

Brent Beshore: If you get what you want, and it's not the thing that you actually wanted, are you going to continue to do the same thing or are you going to change what you are seeking or are after? What does that mean?

Watson: Speaking to these talented leaders and letting them do what they're going to do as part of your due diligence and research process, there may be an owner that's leaving the business, but there are these existing leaders that are in place that you're entrusting. How do you think about evaluating those leaders across domains, where you might not necessarily have the expertise and skill to know or this person just has a completely unique domain specific skill set, but they are a talented leader that we want to get behind?

Brent Beshore: Well, I think the nice thing about leadership is that the skills for leadership and the technical skills necessary to work within a specific space are really different. Leadership has some universal principles, at least we believe that they're universal, and so, we're really evaluating those in the leaders of the companies, as far as their technical capacity and skills. We've got to just look at the evidence. So, the evidence is they've been a part of a team that's built a very successful business in that area.

If they didn't have the technical chops to do it, then the company wouldn't be successful. So, we're going to assume that they know what they're doing. And then obviously we do our research too, but that's actually not the important part. So, the important part for us is getting to know them, what motivates them, how do they think about life, what are their goals? I'm trying to triangulate what would happen if we just left them alone with no oversight. It is really what we're trying to figure out. And we're really trying to figure out, above all else, what's their integrity level. How do they think about integrity? Who are they loyal to and why? That's a bottomless, endless learning experience in and of itself. We're all incredibly complicated, messy creatures.

And so, we try to get approximations based on some behavioral markers that we try to figure out early on, and then make deductions and for the most part, people who are operating larger small businesses, is how I describe it. These are successful. I mean, these are successful people in the local community. There's something about them that usually is wonderful. We get to interact with some fantastic people. They're grounded for the most part, on average, they're really thoughtful, kind, generous, well, grounded people. And it's a huge benefit. We don’t follow the companies we were involved in, we don't get the latest business trend or like these companies are not putting in, like, bring your dog to work yoga days, or the latest business guru, whatever they're saying. And these people are trying to serve their customers, trying to raise a family and they're trying to serve their communities, for the most part. And it's really wonderful and that's one of the best parts of my job is getting to interact with those types of people consistently,

Watson: As you create a system and build processes that lead to larger companies, more investments, more opportunities. What comes with growing, is that you can lose potentially the things that maybe initially attracted you to the work that you're doing. So whether that is, “Hey, I love looking at deals” or “I love meeting these types of people,” are you feeling a pressure or a push that you can't do that? Or are you engineering the business and everything to just completely get to stay within that lane?

Brent Beshore: That's a great question. I think I have the best job in the world. And I love it. It's not every day, it's not perfect. Most days aren't perfect, but I get to work with incredibly talented, thoughtful, kind people doing meaningful work. How I express that changes over time. And I think this is where, what's been beautiful about building Adventur.es over a period of time, I've been one participant in building it. I mean our team, maybe you thought it was joking on the way here, I feel like I'm one of the least talented people on the team at this point. As other people can step up and take responsibility for things that they can clearly do better than me.

Why would I do those things, or why would I try to retain control over them? My fantasy, longterm, is that I'm completely unnecessary and worthless and they let me play around in some area of the business and put me in my corner and pat me on the head and, and tell me good luck.That would be wonderful. I truly want the organization to flourish and if I'm the weakest link, I think we're going to be okay. And that would be a wonderful thing. So I think over time, the way that I, you look at it, the way Susanne Bylund- who's the sort of my right hand person, a president of organization- she looks at the exact same ways. We’re constantly trying to find people who are better at each area and can specialize and then really focusing on how do we get the team to work together better? How do we improve communication and relationships within the company? Not doing trust falls, not doing all that stuff.

I think everyone has a different style. As long as your identity doesn't rest in doing a specific thing, I think you're fine. As long as you're willing to sort of explore what that might look like

Watson: In terms of building a team that would be interested in the work that you're doing here has these skill sets that are complementary and humbling for you, what have you found is the way to go about identifying and bring those people in and having them be interested in this work?

Brent Beshore: I have no idea. It feels like luck.. Like literally we started talking about this all the time. Like, we feel like we are absolutely terrible at recruitment. We have incredible opportunities that are overflowing in front of us, and we don't have enough people to execute on all the opportunities, by like a factor of 10. I'd say hands down, the biggest limiting factor is finding a remarkably talented kind, generous high integrity people by far, it feels like completely random.

Like I said, how we bring people on board is we somehow get in touch with them. We start a conversation. We get to know one another. We see an opportunity for them to create value on the team and to be a part of it. We invite them to do so, but that's such a long process. It doesn't feel seamless.

Watson: Do you think the person that you were when you were burned out from school and just getting into the event, marketing business, was that person someone that you would have hired here?

Brent Beshore: No. No, for sure. Not. I was young, obviously it's just an age number, but, I was inexperienced, I was arrogant, I was condescending, hyper competitive. No, I wouldn't have hired me.

Watson: Whether it is school or it's a different form of education or training or resources, if you could inject more of that into the pool of applicants or workforce. What would you prescribe given the opportunity?

Brent Beshore: Ultimately, integrity is probably the biggest one that we need. That's sort of a prerequisite for the team. Without integrity, it's so costly, so you can make it work, but it's just so costly to oversee a group of people with low integrity. I want to say low integrity means that people do things they know they shouldn't do when no one's watching. And how closely do you have to watch people? If you have to watch people closely, it just doesn't scale. And so for us, you know, we rarely come in contact with somebody that we can get comfortable with. They're not going to do things without us watching them closely.
And that doesn't mean necessarily working hard or being passionate about their job or being talented. You get the impression for most people. And I think this is most people's point of view. What they believe to be true about life. This is a completely rational decision for them to make if there's a corner that can be cut, and they likely won't be found out, they're going to cut it every single time. And the problem is not cutting one corner usually, or two or three or four. It's the accumulation of a lot of people cutting a lot of corners that then has a nonlinear effect on the organization over time.

And you end up developing, I guess culture debt, sort of like code debt. Everything looks okay, but it explodes over time. And you get in these really catastrophic situations where people are doing sort of consistently awful things, Gresham's law kicks in: the bad crowding out the good. People that are coworkers start seeing Bill over there. He got promoted and he constantly cuts corners. “Well, if I want to get promoted, I should cut corners too,” and then it spreads. Bad behaviors are like a virus. We're really, really focused on acknowledging that everyone's messy. I'm messy, you're messy, everyone in Adventur.es is messy. We're also focused on where the trajectory of people? Are they trying? Are we going to create a system of accountability? Where are they along that journey?

How do you cultivate that? I don't know. That's part of the problem. I don't know how to cultivate. All I can do is find it. So that's why I set up, I wouldn't hire me because I don't think I fit that description when I was getting right out of college or getting out of law and MBA. I was totally willing to cut corners and, you know, had to learn over time, that's not the right way to behave.

Watson: There’s a common trope or piece of advice that people say is “fake it till you make it.” And I think there's a close tie between the notion of cutting corners and faking it till you make it. I don't know if you agree with that, but do you see that as related? Because I think there's also a degree of people who would say, “Brent can say that now because he's found success and he has these winds that have a crude, and so now he can value that.” When you're just starting off, there's no other way than to scrap and to cut corners. Does that make sense?

Brent Beshore: Yeah, I think they're mutually exclusive though. So if you think about what does it mean to fake it till you make it, you're basically bending reality. It's called lying, in hopes that you can bend reality long enough to get what you want. There are certainly exceptions. And I'm sure that there's a bunch of founders who are out there and could listen to this and say, “Oh no, he's completely wrong. If I hadn't lied to those 10 people, I would never have gotten this, which led me to this” or whatever. The problem at the end of the day is you built your foundation on sand, and eventually the people who you lied to figure it out and you break trust.

And it's not just one lie. You're going to be lying hundreds, thousands, if not tens of thousands of times. And you create a selection bias around your life, where you attract people who will tolerate and who enjoy being around liars. Ultimately it just harms you and it harms the people around you. So, if your goal, if the ultimate purpose in life is to as quickly as you can accumulate as much resources, angling power, money, fame, whatever, the thing that you're trying to get, if your goal is to accumulate those as quickly as you possibly can, I think it is completely rational to lie, cheat and steal and run the risk of getting caught. Why wouldn't you? I think you end up going down a path that leads to a miserable life, and unfortunately the worst situation as you continue to be able to get away with it and you never achieve what you thought you would achieve. And so you're able to distract yourself from the reality in the striving. So if you listen to successful people that have made mistakes, what they'll say is “I reached the pinnacle. I reached the peak and I found out that wasn't it.” And so what you often find is a situation where it can be a very effective tactic with the wrong strategy.

Watson: I take that. Maybe changing pace a little bit, we talked about the recruiting company. We talked about a couple of the companies that are in the portfolio. But you've written a blog post about this, you like these quote unquote boring companies. I don't mean that in the sense of like hat salesman, Elon Musk, but in the sense that these aren't necessarily the big, sexy brag about type of investments for most people.

Brent Beshore: Sure.

Watson: Can you talk about why this is where you believe the edge to be in the sense that as it almost relates like human psychology? Like you're not in the goal of chasing that game, it is about this other game.

Brent Beshore: Going back to this idea of selection bias, So if you look at industries, the lowest returning industries on average. So, if you think about probabilistically, how successful will I be in an industry? The lowest success overall industries are the highest profile industries. So the wine business, the film business, marketing companies. These are all areas that it's like, “Oh, I get to be impressive. I'm in this really cool hip industry” I would argue, in totality, technology in general is a really low return business.
On average right now, you have these big power laws at play, but probabilistically, if we're going to go into an area of business thinking, I just want the average success- we can talk about the psychology of why no one thinks this way- it's called the base rate. So, if the base rate is everyone loses their shirt and goes out of business, you should think long and hard about that being the industry that you choose to get into.

So why is that? Why is there a correlation between we’ll call them ”sexy businesses” being lower return and “boring businesses” being higher return? Let me pose this to you. So you watch movies. When you watch a movie, do you ever have this drive where you're like, “it'd be really cool someday to create a movie.”

Watson: I've experienced it.

Brent Beshore: Gosh, it'd be amazing. Have you ever driven by somebody roofing a house?

Watson: Yeah.

Brent Beshore:Have you ever thought to yourself. “Gosh, I really wish I could quit what I'm doing today and go sit on the top of a house with no harness on and the probability of falling down is high and pound nails into the top of a roof in the hot sun.

Watson: While it's 95 degrees? Yeah, no, I've not experienced that.

Brent Beshore: Yeah. Most people don't. And so what you end up getting is, there are non- economic reasons why people are in an industry and there are non- economic reasons why talent is drawn to an industry. And so the higher the competition for talent and the higher the entrance into the space that is well funded, the lower the returns are going to be overall, just a supply and demand issue.

Watson: There's also getting into the psychology that gets tied up in these is people who say “I don't want to be a big fish in a small pond that bruises my ego to know that I am not in Lake superior. I'm in a small lake.”

Brent Beshore: Yeah. I don't frame things that way, so it's hard for me to get an insight inside somebody's head who has that mentality. What's important to me is my community and my family and my friends and my church. So, I'm not prioritizing being a bigger fish or a smaller fish. Ironically, we're all the same size regardless of the pond we're in. So you're as big of a fish as you'll be in whichever pond you're in. I do think that there is that draw.

I hear a lot of young people say this, like, “I can only be successful in a New York or an LA or San Francisco,” or, you know, to lesser extent Dallas or Chicago or Atlanta. It could be true. It could not be true. It depends on what you want to do. It depends on, are you a train on a track and you've got a track laid in front of you and you're going to stay on that track? Or are you on a bicycle? Or are you hacking your way through the jungle with a machete? Those are all different frameworks for how you can think about the life you're trying to lead.Being a train on a well laid track is a very different life and a very different experience and comes with different opportunity costs then hacking your way through the jungle. Some people are happy hacking their way through the jungle, and some people are happy being the conductor of a train.

Watson: That makes sense. How has your relationship with that changed? Could you say that you're not in that position right now? It's hard for you to frame into the, “what size fish am I in this pond?” or whatever. Has that been a transition for you? Has that been something that you've adopted from someone else? Has that evolved personally?

Brent Beshore: Yeah. I mean, I think earlier in my life, my career, I certainly made all the mistakes. And so, I craved fame and power and money and compared myself to others. I was trying to be a bigger fish. Ultimately, thankfully, somehow I came to the conclusion that that was a pretty bad path to be on.
So, I just don't know how you make that transition. I can tell you how I made it and like the steps that I took and sort of the way I thought about it at each stage. But, I don't know how prescriptive I can be to others to make that change. I think ultimately you have to figure out, if you get what you want and it's not the thing that you actually wanted, are you going to continue to do the same thing? Or are you going to change what you may be or are seeking or you're after?

Over a fairly short period of time in the grand scheme of things, I mean, I'm only 34 getting ready to turn 35, I was able to somehow taste enough of the success in these different ways and realize it just felt really hollow. And the people who were around me, I looked at them and said, “oh man, you know, that life must be great. Look at their life.” Over a period of time, those people are the ones that are going to rehab and are having major psychological issues and are really unhappy. When you get people privately and you get them to open up, and you get the real raw version of their life, it's very different than the glossy Instagrammy version that most people are trained. When I was younger, I didn't know any better. I thought people who had a lot of money and had a lot of fame and power and all that like high level relationships where everyone would say that they look pretty damn happy to me. They looked like they had it all together, they looked like they were incredibly “successful” and then you get to know him and they're miserable. And the people around them are miserable. And they have more problems than “normal people” had. And after you see behind the curtain, you're like, “Oh my gosh, I don't want that.” So what, if I have a bunch of money but I hate myself and I hate my family and I hate my coworkers, where are you at that point? And to be honest, the highest correlation with misery is a high net worth. If you think about it, this is what everyone's striving towards.

And the most miserable people on the planet are the thing that everyone wants. Have the thing that everyone wants. They are the person that they wish they would be, which doesn't make any sense. And that's what I'm saying is the most dangerous situation is to strive for that, but never get it and never realize that that's not the thing.

Watson: Oh, so striving for the wrong thing. Like even just setting the wrong goal?

Brent Beshore: Yeah. Well, winning at the wrong game isn't winning, but, at least you won at the wrong game and can realize that it's the wrong game. The most dangerous situation is you're playing the wrong game and you never win it, and you keep playing the game. And this is where you see older people who are miserable on their fourth or fifth marriage, incredibly wealthy, and they just can't figure it out. Like, I deserve to be happy, look at all the success I have, I can buy anything. Well, no. What you can buy is manipulation. And if you look at life as being, “what can you consume from everyone,” you will get a group of people around you who consume you, and it feels really crappy to be consumed. That's what it ultimately comes down to.

Watson: I don't know if I have many more questions beyond that. I read the Annual Review last year. Is that the same numbers? So how many businesses did you look at in 2017- we're approaching the end of the year- what would that number be?

Brent Beshore: Oh, gosh. Somewhere let's call it 2000. Actually, we're focused this year on quality over quantity. Our deal flow is at least twice as good as it was last year with having less deals, which is like the best thing in the world, because that means that we're wasting our time, less, on the deals that we shouldn't be looking at.

Watson: What do you attribute that greater quality to?

Brent Beshore: Just continued efforts to put out exactly what we're looking for, help educate people on things that we like versus don't like. We used to get a lot of technology, software type deals, we get very little anymore. We used to get a lot of restaurant chains and commodity oil drilling, things like that. And we just tried to really educate people on what we're really looking at. It doesn't help them or help us if they're bringing us deals that don't fit.

Watson: Gotcha.

Brent Beshore: It just waste’s both parties' time. We're far less focused. It's interesting. I use that as a metric to kind of,, I've looked behind the curtain of 10,000 companies. I can tell you that the overall picture is not pretty. Most businesses are some form of organized chaos and whether you want to call it the knife fight or whatever analogy you want to use, it's brutally hard. For most of those, we're just not a good fit to be in business with them.
Watson: Of these companies that you've looked at, what are some of the unifying themes that are related to being successful and not just being worthy of investment? There's a lot of entrepreneurs that listen to the show, a lot of aspiring entrepreneurs, the kind of through lines between the best ones. What did those look like?

Brent Beshore: Well, so it's interesting. If I was going to take a step back, even in an overview. I've never been more confident that over a long period of time in a fairly boring business, somebody can do quite well for themselves and for their families. So if you asked me “what are the odds of starting a plumbing company?” And if you don't know anything about plumbing, I assume, unless you just have a hobby in it. So, if you said to me “today, I want to go raise a family, start a career, and I just want to probabilistically do really well financially.” The area that I would point to use is I would start a plumbing company and I would first become a plumber yourself. This is probably not what your inspiring entrepreneurs are thinking in their heads right now. They're thinking about creating the next Snapchat. But probabilistically, the most successful industry, on average in the country, is the plumbing industry. We can go back to the whole nobody calls somebody in the middle of the night with poop, running down their stairs that's overflowed from the toilet and says, “gosh, you know, what I want to do is that job.” There's heavy selection bias against people entering the industry. The level of professionalism in the industry is overall low, and the need for it is enduring, the price somebody willing to pay to solve their pain is high.

So, high margin, recurring and enduring business, with low professionalism. When you get those things together over a decently long period of time, if you're willing to grind on it, you're going to do really, really well. So I would say I've never been more optimistic for somebody who's going into a business like that, that over a period of time, they commit themselves to excellence in that industry, they're going to be really successful financially. Again, I'm just talking about financial success. Cause I mean, that's the sort of base mark benchmark, beyond. Interpersonal relational success of just strictly, financially. I've never been more bearish or more cynical, on getting rich fast and trying to have some success quickly.

So I literally don't know. I'm sure there are businesses out there. I don't know of a business that's under five years old that is consistently generating really nice cashflow. And I've invested in a ton of different companies. I see the financial incentive for companies and the most successful and profitable businesses I see start slow and build, and they consistently build over time. There's a nonlinear relationship between time and success. And so, we have a company that we've invested in that looked like a big pile of nothing for four years, and now it's just an absolute cash machine. It's outrageously successful every single month when I get their financials, I just like it, it blows me away how much money they're making. And it looked like nothing four years in. And so I think, you know, anybody who just started a company a year ago, or two years ago was killing it. I don't know how they're killing it. And I don't know what definition of killing it means because there's no way it's long term sustainable. There's no way to assemble a team and gel a team and create a culture and develop sustainable business relationships and customers and vendors and wade through all of the stuff you have to, to create a sustainable long term business in two years. You can't even do it in five years. I mean, honestly, I feel like building most businesses is a 10 to 20 year time horizon.

And so you gotta be really committed to it because one of the dangerous situations you might get into is you hopscotch around. You start something and you realize, man, that's hard. I'm going to jump to something else. Then you start that thing and you're like, that looks easy, oh, it turns out it's hard.
Well, I just need to jump to the next thing that looks easy. Jump to that. Now that's hard. Guess what? Everything meaningful is hard. So what most people do, that I see pretty consistently is they face a level of adversity that makes them uncomfortable, they arbitrarily opt out and it's really that powering through that dip that I see yielding incredible results for people.

I would say those are kind of the big themes. Most businesses are cyclical. Most businesses are fairly low margin, and that makes sense. If you have competition, people are going to compete away profits. In good times, you're going to be able to make more money because of the scarcity of the supply. In bad times, it's the opposite. You gotta be careful to really analyze the quality of a business not in any given year. The quality of the businesses over a long time horizon, what is the free cash flow? So not profits because profits, a lot of times, have to be reinvested back in the business.

But we recently looked at a company that had 6 or 7 million dollars of “profit” and the owners could maybe take a million or $2 million out of the business, just consumed cash. And so you have to really look at the totality of the dynamics of the company, and that's really what I do for a living. I'd say that's my core competency. That's something that after over 10,000 reps, I can pretty quickly break down: what are the dynamics of the industry? How does the balance sheet income statement and cash flow statement flow together?

So side note for your audience; if I could recommend one skill set to somebody who wants to succeed in business, it is to become fluent in accounting. So not being fluid in accounting and being in business is the equivalent of trying to live in China and not speak. I'm sure you can do it, I don't know how successful you can be and I don't know how many relationships you can develop, all the analogies that would make sense fit there. I would say overall that the markers of success we see are a heads down faithful attitude, where you're going to grind and try to deliver for your customers over a long time horizon, treat people fairly over a long period of time and genuinely you're going to outlast almost all of your competitors. If somebody wants to start a business today, my best advice to them, depending on what their goals are, if their goal is to get famous, becoming a plumber is not going to get you famous. So if that's what you're optimizing for, fame or, if you want power, I guess get into politics. I don't know. I think that's probably the quickest way to accumulate power. Um, it's certainly not to become a plumber. You know, if you want to generate high economic returns over a long period of time, get into a boring business and grind on it. You'll be successful.

Watson: I have a good friend. He is in tech, but what he does is he just goes into buildings and installs hardware for people. That is not sexy.

Brent Beshore: That is plumbing.

Watson: It's its own form of plumbing. And he cannot even find people to hire. He literally has too much work coming in and not enough skilled people that he could just hire and like put them into the system that his stress point is, there's too much to do, too many jobs, too many income opportunities. And I can't take advantage of that.

Brent Beshore: That’s my problem too. If you think the problem is that, it seems like he has that, we have is we're not impressive at a bar, right. So, if you tell somebody you work at Adventur.es, it's not impressive at a bar, they have no idea. “What does that mean, Adventur.es?” “Well, we're a family of companies that acquires family owned companies.” I don't know what that means. “Well, we're a private equity.” “Oh, you're a private equity firm.” “Yeah, but we really haven't. We haven't raised outside capital.” “Okay. So you're a pretend private equity firm.” I don't even know what that means. Most people have no idea what a private equity firm means. So it's really hard like that guy, I'm assuming, he goes out to a bar and people are like, what are you doing? He's like, “I'm in tech.” And they're like, “cool what do you mean you're in tech?” “Well, I plumb hardware into buildings.”

Watson: I've heard him say it multiple times. Like when he'll explain it to someone and he has that awareness. He's gotten the face back enough times that he knows that no one's eyes are going to light up and he just kind of sheepishly says it despite the fact that he's just killing it.

Brent Beshore: But that's what I'm saying. Mostly people want to be impressive at a bar. Almost everyone wants to be impressive at a bar, and that drives far more of behavior than our rational economic view. So, another good example of this is functionally a $40,000 a year salary in Columbia, Missouri is about equivalent to a hundred, maybe 120 ish thousand dollar a year salary in New York City. So, it all depends on your preferences and all the things that are important to you, but on average, that would be my best guess. So, if you're thinking about it that way, it literally shouldn't matter to me, if I'm pretty much pure economics, if I make 120 in New York for 40 or 35 in Columbia, Missouri, like it should be functionally exactly the same. You go try to tell that to somebody. They're going to be like, let doesn't make any sense.
It's an interesting dynamic where a lot of times what people think is important to them, isn’t actually important to them. And so what they're doing is they're overlaying a set of choices onto a set of preferences that don't have any congruence at all to them.

And that's where you get into this really strange anxiety and frustration and anger that life's not working out the way you want it to work out and look, luck matters a ton. We didn't talk about this but, I believe that at least 90% of any success we've had is due to luck, maybe higher, maybe 95 and even that's a proxy of luck because I was born into a country at a time period with, you know, all that stuff. But if you look at this and you say, okay, we know that people aren't honest with themselves about what they want then really, I think that comes down to the root of it is, your listeners need to really search themselves and be honest with themselves. If you just want fame and you think that's what's going to fulfill you then trying to angle for money, without putting fame as the number one thing is going to cause you a lot of pain and suffering, and you're going to have a lot of frustration. You're not going to be what you feel like on the path. Now, I would argue that all of those things are going to eventually lead you down a path of misery, but at least you're going to be playing even the bad game poorly. So yeah, at least at the end of the day, play the bad game well, and be honest with yourself about what you're trying to achieve and then just go and do it.

Watson: I dig it well, even if this never made it to air and never got to share this with any of the audience, which we're obviously going to do, I have learned a tremendous amount from speaking with you, Brent. I really appreciate you taking the time as we do at the end of each episode. There's two last questions. The first is so people can follow along with what you're doing and connect in the digital world. What coordinates should we point people towards?

Brent Beshore: Well, I would say that a website Adventur.es website. So our name is our website. So adventure.s with a dot before -es, go there. We have an email, like I said, it’s kind of an email in a newsletter because we just intermittently send out whenever we create a new piece of content or have something to say, we hit the list. A lot of the stuff that we've written to get perspective on how we think about the world. We're constantly changing. That's a piece that probably is the most well read piece that we've ever written called our “No Asshole Policy.” Somebody tweeted that out the other day. I hadn't looked at it in about three years and I just cringed. I started reading it and yeah. It's awful. It's really, really bad.

Um, so we've just recently redrafted that will go live sometime the next couple weeks. So we're constantly trying to work and change and as we learn more, try to share that with other people. Our goal with all of our writing, all the content we create is to create a dialogue with people, attract the right people, repel the wrong people. We try to stay up to date on it and we look at it as a primary function that we have is to share learnings with the world as we learn it.

Watson: The name Adventur.es, where'd that come from?

Brent Beshore: We kind of talk about life being an adventure, and businesses and adventure, and it's kind of a philosophy we've always had around the office of looking at whether it's buying businesses or starting businesses or investing in businesses or operating your own businesses. Like the best analogy we have that for that it's an Adventure. And so when we went to pick a name, we picked Adventures. We had the opportunity to get the hack domain, the shortest domain that's possibly out there that fits our name. And we were like, we’ll put it in the logo. So that's how Adventur.es with the dot before the -es came about.

Twitter too. I didn't mention, so yeah, Twitter, I try to engage in Twitter. It's funny, the more time I have the more engaged in Twitter, the less time I have, I don't prioritize it against everything else. Twitter is another great way to connect with me

Watson: Awesome. Well, we're going to link that in the show notes for this episode, goingdeepwithaaron.com/podcast is going to be the place to find that for this and every episode of the show. But we do want to wrap up, Brent, by letting you take the mic one more time and issue an actionable personal challenge for the audience.

Brent Beshore: So. I have the luxury of having a lot of friends in the Midwest, in the South, in the North, in all over the country and actually all over the world. Some of my favorite people are residents of Iceland. I consider it to be a huge blessing that I get those perspectives kind of consistently given to me. So, I have people in rural North America, in Europe and Africa that I've been able to connect with as well as people in big cities. And I would say usually most people are more dominant in either a local network, whether they're in a big city or they're rural. So, if you feel like that, you have a more rural network, go and meet people in big cities, go and get that perspective. What's life like in big cities? What's the avant garde? What's the new thing that's happening? Get that into your life. And if you're in a big city and you're listening to this and you don't know anybody who is a Republican or is religious or shops at Walmart or lives in the middle of the country, I would highly advise that you try to actively cultivate those relationships. I think what you'd find if you did that, is that people are. almost identical, but coming from very different perspectives on what's important and how they think about their life. And that's going to really greatly enrich your life and it will enrich the lives of the people who you get to connect with. I think it's an easy challenge. It's a fun challenge. Get out there and meet people who are different from you.

Watson:I love that. And you've very nicely segwayed into a topic that I wanted to ask you about and just failed to because you're giving me so many other great answers in other areas. But, on the topic of cryptocurrency, you recently made a post here. I want to read it, say I get it correct, “if you think Bitcoin is meaningless or irrelevant, you need more friends in New York city in San Francisco, and if you think Bitcoin is destined to be the future of money, You need more friends in the Midwest.” Given that we, as a show, probably have a bias towards the New York, San Francisco types who are on that cutting edge, developing cryptocurrencies and talking about what they're doing there. On balance, not asking you to necessarily pour cold water on everything, but can you elaborate a little bit more on how that perspective pertains to cryptocurrency and maybe other thoughts or perspectives on it that you would be willing to share?

Brent Beshore: Yeah. I'm no expert on cryptocurrency and honestly, I've been aware of Bitcoin and Satoshi and all that for a very long time.I’ve been fascinated with it for a very long time. Opportunity costs in my life, having two young girls and traveling a lot for work and being focused on what we're doing at Adventur.es. In a previous life, I would have been all over the cryptocurrency bandwagon and probably have tried to do something in this space. I don't think I'm a Luddite in that, but with that said, I struggle with the base foundations of what it's trying to achieve. And so I think that whether it's Bitcoin in particular or Litecoin, or heck there's a website, I went to the other day that was like, you know, 700 IKOS that were going on at the same time. And it was like, obviously joking, “the new coin for toilet paper.” I think there's a lot of things that don't need to be Crip-tarized or whatever you want to call it. I think there's a lot of things that could stand to really benefit from the technology. I think that, as far as a cryptocurrency goes, there's a lot of benefits to settling contracts, to allowing types of interactions that need some sort of level of decentralization.

I also think the fundamentals of like a Bitcoin, the consumption of energy is something that just is mind blowing to me. I looked at something that I did, I think it's like the 62nd largest country. If you could categorize Bitcoin activity in terms of consumption of energy, it doesn't make much sense to me that a lot of the same people are the people who were like a traditional environmentalist and who are concerned about burning fossil fuels and a lot of the farms are near sources of energy, some of which are clean, some of which are not.

But just in general, the idea of basically jumping through a lot of hoops to be able to produce a digital asset doesn't feel like the best solution longterm to the problem that I think it was addressing. Now, if that said maybe Bitcoin goes 10x from here, or 100x or 1,000x. Maybe everyone who got on the bandwagon are multi billionaires, that’s possible. I know somebody personally who's made well in excess of $30 million on Bitcoin. I also know somebody who accidentally lost their key to over $40 million of Bitcoin. In general, I think it's a really neat technology, I'm excited to watch it. I'm just sort of a bystander at this point. I don't own any Bitcoin, the only things I own are cash, US dollars and stakes in highly illiquid private companies. That's kinda my barbell strategy, so I try to block everything else out. I don't own any public shares, I don't follow any commodity prices or anything like that.

So, I just try to simplify, because my investing life is pretty complicated, in one side of it. I think it's a really interesting space. I think there's gonna be a lot of development that comes out of it and hopefully a lot of good that comes out of it.

I would caution people. It might turn out well today. It's never turned out well, when you get a flood of people into a space who are trying to get rich quick. I can't think of a single thing in the history of the world that's turned out well for the people. You're going to have outliers, you're going to people who it works out exceedingly well for, but again, the base rate, the base case that you've got to think through is: probabilistically, am I going to be successful, whatever successful means in that space, and I wouldn't feel comfortable right now saying today, go out and buy Bitcoin, and that's going to be the way that you support your family over the next 20, 30, 50 years.

Watson: Yeah. When in a speculative mania, may the devil take the hindmost. Brent, once again, thank you so much for doing this. I really, really appreciate it, and for sharing your time with us today

Brent Beshore: Really appreciate you having me on thank you so much.

Watson: We just went deep with Brent Beshore, hope everyone out there has a fantastic day.

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266 Raji Sankar, Flipping Fast Casual Food on its Head at Choolaah Indian BBQ

12/4/2017

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Raji Sankar is opening a restaurant in Pittsburgh and came on the show to share her insights from more than a decade in the restaurant industry.

Raji co-founded Wholesome International in 2004, a multi-concept restaurant development company, which owns and operates Choolaah Indian BBQ restaurants and franchised Five Guys Burgers and Fries restaurants. She is co-CEO and is responsible for people, operations, and infrastructure.

Previously, she co-founded and sold a technology company, co-founded a media company, and held leadership positions in technology and media companies in Pittsburgh.

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If you liked this interview, check out my interview with Bill Fuller from the Big Burrito Group and my other conversations with movers & shakers in Pittsburgh.

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Watson: So Raji, thank you so much for coming on my podcast.
Sankar: Thank you for having me.
Watson: This is pretty cool. I think this is the first time, I do plenty of interviews on site, but this is the first one I've ever done in a restaurant where it hasn't even been opened up yet. So I feel kind of like I'm ahead of the curve, or I'm getting this exclusive sneak peek on, what's going to be a banging new restaurant in Pittsburgh.
Sankar: You're absolutely right. And very few people have actually been here except for the construction folks, of course.
Watson: Absolutely.
Sankar: Yeah.
Watson: So I want to start off there a little bit just about, restaurants in general and the concept behind this restaurant you have, Choolaah, which is a fast casual Indian restaurant where we're located. This is gonna be the first one in Pittsburgh. And you also have some Five Guys franchises, which is one of my favorite burger joints, maybe my favorite.
Sankar: Awesome.
Watson: So talk to me a little bit about which one of those came first and what attracted you to the restaurant business?
Sankar: So, we were in the tech world, my business partner and I, and that's where we met at a company. And we always wanted to be in an industry where we could make a difference in people's lives. And when we, you know, got done with our professional careers and we were looking to get into the entrepreneurial world, we looked at six different industries we knew something about. And we picked the one that we knew nothing about, which is the restaurant business.
It's a daily scorecard in the restaurant world. It's so exciting. And you get to work with people of all realms and very different from our white collar jobs. If you will. It also is very hard. We didn't know that, but it's a good thing. Sometimes you don't know when you get into things because it gives you a huge amounts of boldness.
And then you look back and say, 'would I have ever done that again?' So it's great to jump in when you have a little bit of ignorance.
Watson: Can you elaborate a little bit on that idea of the daily scorecard and how that compares to other realms?
Sankar: So, in most industries you'll have cycles of monthly scorecards in the form of your profit and loss statement. Or looking back at customer and vendor relations and how you performed in our world we know that shift. The morning shift or the evening shift, how well it went, did we do our best? Was everybody delighted? That's our mission is to delight every guest.
We also know how the team members felt. Are they growing? Are they training? It's this tiny window. And that happens 14 times a week. Now we can actually tell how well we did.
And so we love that dynamic aspect of the restaurant industry. It's almost like going to a football game, right. And getting your score after a few hours, very much like that in our world. So that was a lot of fun. The idea of being able to do that and then bringing HR practices, human resources practices that we had learned in other industries.
Right from the beginning, we had a dream and that people with us would make a lot of money. We want them to grow, develop, have a career in the restaurant industry. Little, did we know how long that takes right. And what it takes to set something up like that, but not knowing a whole lot, that was very exciting for us.
And we started with the idea of actually a business plan for fast casual Indian. We were very blessed to call it fast casual as the future. That was in 2003, we wrote a business plan and that's what Choolaah is today.
Watson: So you started with Choolaah first?
Sankar: No we started with the business plan, shelved it, because we had no experience in the restaurant industry. And one of the biggest blessings is we realized what we didin't know. And we ended up looking at franchises, and Five Guys was a very exciting brand for us. There were only six, seven stores at the time. And we thought, how cool would it be to bring something that is so iconic and special in the Virginia market at the time and bring it to Pittsburgh. And who doesn't love a great burger and great fries?
Watson: So you have the one that's on Pitt's campus?
Sankar: We do. Oakland is ours.
Watson: I have been a loyal patron of that Five Guys. I can tell you, I didn't even know that going into this interview. So what I'm imagining is, given your self-awareness to know that you didn't know a lot, it seems like when you are a franchisee, you really get to call upon a lot of wisdom from the kind of central entity. Now that's kind of an outside assumption. I haven't necessarily had that experience. Can you elaborate a little bit on what resources you got as a franchisee and some of the biggest lessons that you've taken away from that experience and apply to change?
Sankar: So we are huge fans as franchisees. You may not always hear that in all franchises, but of our franchisor. The reason we actually ended up with this franchise was because of the integrity in the system. We loved the passion and the craziness with which people who had created this, the family that created Five Guys had for their products, the quality of ingredients uncompromising on that.
And we love that aspect. And that's what attracted us to the business. We learned a lot. And that's something that you will find in Choolaah too, that we don't compromise on quality of ingredients. I think at the end of the day what we put in our bodies is so important. And I think people recognize that and never settle for something mediocre that you put inside your mouth or feed your body.
So that's one of the principles that we loved and they've still maintained that. And we also learned with them as they grew. They went from seven stores to today almost 1400 stores. So we have seen the growth trajectory, how the training systems evolved, how real estate selection evolved, how supply chain evolved. So there was a great deal of learning and there's a great deal of those learnings in Choolaah today.
Watson: Absolutely. We took a tour before we started this interview and the meticulousness in which the restaurant has been designed and the small notes that are specific to this location. And I'm sure, just as assuming, having spoken a little bit are replicated in the other locations speaks to not only the size of the investment that you're making here and how big of a bet you're placing, but also the just passion that you must have for this concept specifically. And that's something I kind of wanted to piece of part a little bit more when I spoke to a few people about coming here for this interview, fast, casual Indian is not a phrase that many, if any people have heard put together before. So this is kind of charting new water in many ways.
Talk to me a little bit about maybe just where the inspiration for this came from and what challenges come along with this new concept?
Sankar: So right from the beginning, we knew that we were not taking the easy route erode, even when it came to fast casual. We could have gone with the standard model that you see in many concepts in fast casual, where there is an assembly line approach.
We decided to cook in tandoors right in front of you. And, uh, give you a meal with premium quality ingredients and do that in five to seven minutes at a price point that you can bring your family for four and eat under 40 bucks. All of that is something that we wanted, right from the beginning.
That was our dream, and having your meal be an experience. Not just something that you ate really good. And you have had many tasting meals everywhere, but if you saw your chicken come right out of the tandoor or the naan that you saw come right out out of the tandoor, it's an experience. It's not just having a meal anymore.
And so we set out to create joyful experiences. That was one thing that was in the back of our minds, that this is something that we want to bring joy. How do you do that? So everything in our restaurant has that whimsical aspect to it. You mentioned the little notes. There is a lot of discovery to be made, even your hand washing station, right?
And kids love it. And adult kids love it. So those little details come from having that singular mission. And that we're going to create joy.
Watson: When you're creating something new like this, so, just the nature of the location that you have, the design that's gone into it. There is a substantial investment being made, and this is the fifth location for Choolaah.
If you could take us back to the first location, and even before that was opened, the experimentation phase, where despite the lessons that you've learned from the Five Guys network, you're still kind of, figuring out what works and what doesn't. What was that process like? What are some lessons you learned along the way or mistakes that were made as you were figuring out the content?
Sankar: Well, one of the interesting aspects of being a franchisee is that you have a lot of things figured out for you. The menu is figured out for you. Supply chain is figured out for you. For most part training systems are figured out for you and you choose a real estate, you find the people, and then you figure out how to augment the existing processes. In Choolaah, we were sort of the franchisee and the franchisor melded together. So we had a huge run, having a lot of fun during the R and D phase. 2011 is when we actually finalized our current mission, vision and values. And we started there and then we said our vision is to transform the quality of lives of everyone we touch.
And it sounds really good big, right? You're like, what are you thinking? Who are you to even think that's possible? So, we said okay. We are going to do this through a very smart business that can keep giving. Right. That was one of the things that we wanted to do that was based on excellence.
So one of the things we did is, we are huge fans of, you know, Maslow's Hierarchy and finding peak performance technologies. That's one aspect. The second element, that's individual human being. How do we elevate people, including ourselves? Starting with us, to be at our best. That's always been something that we are still on a journey on.
And then the second aspect was how do you get business to peak performance? So there is this wonderful framework called the Malcolm Baldrige framework.
Watson: I'm not familiar, educate me.
Sankar: So the Malcolm Baldrige award is a national quality award in the United States. It's given every year by the president of the United States to a handful of deserving businesses.
There must be about 100-110 that have won to date since 1986. And, you know, they include Disney. Ritz-Carlton, and only two restaurant companies have won that award today. And so we love that, we're big fans of excellence. And we've been on that journey on how could we create that utopian place.
Right. So we applied the framework to Choolaah even before we actually did anything. So we wrote an organizational profile. What would Choolaah look like? And the award winners have actually an extraordinary story to tell. They have history of being hugely successful in customer engagement, and sales growth, and, team member engagement.
It's almost another world. It's effortless and easy, and you're doing great things and that's essentially great processes, yielding great results. If you will. That's what the Malcolm Baldrige is about. So we got ourselves a coach, andI'll talk about coach more. In any any endeavor that I've found, coaching is a huge element of it. Learning from people who have walked the path before and know how to tweak what needs to be tweaked. So we were very lucky to have a coach who actually took several of these companies to win the Baldrige. And he's still our coach today. And we started on this journey in 2012.
And so Choolaah was built with that framework in mind. We also had an amazing team that we started assembling. My business partners, Randhir and Simran, Simran as the architect of the food, and Randhir is my co CEO. They moved with their two young daughters to India for two years to soak in what's current and also what was in the past, the history, historical, traditional, way of eating.
And they traveled all around the world. We all traveled to London and Asia. So with all of that, as a background, and then having test kitchens in India, test kitchens in the United States, that's how, um, Choolaah was born. It was a huge labor of love, figuring out what works, what doesn't, what's contemporary.
So having that kind of research behind it helped us figure out what the food should be. And we were so lucky that when we came here and we actually opened Choolaah in Cleveland. The one thing that I was most worried about is the food delivery system. Because when you do a new concept, that's what you worry about the most is everything coming together. Will the food show up the way it needs to be?
And that was a huge surprise. It fit right from day one. It was amazing. We tweaked it along the way, but it fit. That was not what was going to go down. The challenge was education, teaching people mainstream, what is all of this and how do you make it relatable? Right? So having that perfect storm of approachable, authentic, affordable, and that's essentially what was the biggest challenge for us.
Watson: I'm curious from that orientation around processes, how that gets perhaps more difficult with this menu? Because it is more substantial than the Five Guys menu. Five Guys, it's one or two patties, it's bacon or no bacon, it's cheese or no cheese and a couple of veggies. Do you want fries with that?
This is more complex, and even just the history of Indian cuisine involves a lot of different spices. So I'm curious, you spoke to their residency in India contributing to that education process. But, is there any other lessons or maybe philosophies that you carry when it comes to maintaining that culture of Indian food?
Sankar: So, for us, one of the things that we wanted was food that you would eat every day. That was very important to us, not the kind that you would just maybe go once a week or once a month, but food that is good for you and you can eat every day. So there's a lot of principles of healthy eating and traditional principles.
And, you know, that kind of baked into how we prepare the food. And then how do you get fresh, you know, tandoori food right in front of you made in front of you, right? So some of the challenges where supply chain, right? It's not necessarily that easy to get a clean supply chain, when you're especially importing products.
We have spices that come from India. So we worked very hard on the food safety aspect and making sure we have clean labels and clean ingredients. So we could replicate that over and over again. Our mango comes from a farm that is six generations old. And it's, you know, packed right at it's peak season. And that's how it comes to us. I wish I had some mango lassi to share with you today.
Watson: You keep making me hungrier! I can't handle it.
Sankar: So supply chain is when you, especially when you're getting importing food, especially spices. And then we also looked at spice mixes. It was really hard for us to trust the source, in the instance. So we make our own spice blends and we actually have our own production facility in Cleveland that actually makes our spice blends.
So that's the kind of level that we had to go to, to ensure that we would have the product that we could serve our guests.
Watson: It seems like there's also a challenge of this could potentially be making the in cuisine accessible to some people who otherwise haven't tried it. So there seems like there's also an education process of the customer in addition to the other education that you spoke of.
Sankar: Yes. And if you walk around our stores, you'll find Choolaah heads, those are paintings. We want Choolaah for everyone. We want it for people who have Ratatouille moments because they grew up on Indian food. And then we also want it for someone who said, 'Oh my God, I'd never tried it.' Or, 'what is it?'
There's a lot of inquisitiveness. And then there are people who say, well, it's too spicy. So I can't handle it. Well, that's not necessarily true. Indian food is about flavors. It's not about just fire. So that's a big element, a big differential. So we use 45 spices and we grind our own spice blends from those spices.
And it's about whole pallet richer flavors. And if you want really spicy, like as in heat Spicy. We have wonderful sauces that we have custom created that goes very well with our meals. So we learned all of those as we were building this as, how can we make it approachable? And when I eat every day, I want that to be something that is very flavorful and it's good for my stomach, right?
Watson: Yeah.
Sankar: It shouldn't necessarily just be burning you up or you feel like you couldn't sleep. But what if it was healthy for you and what if it was just delicious at the same time? And that's what we feel we have been able to achieve.
Watson: That's awesome. I'm sure you mix it up, but do you have like a go-to meal or like a favorite thing on the menu?
Sankar: So we have, based on what your preference is, if you're a vegan, vegetarian, or gluten-free, we have tons of options for special dietary preferences. Our main, most popular item is our chicken tikka masala bowl, which is very common. Right.
And we have biryani that people look at it and go, what is that? Because it looks like a pie, a pot pie. But it's actually a rice pie. We make a dum style, and it's typically served in India in, you know, many fine dining restaurants like that. It's covered with dough because it puts the steam inside, it pulls the steam inside and infuses rice and Curry with amazing flavors.
We've been able to personalize it for you. And, you know, offer that app. That's one of my favorite dishes.
Watson: Well, I am sufficiently hungry. And I have just a couple more questions. As it relates to, give an example of this show,I'm always fascinated by what people's metrics of success are.
So the kind of standard answer that you would give to the podcast is how many downloads is it getting? Because it's just kind of this raw number, the same way a business could be well, how much money are you making? But I sense with you that as much as maybe the numbers are a metric of success, you know, for me a time, an interview, someone I'm interviewing compliments, my questions.
Or a time that a listener compliments that, Hey, you've gotten better. I've been listening for however many episodes. That means the world to me. Is there a untraditional or a couple of untraditional metrics of success that you have your eye out for?
Sankar: Absolutely. So when it comes to guests listening we are technology geeks. Always have been.
And so we worked very hard on guests listening systems. We did a ton of benchmarking, which is part of what Baldrige taught us is you do a ton of benchmarking. People who have been successful with something before studying their patterns and then absorbing it. So we did a ton of benchmarking on guests listening, and we have put technology in place that allows us to get feedback on what are guests saying about us?
For example, if you were to come in, every receipt will have a survey. And we'll give you a little gift. If you fill it within 48 hours, the next time you come in a treat on us.
Watson: And how well did those work? Because I feel like I get a lot of those and I don't think I do a lot of them.
Sankar: In our case, I think there's two elements to it. One is how it is presented to you? First of all, right over there. And then how engaged were you with this whole experience that you want to actually talk about it? And usually you talk about it when something is really awful, most people do, right? And then there are people who've had a raving experience and they want to talk about it.
So what we get is about roughly 50 to 70 surveys a week per store. And that's just one element of it. And we capture key business drivers that we look for, like our accuracy scores, our delight scores, overall delight scores. We look at recommend, likely to recommend, likely to refer a friend and come back.
Those are things and then obviously quality and hospitality and speed of service. So we look at those metrics like a Hawk. We actually had some amazing stories, Aaron. When we first opened in Cleveland, we used to have this funky little barbecue presentation. We had this beautiful leaf underneath, and then we had these garnishes pickled onions and stuff like that.
And then we would have the barbecue, or we got creamed on our value scores. And we're like, what is going on? This food is so amazing. And why are they criminals on this particular format that we had the barbecue meal? And then we realized that, Oh, when we got the feedback through the surveys, it was like, just give us rice. We don't think garnish is food.
Watson: Wow.
Sankar: We would spend more money on garnishes, and spend a lot of time creating them. So we put our beautiful basmati rice underneath. Guess what shot up? That's what people love. So what is the customer want? I guess that's the biggest thing. What is our guests want is something that we listened to very carefully.
We actually had a Choolaah 2.0 revision to our menu last year, which is hugely successful. That came from guest listening.
Watson: What were some of the changes associated with that?
Sankar: Yeah, so we actually amped up our baryani. It was always good. People loved it, but we wanted it to be 11 on 10. And so, we amped up and that just, you can tell by how well it was received.
We also added a few things. Like we created our own Choolaah salad. It has roasted cauliflower, our homemade Naan chips. It has the perfect balance of flavors. We actually added a street snack called Pav Bhaji. It's like a sloppy Joe for vegetarians, hugely popular. And what's fun is being able to introduce it to someone who has never had it before, and they get addicted. It's very cravable.
Watson: Awesome. Well, I think we're going to have to include like pictures of the menu or something so people can check it out. But, when does this location open?
Sankar: January 26th, 2018. We actually are just in the process of starting to interview, we will be hiring and then we'll be training. We can't wait for Pittsburgh to experience Choolaah.
Watson: Awesome. And where are the other destinations? Cause we have listeners outside of Pennsylvania.
So we have one in Cleveland, on the East side in Orange Village, Beachwood area. We have one in Fairfax,
Sankar: Virginia, one in Sterling, Virginia, and one in King of Prussia.
Watson: Awesome. Well, hope people check it out. If they want to follow along digitally, I'm sure you have some awesome pictures of the food out. Where can we point people to in the digital world?
Sankar: So Choolaah.com is a great place for people to go to. And if you're on Facebook, the handle Choolaah Yum is a great place to go to as well.
Watson: We're going to link that in the show notes, goingdeepwithaaron.com/podcast is the place to find it for this and every episode of the show. But as we do, Raji, at the end of each episode, I like to give my guests the mic one final time to issue an actionable personal challenge for the audience.
Sankar: So I would say if you really want something, get yourself, a coach in that area. I wanted to, when we looked at the Baldrige, we realized you can read a lot. But if you can figure out a way and the coach doesn't have to be an expensive coach, it could be somebody in your network, somebody who already does this really well. And that's one thing that we have used, whether it was for health, whether it was for the Baldrige situation or even for meditation. Those are things that I've found are very helpful.
Watson: I like that. I want to maybe just go a little bit deeper on that though, because I'm not sure if you're aware, but there is a phenomenon with millennials of life coaches that are like 23, 24, 25 years old, and they haven't necessarily experienced all the life yet.
So I would warn people of kind of that phenomenon, but I'm curious as you have gone about identifying the coach that you want to work with, what do you look for when identifying someone who could be a great mentor for you?
Sankar: So I look at what have they accomplished in the area that I'm looking to accomplish?
For example, when we were looking at The Baldrige. This gentleman has taken seven companies to win the Baldrige, including Ritz-Carlton twice. And the two restaurant companies that have ever won the Baldrige. So that made sense. Right. And then looking at his history and the work that he does.
And with anybody, you have to do some pilot sessions or test sessions before, you know this is the right thing for you. But I, what I love is the cheerleading that we get. And then when we fall off course. We are human beings. Yeah, right. Being disciplined all the time is not easy in anything that you do.
And so having someone say, 'Hey, what about if you tried that?' Because they have done 200 different things that they have seen so many things go wrong. And being able to be there to catch you and you need caught.
Watson: Well, fantastic. I hope that people will internalize that and use that framework when they're looking for their mentors and coaches.
Thank you so much for coming to my podcast.
Sankar: Thank you so much, Aaron. It's been a wonderful delight.
Watson: We just went deep, and I am hungry for some Choolaah. Hop everyone out there has a fantastic day.

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