This episode is the first in a three-part series we are running on Chenmark, one of the most well-known and studied holding companies in the entrepreneurship through acquisition world. And for good reason! Since its founding in 2015 they have acquired 11 operating companies, completed 30+ acquisitions when including add-ons, and has over 600 employees today.
This series is not meant to be a one-stop-shop for everything Chenmark. The Higgins’ have appeared on Invest Like the Best, there is a fantastic case study by A.J. Wasserstein about them, and they share their thoughts every week through their Weekly Thoughts newsletter, which is one of my favorites. Instead, this series is meant to dive into topic gaps, where I am most personally curious, and areas of change for Chenmark.
For this first episode, we cover the risk/reward of their path early on, founding ideals, and various pivots and challenges in starting Chenmark. The second episode focuses on their operating ethos, culture, and incentive structures. The third and final episode takes a deep dive on their CEO recruiting function and what has to happen to keep Chenmark on their growth trajectory. I hope you enjoy the series, please enjoy this first episode with Trish Higgins and Palmer Higgins.
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Hood & Strong, LLP — Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. Hood & Strong is highly skilled in working with search funds, providing quality of earnings and due diligence services during the search, along with assurance and tax services post-acquisition. They offer a unique way to approach acquisition diligence and manage costs effectively. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at [email protected].
Oberle Risk Strategies– Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and employee benefits programs. Over the past decade, August Felker and his team have engaged with hundreds of searchers to provide due diligence and ultimately place the most competitive insurance program at closing. Given August’s experience as a searcher himself, he and his team understand all that goes into buying a business and pride themselves on making the insurance portion of closing seamless and hassle-free.
(5:11) – How did you come up with the core values for Chenmark?
(12:58) – Has establishing these values made it easier to communicate change?
(14:06) – How did you each consider pursuing the path of SMB?
(20:57) – How has your thinking evolved since running Chenmark?
(22:09) – Have you found that having competition encourages you that you can build something really successful in this industry?
(24:45) – What skills translated over best from Finance to SMB?
(28:07) – How did your prioritization of tasks change when you made this jump?
(33:00) – What are some ways you make health a priority?
(42:01) – What were some process improvements you made in your first 3 acquisitions?
(46:39) – What have been some helpful tools for evaluating CEOs?
(49:22) – How does performance factor into evaluations?
(51:05) – In the Search world, what changes have you observed the most strongly over the past few years?
(54:42) – Are you enjoying yourself?
(57:26) – What do you like and dislike about your roles?
Alex Bridgeman: I think one of the fun things about studying Chenmark has been your like consistent focus on a core set of values. One of my favorites perhaps is like keeping score and focusing on KPIs, and, Palmer, we worked on an article for the handbook focusing on KPIs, which was really fun. Can you walk us through the core values for Chenmark and maybe how you came up with each of them? Like, what was the set of origin ideas for each value that led to those being the set of values?
Trish Higgins: Sure. Well, I think first, it probably makes sense just to think about why we felt we needed to have core values. So, when we first started, we sort of had this idea of multiple different companies, cash flow generation, invest the cash flow, long term hold, those were all sort of things that we had very early on pretty firmly set upon. The best way to build a Holdco is to first buy a business. We did that. And a couple of years later, we realized we sort of had a loose collection of businesses with no sort of underlying sort of values across all the different businesses, and there were a couple of things that they just didn’t feel like they were going right. We kind of felt like we were grinding our gears a lot with sort of some concepts that we felt like were core to Chenmark and were core to just who we are. But we didn’t really feel like we had a way to express that in the companies and hold people accountable to those sorts of beliefs that we had. And so I give James a lot of credit on this because he sort of said instead of sort of being reactive to individual things that we felt weren’t necessarily the way that we wanted people to be acting, like an example would be if somebody was doing some sort of short term focused thing, how do we- we could react to that, but we’re reacting against a specific thing. We’re not necessarily creating thinking in a sort of systems approach to say, what are our values and why do we sort of just have this knee jerk reaction to that person’s doing something that’s offensive to those values? So, a couple years into Chenmark, we spent a fair amount of time trying to define like what are our values? And then so that we could then have something to hold people accountable to those values. And so, we have four core values, which maybe that’s too many, maybe it’s not enough. I don’t know. But it is: chase better, play the long game, put the team first, and keep score. It depends on who you talk to you what order those should be. And I think of them as all pretty much equal, although chase better is the one that we refer to the most. And I’ll pause there and let Palmer talk a little bit about each of those values and kind of where they came from, so I don’t spend all my time talking.
Palmer Higgins: Yeah, I mean, I’ll just say, I think the values are pretty obvious. The goal of them is to be sort of short and punchy and sort of self descriptive. But I think the goal given our focus of being very decentralized was to have values that all of our operating companies could embrace while still embracing their own unique values. So if you were to ask any of our operating companies what their core values are, none of them would say Chenmark core values. But ideally, they all operate in sort of a framework or, to Trish’s point, a systems thinking that is congruent with Chenmark values. And so the goal is we have a mindset that we all adopt as part of Chenmark. But every operating company is inherently unique on their own and the CEOs and their management teams and their teams are encouraged to foster their own culture with their own core values.
Alex Bridgeman: Yeah, within the kind of core values for other companies, what sort of trial and error did you have with organizations where like maybe you thought of one core value that could be interesting, but it turns out, that doesn’t really work with a number of other companies, and so it either gets scrapped or turned into something else? What kind of experimentation was there with values or coming up with the right set?
Palmer Higgins: I don’t think there really was much experimenting, to be honest with you. I think it was just articulating ways that we already thought and felt and acted or at least wanted to act and just try and articulate it and put some shared language around it, so we could all reference it, we could all reference those phrases. And we all kind of, once we established that language, we can all reference it and then we all know what we’re talking about in a little bit more detail than maybe those short phrases might otherwise convey. So there wasn’t a ton of, I don’t think there’s really any trial and error other than trying to create a few, I think, I don’t think force too much, but trying to create a few core values that could embody a mindset and approach to small business ownership and small business operations that we’ve wanted to convey while providing plenty of room for companies to sort of make it their own.
Trish Higgins: I think that it was helpful for us to have put the core values together. After a couple of years of operations. I think if we had created them when we first started, which I think there’s a temptation to do, I think they would have been different, and they would have been a bit more hollow. Because these ones are a reflection of our lived experience and sort of things that we really, truly believe are important and a reflection of us and our experience. So, I think that was very important. And I think that the one where we’ve had the most tension, especially in the early days was the keep score. Because we think about your performance at any particular time is just a snapshot of that moment. And we always believe you can get better. So even if it’s bad, it’s important to know that you’re not doing well and seeing how you can improve over time. And we sort of have always felt that is an obvious thing. I think coming from more of a traditional finance background, there’s so much focus on data and performance and results. And that can be very different in a small business setting. And one thing that we came into our roles sort of wanting to do is especially implement systems that could allow us to track things. And most businesses that we work with don’t have formal systems in place, or if they do, they may not be sort of optimized for really great data collection and performance. And in the early days, we felt like we were sort of imposing these systems on companies where there wasn’t necessarily buy in, and there was definitely a lot of friction where we’re sort of like, well, Chenmark wants this new ERP system. And we were trying to communicate that we thought that this would be a good thing for the business so that we could collect data and know how we were doing and improve and all that sort of stuff. And one thing, that said along here, sort of being successful on purpose instead of successful by accident. And I think that that one core value of keeping score has helped us communicate why it’s important for us to spend a lot of time and resources implementing systems and keeping track of data. Because without that, you cannot keep score. And so that’s one value that has allowed us to communicate more broadly some of the initiatives that we encourage our companies to do. And without that sort of underpinning core value to a lot of that work, it can be sort of, it can seem meaningless, and it can seem more just like somebody’s being asked to do a lot of work that they don’t want to do.
Alex Bridgeman: Yeah, have your core values generally been helpful in giving your teams a set of values to focus on such that when you do communicate changes or things that could make companies better, it’s easier to communicate those changes because you’ve already established a core set of things that we care about? Or has it fluctuated team to team? Like some teams, it’s easier to align than others, or maybe over time, it gets better perhaps?
Trish Higgins: I think it depends a lot on the company. Honestly, we don’t really, to Palmer’s point, most people in our operating business have no clue what our core values are. This is really more something we talk about with just our leadership team, and it’s something that underpins a lot of the work that’s going on in the business. But we’re not really that interested in coming into a company and saying these are your core values now. We really more use it as a way to have guiding principles for us as well as our CEOs to use as sort of frameworks to then create their own company’s values and systems within their businesses.
Alex Bridgeman: Yeah, that makes sense. Moving from the finance careers you all had, there’s I think one kind of question I’ve had for a while, and I was chatting with a friend about this last night, a kind of risk reward question for each path. And of course, there’s tons of other variables within path, like independence or autonomy, that kind of control your destiny in many ways. But when you’re thinking through continuing in finance, where you had both, all three of you had promising careers ahead of you in finance, but what other factors beyond just independence or the desire to be in small business came as part of that thinking on which path you were going to pursue?
Palmer Higgins: Yeah, my case was a little bit different. I’d already left finance, and I was doing the startup thing and didn’t really see long term it working out for me in that position in that company, and so I was already sort of looking for the next thing. But even if I was in finance, I probably would have answered it the same way. Whether or not I would have made the leap is hard to necessarily say. But I’d say like I personally didn’t do like a very thoughtful risk reward analysis. I was interested in working with James and Trish. I was interested in the opportunity. I was comfortable betting on myself and us betting on each other and was willing to take on sort of the, quote unquote, risk, which at the time didn’t feel like as much of a risk because I was much younger, still pretty young and didn’t have a ton of responsibility, relatively speaking, in terms of mortgage or kids or anything like that. And so it just seemed like a why not, and why not now, and why not us? And I think looking back, I think I’ve even said it on your podcast before, Alex, that I would have learned and purely in hindsight, didn’t know ahead of time, that I think I was probably more comfortable than most with delayed gratification and a willingness to bet on ourselves. Which at the time, I don’t think I really appreciated. It just sort of felt second nature to me.
Trish Higgins: Yeah, I think I was working in the hedge fund space. And particularly with a lot of- had exposure to a lot of startup hedge funds. So, I think I realized that, especially in the hedge fund space, my own lived experience is that it can be incredibly volatile. And you can hear these stories of these companies, these funds having amazing years and people getting huge payouts, which clearly happens. But you can also be up 30% on the year on December 2, and somebody makes a decision to make a big bet, and then you’re down. And you either don’t get paid, which is best case scenario, worst case scenario is your team gets cut, and somebody else gets brought in. And I just saw a lot of that happening too. And I just sort of realized, I felt that I was taking a lot more risk in that space than maybe it seemed like I was from the outside looking in. And if I was going to take that amount of seemingly arbitrary risk, I might as well get all the reward. And to Palmer’s point, if other people can start businesses and kind of do interesting things, like why couldn’t we do something similar. And I think I’ve really benefited from having exposure to some people in finance who had been the founders of very successful firms and could see sort of how they thought, as well as the fact that they’re just people, they’re not gods. And I figured that if we could just do something one one-hundredth of success that those people had had, that would still be like a really great life. So, I think that the notion that you’re working in finance and you’re not taking on risk is misguided. And I felt that I was actually taking on less risk by us going to do something ourselves and having control of what the outcomes were as well as getting all of the upside.
Alex Bridgeman: Yeah, well, to the point also of delayed gratification and capturing your own upside and taking control of your career more, I would imagine you could still do that similar to the hedge fund founders that you met throughout your work and have your own fund eventually. But that wouldn’t protect you from the volatility inherent in running a hedge fund. But did you weigh that thought? Like maybe in a couple years, you could have your own fund, and there, you’d reduce maybe some of the risk involved, but did the SMB still just appeal to you far more?
Trish Higgins: What’s interesting is that I have never had the level of interest in investing at that style to ever- to be successful on that path. Just, I don’t. There are some people who live and breathe it. And that is not me. And so just the idea of being more in operations and doing something in the small business space to me is just much more interesting than the idea of being in public market investing. That’s just me.
Palmer Higgins: Ditto. I distinctly remember, so this was before I made the decision with James and Trish to create Chenmark, but I distinctly remember looking at the portfolio managers on my floor when I was in New York, and hearing them say, if I’m right 51% of the time, I’m killing it. And if I can squeak out 50 basis points of alpha, I’m killing it. And we only looked at the S&P 500. That was the entire universe for my entire floor. And you knew every single person in the world was covering those companies. So you could look at the analyst coverage, and it was three pages long on Bloomberg. And I just remember that moment of this path that I’m on is designed to create- to turn me into a portfolio manager and they’re sort of like the gods on the floor. But do I really think I’m going to have an edge on the 300 other people that are exposed to the exact same information that I have and be comfortable that being right 51% of time and getting 50 basis points of alpha is going to be what separates me from the other incredibly smart people who are focusing on the exact same companies. I just knew that that wasn’t going to be me.
Alex Bridgeman: Yeah, makes a lot of sense the competition would be a part of it, like with any large hedge fund you’re competing with, like you said, the smartest people on the planet. And within a lot of the regional businesses that you own and operate, you’re competing with the smartest in a given county or state or city or what have you. You’ve talked about that before early on as being part of your thought process with let’s compete at a different game that we think we can win. Has that played out for the most part, or has that thinking evolved somewhat since starting so many years ago? Not so many years ago, maybe ten, seven years isn’t that long.
Palmer Higgins: I think it’s accurate. I think, honestly, the more impactful thing is twofold. One is it’s not a zero sum game, which traditional finance is often going to be – I win, you lose. If I win the trade, that means you lost the trade. Whereas in small business, it’s not a zero sum game. Your competitors can win as well as you can win. And then the other piece is you just have a lot more agency in the small business world than you do in investing. You’re not having an impact on an S&P 500 company or fortune 100 company. You’re not, nothing you say, you can write as many memos as you want. I’m sure some people will say no, I write open letters to the board, and that moves the markets, maybe there’s a few people in the world who would qualify for that category. But otherwise, there’s no agency. And I think those two parts are, I think, more impactful than the scope of the competition.
Alex Bridgeman: That’s an interesting point about competition too where maybe it’s not- like with it not being zero sum. One thing I’ve chatted with a few media folks about is, if you’re going to run a media business in a certain space, you don’t necessarily want to be the only one there. Because if you’re the only one, then sponsors for that media landscape, that industry probably aren’t used to paying for sponsorships. So it’s going to be a bit more difficult. Whereas kind of these well trodden areas in media coverage are in many ways easier to start a business because you have an existing kind of base of customers and sponsors who are used to paying for the industry’s media. Have you found that to be somewhat true for many of the areas that you operate in where having competition and knowing that there’s competitors out there who are large and successful encourages you to some degree, knowing that it’s possible to build a successful business in this area?
Trish Higgins: Honestly, I haven’t really thought much about that. I mean, for Chenmark, I feel like we spent more time just thinking about like what are the things that we’re trying to achieve and how do we want to do it over the long term, not necessarily like there’s this other company out there that we want to be like. And on an operational level, yeah, I mean, having some other people in the market is good, especially if we have more scale and can point to those people as a differentiate- that we are differentiated. So an example of that would be in landscaping, if we’re the largest in a certain market and have the ability to handle large properties, it can be good, I suppose, if there are some other people out there who might fail doing those sorts of things. But otherwise, honestly, it’s not really something we think much about.
Palmer Higgins: I think what you’re talking about is more like proving product market fit because we’re looking at long tenured businesses that’s sort of already been established. So, I’d love myself a cornered resource. We talk about bait and tackle shops regularly; we’ve done it on your podcast as well. So finding those opportunities where there is no competition, but you have sort of a cornered resource or you have an edge of some sort but maybe not super scalable, those are very interesting businesses for us. But we also are in highly competitive industries as well where differentiation is going to be oftentimes around the basics of core business fundamentals. Are you responsive? Are you professional? Are you reliable? Are you communicative? Are you easy to work with? Stuff like that that isn’t rocket science. What we say is it’s simple but it’s not easy.
Alex Bridgeman: And from those finance careers and, Palmer, your operation focused career, what skills do you think transferred over the smoothest from finance to small business once you started to get going and then maybe what were some shortfalls that needed to get brought up fairly quickly? There’s a lot of folks who are coming from finance careers into small business or search or what have you who have certain skills but are missing others. I’d be curious what your experiences were.
Trish Higgins: I mean, there’s a lot. I think, I mean, there’s one in my job, it was sort of you had to research new ideas to be highly varied. But then having to distill them into essentially three bullet points of like this is the gist of what this is and then have an opinion on that as we should buy this or we should sell it is very, very valuable. Because in my role, having the ability to sort of take a lot of data, a lot of it imperfect, distill it down to a couple of key points and have a decision is a skill that we use all the time in a small business setting. And it’s something that I’m thankful I was able to kind of hone beforehand. The other thing that is just general to Wall Street is a work ethic I think that gets beaten into you as a junior person in finance. But I think it also is a great way to start your career, to understand that if you’re the first person in the office and the last person to leave, and you’re very responsive, and all of these certain things where the standards are very high, that that can serve you well for a long period of time because a lot of other parts of the world don’t work like that. And knowing how to- when to switch that on and when to switch that off and when that should be the standard and when it shouldn’t be, it’s certainly something we’ve kind of learned post Wall Street, but having that as our baseline I think is a very useful thing to learn as a young person.
Palmer Higgins: Yeah, I was going to say that exact same thing, synthesizing information. I was going to put a sort of a bent around communication, because oftentimes, if you can synthesize it for yourself, that’s great. That’s like a half, maybe a quarter, of the goal, especially if you’re in a leadership position, you have to be able to clearly and concisely communicate that to others so that you can then transfer your understanding to them in a streamlined way. In terms of what I probably was less prepared for, certainly, if you were to compare this to my finance time where my floor was very much not like the boiler room experience. It was a library. And most people spent their entire days with their headphones on. It wasn’t uncommon that you’d go grab lunch with a friend and realize you hadn’t spoken a single word since you got there in the morning. And so that was- like the learning curve there was the triage of just like all the stuff that can come at you on a given day as a CEO or as founding and running and trying to build Chenmark, just trying to zero in on what’s the most important thing that I need to deal with today that’s going to really push this ball forward. Because there’s a million things that are wrong, there’s a million and one things that can be done better. But what’s the one or two or three things that I really need to be focusing on, and the rest I just have to leave.
Alex Bridgeman: Yeah, the prioritization is pretty interesting. When you, like in finance, in your previous role, the role you had just before Chenmark, how did you prioritize tasks? And then did that change somewhat going to Chenmark?
Trish Higgins: Well, I think the big difference is that we weren’t bosses before. And so before, at least I was told what to do. And if I wasn’t sure, I asked, and somebody told me. And so the difference, and I remember this very clearly after we bought the first company, it’s like no one’s going to tell you to do anything. And so, what do you work on? How do you decide what to do? These are all things that seem very easy when you’re not the boss. And it’s very easy to criticize the boss for like I can’t believe they did this, or they haven’t gotten back to me on that thing I sent them, or you think every time they leave the office, they are like going on vacation or something like that. And then you realize when you’re on the other side of it, actually like, oh, no, that person was working all the time. And that person also was dealing with so many other things that I only saw a very small sliver of and I didn’t appreciate everything that was on their plate. And so, I never respected my bosses more than after I started Chenmark and I realized all the stuff they had to deal with. Because before, I just lived in this very like naive sort of sheltered world where somebody gave me something and I did it. And if I did it well, I got more things and they told me good job. And I mean, that’s a very easy, comfortable world to live in.
Alex Bridgeman: Palmer, anything to add for prioritization? I think the whole concept of like having to kind of create your job like your day to day and set of responsibilities instead of being given one, I think it’s a pretty interesting area and moving even just from like contributor to manager role, even if you’re not the CEO, like that starts to kind of creep in where more and more of your job is like less defined.
Palmer Higgins: Not really; I think Trish articulated it really well. And I’d say I’m probably still not the best at it. I’m not as organized as I probably should be about setting priorities. I try and do it sort of on a more running basis. Because my experience has been every time I’ve, it’s probably because I just don’t do a good job of it, but every time I’ve tried to think critically about what priority should be, situations then change and force cause me to have to reprioritize, so then I basically said, screw it. Why am I spending all this time trying to prioritize when stuff is changing all the time? So I just try to have a running list. And I think more thematically, like what themes am I trying to accomplish, and those change much less frequently, but how they manifest and the methods that I will be using to try and achieve that theme might change. But the theme overall, hopefully, is more. So I try and spend a lot more time trying to think like, alright, what are my big themes objectively or objectives to accomplish? And then what exactly I’m doing on a day to day basis or exactly how I’m accomplishing that might change depending on what’s happening day to day, week to week, month to month.
Trish Higgins: And I think, Palmer, I mean, I think you’ve articulated this really well previously, but just in starting the firm, we’ve all just had a focus on like where can I add the most value to Chenmark, full stop. Sometimes that is going to pick up lunch for the team. Sometimes that’s meeting with a business owner, interviewing an employee, or whatever. But in terms of prioritizations, it’s been, to Palmer’s point, big themes. I’d say, for me, at least it’s where can I add the most value to Chenmark, but then also, what do I need to do to make sure that I can continue to do that for a long period of time, which means taking care of myself so I don’t totally burn out. And as long as I’m doing those two things, then that’s good. And other things may fall by the wayside, or I’ll pick them up later. But that’s sort of my guiding principles for prioritization. And I have to give James a fair amount of credit, at least for me, early on in terms of blocking off time to go to the gym. That I think has been something we’ve done for years now and, for me, is a really good like mental release from the day and the stresses of the day and has been something that’s been really valuable in terms of defending our time and prioritizations. Because it’s not just the work prioritizations, it’s the life prioritizations and making sure that all of those are somewhat in balance most of the time, even though, obviously, sometimes they can’t be but trying to make sure that you have a framework, so probably 70-80% of the time, those things can be in balance.
Alex Bridgeman: Yeah. Can you talk more about those? There’s, beyond just exercise, I imagine there’s a bunch of ways to take care yourself and keep health as a priority, because I think it’s great to have a holding company with a long term vision. But if you don’t ever get to the long term, there’s not much point. Like you have to be able to survive and make it that far. What kinds of things do you do to make sure that health is a priority and that you’re still able to function and be as excited and energy and balanced while you work on Chenmark?
Trish Higgins: Yeah, I mean, I love my day to day, and if there was no financial reward at the end for Chenmark, I would be okay with that because I have a great life and being able to do a lot of interesting things, I get to do a lot of things that I like every day. I think the focus of prioritization becomes a lot more important once you have kids because you can’t really flex things as easily as you could. And so I think there’s a saying that’s like if you want something done, give it to a working mom because they’ll get it done. And I think there is some truth to that. That’s why like James’s mom always sends me like the to-do things because I just like, I don’t know, you’re just in a mode. Like when the time becomes constrained, it narrows, it sharpens the mind. Just like there’s that saying that like debt makes equity sweat, like kids make time prioritization much easier. And so, I think, for me, I found what works for me at least is when I’m doing something, I’m just focusing on doing that. So, if I’m home with the kids, I am not being good at work or mom, being a mom, if I’m trying to do both at the same time. So when I am at work, I’m 100% focused on work and trying to be very diligent and focused. And sometimes that might mean I’m not the most chit chatty at work or whatever because I am on task. But then when I go home, I turn my phone on to Do Not Disturb mode during bedtime routine, whatever, I don’t look at my phone, I’m focused on doing that. Then once the kids go to bed, which is usually around 7:30, then I log back on. And I focus on doing that until I’m done with whatever needs to be done. So, I found that the prioritization and the long term focus of it, for me, is compartmentalizing and focusing on doing one thing well at a time and then also just not beating myself up if something doesn’t get done. Then like there’s always more things to do. I will do it the next day or the next day, but not sort of holding myself to an unrealistic standard of being able- like my kids go to lunch with like crappy peanut butter and jelly sandwiches every day because I don’t have time to make like some weird bento box with like handwritten notes for my kids. So, I’m just like, that is something that like I cannot do that well. They will be fine with some goldfish and a PB&J for the next 10 years. And it just is what it is. My daughter also goes to school often without her hair combed because like not a priority, not going to worry about it. But then other things that are important, like my daughter needs a little extra help with reading and writing, like I will find time to spend 15 to 20 minutes every single day to go over that with her. Like that is important. So, just not beating myself up about things, not trying to be perfect in everything, letting some things go. But then like really focusing on things when I’m trying to do them. That’s at least what I try to do. I probably get it right like 70% of the time.
Alex Bridgeman: What about you, Palmer, any elaborate health routines for you to stay focused and sharp?
Palmer Higgins: Compared to James and Trish, I mean, they take health and wellness to a new level. Trish, do you still have your glucose monitor on you?
Trish Higgins: No, I took it off for the holidays. I didn’t want to feel bad about my lifestyle decisions.
Palmer Higgins: I mean, they take the like keep score to like a personal level as well. I also don’t have kids. So, I have a lot more flexibility in terms of being able to like let time expand a bit. My thing is I like to decompress at the end of the day and sort of like process. So I do kind of like the opposite of what James and Trish do, which is like they’ll work in chunks basically throughout the entire day. It’s not uncommon for them to be emailing me or anyone at like 10 o’clock at night right before they go to bed. Where for me, that’s fairly rare. Because I tend to like wake up, I go to work immediately, I stay at work for a long time, I do my work. And then like when I leave to go to the gym, then ideally my day is done. And if I’m working after that, that means that’s the 30% of time when things aren’t going to plan, and you got to flex a little bit. And then same thing, like try and take Saturday’s completely off and work a bit on Sundays. So if I’m working on Saturday, that’s the flex time to like didn’t want to do that necessarily. That’s not the goal. But sometimes it’s necessary. But I’m sure that in my not too distant future when kids are a reality that I will have to adopt more of a James and Trish approach to my time, hopefully with similar ability to sharpen my focus and my productivity.
Trish Higgins: I feel like I’ve had to have a mental recalibration of the definition of downtime. So, because it’s as family life gets busier, but also Chenmark has grown, so there’s more Chenmark responsibilities as well, so kind of everything compounds to be more and more and more and more, that I used to think, oh, I need, quote unquote, need, a certain amount of, quote unquote, downtime to recharge. And over time, I’ve had to change my definition and the story I’m telling myself about what I need to recharge. So now my recharge time is my gym time. Because like I don’t have any other free time. But for me, like that works. Our oldest is six years now, so it’s taken five to six years to get to that point. But I think a lot of it is what you’re sort of telling yourself about what you need in terms of downtime. And then, for me, the most important thing is staying physically active. Like that’s just really important to me. It makes me feel so much better. So prioritizing getting to the gym, and even if I can’t, like I’ll just take my phone calls walking around outside, like even when it’s freezing outside or raining or whatever. Like I come to work with my rain boots and my jacket on and I will walk around our office outside for an hour taking phone calls just so I get outside and get some fresh air and I’m doing something. For me, that makes a huge difference. And I also feel like if I just tell people like hey, you know what, I’m taking this call while walking around outside, most of the time, everyone is like cool, sounds good. So I feel like just not being shy about doing the things you need to do to take care of yourself. Where I think that when I worked, before I worked for myself for Chenmark, I was probably more hesitant to just do the things I needed to do because I felt like there’s somebody out there who might think that was a bad idea.
Alex Bridgeman: To your point of like having routines, I know personally, for me, that’s helped a lot. Like, if I run in a given day, the rest of that day goes so much better. And I feel my energy level feels more balanced throughout the day. How much iteration and improvements have you had since starting Chenmark until now? Like what have been some of the iterations of your health and wellness practices?
Trish Higgins: I’ve been pretty consistent, to be honest. James and I go to CrossFit almost every day. And then we just keep doing that. So, I haven’t really had a lot of big iterations. But I have a good friend of mine a long time ago told me like, you can have three things in your life at any given time. So right now, I’ve got Chenmark, family, and fitness. Those are like the three things I have. The nice thing about making sure I have fitness or working out is even if things are going terrible at Chenmark, somebody quit or something and my kids both have colds and being annoying, then like at least probably I’ll get a decent workout, or if my workout sucks and still something bad is happening at Chenmark, like maybe my kids are being awesome that day. So I view sort of how I set up my life as sort of a lot of the concepts of Chenmark applied to my life as just diversification and long term thinking. And if I have some diversification in my life, probably one thing’s going well at any given time, that’ll kind of give me the boost I need to focus on the things that aren’t going well. And just kind of focus on doing those things well every day, and over time, good things happen.
Alex Bridgeman: I want to transition just a little bit to some of your early acquisitions, like maybe the first three. Like if you think back to the original three companies you purchased, what were some process improvements you made at each acquisition? What do you feel like you got better at the most from one to three?
Palmer Higgins: What became very clear within those first three, I’ve said it a couple different ways a few times, is there’s no, especially when you come from an analyst finance background where your job is to sort of ask questions and then answer those questions, and you have reams of data to do so, there’s no end of very interesting questions that could be very illuminating and could yield incredible business results if you could find the answer or at least glean the answer. And you could then make better decisions. What we realized very quickly is the ability to have the data to even address those questions was severely hampered. And so phase one was just let’s figure out a way to get accurate, clean, hopefully as close to real time data, business intelligence of some variety, in a way that’s not so cost prohibitive that the value of the data is now neutralized. And that will allow CEOs who don’t have prior experience in those businesses to make good decisions. Because without that, you need 30 years of gut experience to be able to guide a company and sort of manage it, manage by feel. But when you don’t have that, and when you’re trying to cut the learning curve, you realize very quickly I need some frameworks on how to think about how things are going, I need to set up systems and KPIs not to necessarily track every minute thing, but to at least bring in some checks and balances and to throw up some red flags, so I know what I need to focus on because you can only focus on a few things. And for me, in the first three, it became very clear that in the world of small business, step one of acquiring a business, especially because we knew we were going to be owning them indefinitely and trying to optimize for long term free cash flow generation, is, hey, we need to make sure that this business is set up in a way that we can acquire good business intelligence, good data about our business in as close to real time as possible, so we can actually keep score and then we can put ourselves in a position to make good decisions.
Trish Higgins: And just, I mean, totally agree with everything Palmer said. And then, just the story I’d say of the first five years of Chemmark is just hammering home that the person who runs the business is the most important person at Chenmark. So, whoever’s in that CEO seat can have a tremendous impact on the business. It can either be a tremendously good impact or tremendously bad impact on the business. And it’s our responsibility to make sure that we’re picking the right people to be in the seat and then giving those people the support and resources they need to do a good job. And probably first one through three plus, we’ve had some wonderful people we partnered with in the first couple of acquisitions who are still with us who have done a tremendous job of leading their businesses through good opportunities, difficult times, all those things and I think are a true embodiment of Chenmark and Chenmark’s values, and we’re very proud and honored to be associated with those people. There are other people that did not do well within the Chenmark ecosystem and are no longer with us. And those experiences really helped us hone in, kind of going back to the core values discussion, hone in on what is important to us. And the people that are leading the business, what are the things they need to be able to do, as well as the standards they need to set from a behavioral standpoint, we learned a lot about that in our first couple acquisitions just through lived experience. And that’s why the GVP program for us is so important and why the people running our businesses, as I said previously, are just, they are Chenmark. If they do a good job and grow our businesses, Chenmark will thrive. And if they don’t, we will have to figure out a different thing to do. But they’re very, very important to us.
Alex Bridgeman: What have been some helpful tools for evaluating that initial and ongoing evaluation of your different CEOs? Like I imagine that GVP program is great because you get to know this person over months or maybe even years before they’re a CEO somewhere. But there’s only so much you can learn about the existing CEO or number two within a company within a diligence period. So how do you conduct that initial and then ongoing evaluation of a CEO?
Trish Higgins: We will only acquire a business where the CEO is retiring. And so that leaves two options. One is a second in command that can step up. That is honestly a subjective thing. It’s worked a couple of times for us previously. And so, something we would evaluate on a case by case basis, but the standard is very high. I think that the majority of, vast majority of new CEOs for us will be coming out of the GVP program over time. And that’s because we’ve had the ability to work with those people for a period of time in different settings, with lots of different people involved in the process to make sure that they’re ready for the role and that they basically embody our core values.
Palmer Higgins: Yeah, I think the only thing I’d add is the number two in command is a very rare thing in the sense that they have been read in into the totality of the business. It’s very common to find someone, oh, this is my number two person, this is my right hand person, and they’re heavily operationally focused. And then it doesn’t take that many questions to realize, hey, are they read into financials? Of course not. I would never show them how much money I make. Okay, well, so now there’s this whole world of budgeting, capital budgeting, asset allocation that you have sheltered them from, and they’re starting from ground zero. And so that’s going to be very hard for us to then bring them in to a CEO position right away and expect them to be at a certain level, sort of threshold level to be a true CEO. So, honestly, we have done it twice. It’s been very, very successful, gone great for us. I can’t- I’m not in search on a day to day basis anymore. But I can’t remember another situation where we’ve come across businesses where there’s been a true number two who has been read into not just the operation, the product or service that the business provides, but the entirety of the business, that’s sales, marketing, finance, HR, the whole thing. It’s quite rare in small business.
Alex Bridgeman: Yeah, makes a lot of sense. Within the performance, you talked earlier about performance and how there’s you need to be able to measure it, but like there’s, of course, lots of different forces acting on someone’s performance. How does performance come into your evaluation of a CEO? I imagine it is a big factor in terms of just maybe financial performance as one metric. But how do you fit performance into an overall evaluation for a CEO?
Palmer Higgins: It’s basically a fairly simple rubric of there are performance metrics. So those are sort of hard and objective, and there’s behaviors. And those are going to lean towards our core values. And so when we’re evaluating Chenmark people or CEOs, we’re evaluating them on those two dimensions. Are their behaviors in line with what we want them to be doing? And do they mesh with our core values and our expectations? And is the performance there? You certainly get to a level- both matter. But to your point of sometimes performance can be influenced by other things, yes, that’s true. But ultimately, you’re at a level where excuses don’t matter when you’re a CEO of a small business. And so you are reflection of your performance metrics. But again, those are snapshots in time. And because we’re long term oriented, we’re focused on playing the long game, we understand that that’s not necessarily your story forever. But it is your story for right now. And you can’t hide that.
Alex Bridgeman: One other, like beyond the- you mentioned you’re not in the search point anymore, or at least, Palmer, you’re not involved in the M&A process for Chenmark. But within the search world or just entrepreneurship through acquisition broadly, what changes do you feel like you’ve observed the most strongly since starting Chenmark? What’s become harder or easier? Or is the search world changing in ways that you didn’t expect or you think are pretty interesting? What are most notable changes you’ve seen over the last couple years?
Palmer Higgins: Last couple years, I mean, that was an easy one, for sure, is like the number of people that are interested in holdcos has gone from exactly zero to a lot more than zero, which I think is great. I’ve always told any searcher, any prospective searcher, anyone who’s interested in ETA that calls me or wants to talk, I always say my only single piece of advice is there’s no right way to play small business. And don’t let anyone tell you that there’s a right way and a wrong way. I distinctly remember people telling us that what we were doing was the wrong way. And now there’s whole conferences dedicated to holdcos, which in the span of seven years, which I think is kind of ironic. So that’s definitely one very easy change that I’ve seen.
Trish Higgins: There’s a lot more conferences. I mean, this space is getting more attention. I also think there’s a lot of people out there who’ve been doing stuff in this space, there just was no way to organize them previously. So, I think it’s great that there have been a lot of sort of efforts made to kind of bring people with sort of similar interests together, for them to share information and kind of have a community around it. So, I think that’s wonderful. I don’t really know the statistics of, I think there’s a lot more talk about ETA and search funds and attendance at the conferences and these sorts of things. How much of that translates into people actually doing searches and actually buying businesses, honestly, I haven’t read any of the studies, and I don’t really know. I do think that we have observed more people going to- more funding being available, and for the people who are in it, going to slightly higher deals with more growth prospects and higher multiples I think has become more of a thing over the past five years. Like SaaS businesses I feel like when we started weren’t really in the ETA search fund sort of radar, and now, that’s like the typical deal in the space. So I think there’s been sort of, as more investors come into the market, slightly different emphasis on different types of deals and things like that. But to Palmer’s point, the space is so big and so fragmented and so inefficient, that I think there’s probably a thousand different ways people could express themselves in this space and each be successful in their own way. What we’re doing is a reflection of what’s interesting to us. A deal that might be a good fit for us may not be a good fit for someone else, and vice versa. So, for us, it’s wonderful that there are more people interested in the space because it means it’s legitimizing the idea of being a small business CEO, and we’re recruiting for small business CEOs. And the more that that’s seen as a legitimate career path, the better for us and less of a sort of- people are taking a little bit less of a, perceived, again not real but perceived, career risk by doing something in the small business space, which I think is a great thing.
Alex Bridgeman: That’s a good point. And I want to dive into your GVP program in I think the third episode. It is going to be a lot of fun. But in this first one, what have I not asked you that I should be asking you?
Trish Higgins: I think what a lot of people don’t ask is whether we’re enjoying ourselves and whether we like our lives and whether we regret it at all or any of those things. Because as Palmer knows, the excel model that we built for Chenmark hasn’t changed since we started it. And it is, we are in execution mode, but we’ll be in execution mode for like the next 20 years. And along the way, people should also probably ask themselves and people like us whether they enjoy what they’re doing every day. And if you don’t like working with people in small business, everybody up and down the org chart, and you’re not excited by implementing the new ERP system and getting data on unit economics and figuring that out or figuring out how do we hire new people or adjust pay rates, or like can you believe that crazy thing that happened this morning when that person flipped out at me or whatever it might be, or in my case, having to step in to work in a parking lot for a big part of the summer and have people swear at me because I was charging them $20 for parking because that’s what was needed. Those are all things that we like to refer to as like we want texture in our lives and all sorts of interesting experiences and meeting with all different types of people. And we find that to be incredibly rewarding and deeply enriching experiences. And I think I mentioned previously that if the excel model is wrong, and there isn’t this pot of money that I earned because we have delayed gratification, and the flywheel doesn’t work, I’m having such a fun time with what we’re doing that like that would still be okay for me. And I think that if people get into this space just because of like the financial reward in the excel model, I think they’re in for a really tough road because you do have to be engaged in the work and I think you have to enjoy it for it to actually work for you. So I do think those two things go together. But most people don’t ask if we like our work. And I think that that’s a worthwhile question.
Alex Bridgeman: Yeah, I mean, it sounds like for the most part you do, but maybe, there’s- I’m sure there’s nuance too, like there’s some parts you enjoy and some you don’t. And maybe there’s ways to emphasize what you do like and deemphasize what you don’t. But yeah, what’s the more nuanced look at each of your roles and what you like and don’t like?
Palmer Higgins: Yeah, so I mean, no one’s going to love every single second of every single day. Like, there’s no way Trish enjoyed being in the parking lot, being the parking lot attendant. There’s no way I enjoy like getting reamed out by an employee, which happened this morning. So, there’s definitely parts of your day that you don’t like, but I think Trish said it perfectly, like you have to enjoy the journey. Because like it is the journey; there is really no end destination. And so on balance, do you like what you’re working towards knowing that not everything is going to feel awesome. And for me, I relate it to sports in college, like I didn’t really engage in the process of like training intently until I got to college and then sort of found a joy of training, which was really helpful to me getting a lot better. And I don’t know really what clicked, but I realized that you’re going to spend most of your time training and very little of your time actually competing. And in certain sports, the ratio is like super extreme. You go to James’s world in crew, and he’s racing for like six minutes at a time and he’s training for four hours a day. My ratio was slightly better than that. But if you don’t enjoy the training, even when you feel like you’re going to puke, even when you feel like you’re going to pass out, then you’re not going to, you’re not really going to compete well. And so trying to find a way to enjoy the training, enjoy the journey, enjoy the process of building a business, understanding that along the way, certain aspects of that might be pretty uncomfortable or pretty unappealing, then you’re not going to make it, you’re not going to be able to play the long game, to your point, Alex, about you have to make it through the long term in order to play the long game. So that’s what I try and focus on is those bad days, those bad moments, okay, on balance would I rather be doing something else? No, hell no.
Trish Higgins: I think one thing I’ve told myself is there’s something- I don’t know, I hate employee conflict things. Like I just really don’t enjoy that at all. And one thing I’ve always told myself is like the only thing worse than having to do this is not being able to do this. And so, like it sucks, but I get to do it, and that is rewarding. And so that’s the only thing that I remind myself of when I’m in those situations. Because in our world, I mean, Palmer knows, we deal with things we don’t want to deal with like very regularly. But you have to find some sort of reward or value or joy in those things, those hard things because that’s really what it’s all about.
Alex Bridgeman: Is it that kind of focus on the long term goal that’s helped you enjoy the lesser fun pieces of being a CEO? Are there other kind of tools or things that you’ve done over time where it helps kind of reframe your mind to enjoy tasks that are less fun to do?
Trish Higgins: I don’t know. James and Palmer, I feel like we have an ability to laugh about like the really crappy things and at least keep a light mood about hard things, which I think is helpful for me at least.
Palmer Higgins: Some of the crappy things, like they’re essential. If they weren’t essential, then you wouldn’t do them. So I put things through a filter of like, do I need to be doing this. Like whether you want to use the urgent, important framework or some other framework, like do I really need to be doing this? And the answer is like, yes, ultimately, I do have to be doing this thing that I’d rather not do. It’s pretty simple. If you don’t do it, all you’re doing is screwing yourself over, maybe screwing your future self over, and probably screwing James and Trish over as my partners. So, that’s not super appealing. So you kind of just got to suck it up and do it. So, that’d be one component. Another phrase that I repeat to myself all the time, which is a quote from a movie that I personally am not a huge fan of, but it just has stuck with me ever since, Vanilla Sky, like arguably not the best Tom Cruise movie at all. Top Gun is. But there’s a quote in that movie: The sweet isn’t as sweet without the sour. And I think that- I don’t know why, but it’s always stuck with me. And I repeat it to myself very, very regularly that those moments of doing crappy stuff or dealing with employee conflict, which I also don’t like dealing with. Like the wins, the times when an employee tells you, I’ve never felt like I had a career until I came to this place, or I’ve never felt more engaged in what I do professionally since coming here, and thank you for providing me that opportunity. Or thank you for doing this thing that really helped me and my family. That’s super rewarding and I’d say even more rewarding and more impactful having gone through some of the crappy things.
Alex Bridgeman: I’m not scientifically minded, but there’s the idea that we remember happy and joyous moments a lot better than pain and suffering moments from your past. Like the brain tends to deemphasize pain and emphasize like what went well or what was happy. I bet there’s a bit of that too, like knowing that the highs are high and that’ll keep you going and let you kind of deemphasize uncomfortable or awful moments probably helps a bit too over time.
Palmer Higgins: That’s great to know. That’s actually the opposite of like reward loss aversion. Isn’t that the classic psychological framework that you feel losses worse than you feel gains?
Alex Bridgeman: It could be. Yeah, maybe it’s flipped where looking forward, you’re afraid of losing something in the future. But if you have lost something, you maybe think about it less than- I don’t know.
Palmer Higgins: We’ve now turned everyone around on this podcast. We might want to cut that.
Alex Bridgeman: This is less of a constructive thought. But I thought I remembered seeing something about that. I’m fascinated by like how people interpret like loss or gains, like on both ends, like how does it affect your psychology or if you had a really rough quarter or a year and how does that impacts going forward into the future?
Trish Higgins: I think the nuance is you feel a loss more than you feel a gain, but you remember a gain more than you remember a loss. I think that’s the nuance. That’s why people like overreact when the stock market goes down a couple percent. But it’s also why people have morethanone child.
Palmer Higgins: Wise words. I’d say perspective also helps. You have, this will tie all the way back to the core values, playing the long game forces you to think in longer time horizons. So when you have a bad quarter or even a bad year, I’ve had them, and think back, okay, well, let’s put this bad year into perspective. Well, hell three years ago, I would have killed for this to be my bad year. And so, I’m not satisfied with a bad year. You sort of chew over the missed opportunities or the losses, but you have some perspective that well, alright, I’m in this for the long term. This year wasn’t the best year, but I’m working on problems or I’m solving things that I could only have dreamed of three years ago. So grand scheme of things, like could be a lot worse and focus on getting better tomorrow.
Alex Bridgeman: Yeah, that also sounds right. Well, we’ve got five minutes left. So we’ll cut here. But thank you both so much for taking part in this series. I’ve been excited about it for a while. So I’m glad we’re able to get to do it and you’re willing to share a little bit more. It’s a fun group to dive into more. So this has been fun. But yeah, thank you for sharing a little bit more.
Trish Higgins: Of course. Thanks for having us on.
Palmer Higgins: Thank you.
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