Launch Series Ep.7: Spirit of Search with Coley Andrews and Mitch Cohen Ep.194

Ravix Group — Ravix Group is the leading outsourced accounting, fractional CFO, advisory & orderly wind down, and HR consulting firm in Silicon Valley. Whether you are a startup, a mid-sized business, are ready to go public, or are a nonprofit, when it comes to finance, accounting and HR, Ravix will prepare you for the journey ahead. To learn more, please visit their website at https://ravixgroup.com/

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.

If you are under LOI, please reach out to August to learn more about how Oberle can help with insurance due diligence at oberle-risk.com. Or reach out to August directly at [email protected].

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(00:00:00) – Intro

(00:04:31) Why Mitch and Coley went into Search

(00:12:10) The impact of mentors

(00:16:35) Creating a culture of mentorship, patience and empathy

(00:30:14) Mentorship as a board member

(00:43:23) How the highest performing CEOs interact with their boards

(00:49:11) Most helpful questions to ask your board

(00:53:35) Board involvement in hiring decisionos

(00:58:08) Changes and challenges in the Search Fund industry

Alex Bridgeman: Well, this is the seventh and final episode of this year’s Launch Series. We started off with discussions on industry research and search startup and then working with investors and sellers and going through a deal process on the legal side, first 100 days, and now the final episode, the ultimate episode in this series with you both today, I’m really looking forward to a discussion on kind of the evolution of search funds, mentorship, investing, and all these other different topics we can dive into. I think a helpful place to start would be both of your personal interests in search. Why did you choose this space as something you wanted to build part of your career around? Mitch, perhaps we can start with you. And you’ve got a pretty unique background yourself. So, I’d love to dive into it for a little bit.

Mitch Cohen: Yeah, of course. And thank you, Alex, for allowing Coley and I to speak with you today. So, I came- I’m actually a little newer to the space than Coley is, and I’ve been involved in search fund investing for about 10 years now, after spending a little over 20 years as a partner in a large private equity firm. And so, when I retired from the firm, I’d always been familiar with search. Interestingly enough, Irv Grousbeck, who, as everybody would probably acknowledge, was one of the fathers, grandfathers, great grandfathers of the search fund space. I sat on two boards with Irv over time when I was a partner in a private equity firm. So, I knew Irv, I knew about search funds, and I also knew a lot of the participants in the space. I’d heard of Coley. Coley and I hadn’t spent time together, but I knew guys like Irv and the Asurion guys and Peter Kelly and Joe Niehaus and the Housatonic guys. And when I retired from my career in large-scale private equity, I said, wow, these are some pretty smart guys out there. If they’re spending time and they’re really interested in this space, there must be something there. And so, I was lucky enough, and I had a history with a group of guys, Trilogy guys up in Bellevue, I’d worked with them on a number of things before, and they were also interestingly enough having conversations with Coley and Jim about a number of search fund opportunities. I thought it would be really interesting, and so I jumped in with both feet. That was probably about 10 or 11 years ago. And I’ve been spending some serious time as an investor, board member, mentor in the search fund space since then.

Coley Andrews: Yeah, great. It’s great to be here, Alex. Thanks again for having both of us. So, I didn’t know anything about a search fund and never heard of it until I was fortunate to get to business school. And I remember I was telling somebody it’d be really cool if I could buy and run a company. And this guy was a year ahead of me in business school. He said, oh, you’ve got to go meet these two people that we’ve invested in and bought and ran a company, and they’re doing a great job. And that was my foray into the search fund world. I spent my summer interning for the two of them in Colorado Springs, Colorado, and came back to California saying this is the world I definitely want to be a part of. However, the origin story of Pacific Lake was very much a last minute audible. I was headed down the search fund path. I was going to buy and run my own company. My first investor was Jim Southern, who was the guy you went to talk to back in the day first to invest in your search. A couple of weeks later, he emailed me and said, have you finished raising your search fund? I said, no, what’s on your mind? He’s like, well, I have another idea. And that idea turned out to be what is now Pacific Lake. And he and Irv Grousbeck had been talking about when would be the right time to start a firm to solely focus on the search fund model. Jim’s track record was quite extensive as an operator and investor. And the model had been around long enough that we thought there was an opportunity to really build a firm focused on exclusively backing entrepreneurs and the companies that they acquire and ultimately run. So I pivoted at the last minute, right before graduation, to start with now Pacific Lake, and that was coming up on 15 years ago. And it’s been quite a great journey.

Alex Bridgeman: Coley, what brings you the most fulfillment from your work in search?

Coley Andrews: Yeah, it connects to the topic I’m sure we’ll get into a lot in this call, but it’s the opportunity to have impact. And it’s a lot of different places along the journey of a search fund entrepreneur where perhaps as an investor and an advisor, you have an opportunity to have a little bit of impact. And getting that feedback loop when someone does buy a company or someone doesn’t buy a company that they in hindsight are glad they didn’t buy, or someone gets into the CEO seat and said this is everything I ever dreamed of and more, and thank you for helping me to get here, and somebody says, man, this was like a really tough stretch, but I felt like you had my back through all of it, and I couldn’t have gotten here without you. Like, those are the moments and the letters and the e-mails and the pictures that have really stood out to me over the last 15 years. And to be able to have that impact is really special. And then couple that with the opportunity to build an organization of people focused on doing that on a day-to-day basis is a double whammy to the positive, to be able to have those two things. So, for me, that’s the most fulfilling part of being in this world. The impact that you can potentially have on entrepreneurs and the opportunity to build an organization and a team focused on doing that.

Alex Bridgeman: Mitch, how about you for fulfillment in search, does it come from similar things? I’d be curious also comparing to your days in private equity where the source of fulfillment has shifted, perhaps?

Mitch Cohen: Yeah, I would agree with Coley about impact and working with these entrepreneurs. And it’s an interesting thing. People look at us and say, how can you back these first-time entrepreneurs? They’ve never done it before. You’re entrusting them to run a business they’ve never run before, and they’ve never run it. And yes, it is a risk and it requires a huge amount of time, but it is energizing and it is actually really exciting to back people who have never done something before because they bring a new perspective to it. Now, oftentimes they come up with crazy ideas and board members and investors need to kind of hone them in and rein them in, but we don’t want to rein them in too much. And that is so exciting. And it’s, quite frankly, a very different approach than perhaps larger scale private equity where there’s a playbook. Yes, there is a playbook for how you set up a search and there’s a playbook for what you need to do maybe in your first 100 days as a new CEO. But to Coley’s point about impact, these searcher CEOs can have true impact. They can pull levers that have immediate response and immediate impact on the performance of the businesses. And having somebody come in wide-eyed, very optimistic to take over a company is just super, super energizing for all of us who are in this space. I would say that when you think about it compared to larger scale private equity, a couple of things. First is most large scale private equity investors don’t actually do the work. They hire third party consultants to come in and do the work. They hire Bain, they hire McKinsey to go in there and do the workforce optimization study or this or that. They’re spending a lot more time on capital structure and financial engineering and the like, not to say that they’re not involved in helping, quote, run the company, but I would say that we along with our entrepreneurs are really down in the weeds pulling levers to actually drive performance and outcomes, and that’s just super exciting.

Alex Bridgeman: Yeah, I agree. And it’s funny you talk about the excitement backing CEOs who haven’t done it before. It’s funny that you can back a CEO who hasn’t been a CEO before and it works out, whereas you probably wouldn’t do that with hiring a CTO or head of sales, or you would never hire a CFO who didn’t come from accounting or didn’t have a very strong understanding. Whereas with a CEO, we can find these people who are excited about running companies and they can often do very well. It’s an interesting dynamic. You both mentioned mentorship as being a really impactful place for fulfillment for you. I’d be curious, where have mentors had an impact on you? Where does that come from?

Coley Andrews: Well, it goes all the way back to Little League Baseball where I definitely remember my coach, Jim Johnson, who, for whatever reason, you always look back in life and there’s a few people that stand out. And Jim Johnson was definitely cheering for me to get my first home run as a 12-year-old more than anybody else, which I remember and really appreciated. Bring that to the present day, when I was starting Pacific Lake, I was fortunate to spend time with Jim Southern and Irv Grousbeck. And they have shaped, certainly, Pacific Lake. They have shaped me. They have shaped how I try to engage with entrepreneurs and Pacific Lake team members. And it’s been wonderful. It’s been a wonderful professional development opportunity for me. It’s been a personal development and growth experience for me, having two gentlemen like that in my corner. And that’s what makes I think the search fund model so great. There is a pay it forward, pass it down mentality that draws people into the community. And I certainly feel that fortunate to have had a lot of exposure to the two of them, and many others in the space, by the way, that have certainly shaped and influenced me as well, and the opportunity to pass that down, where an entrepreneur is interested in hearing, and that doesn’t mean that Mitch and I know everything, and it’s the end-all, be-all. It’s not that at all. It’s actually quite the opposite of that. It’s actually wanting to engage with the entrepreneur, seeking to understand, asking questions, getting their feedback, and having a two-way relationship on a dimension where the entrepreneur also values what we have to say and some of the experience that we can bring to bear and creatively trying to come up with solutions and new ideas. And in my experience now, when you do that first from a business relationship standpoint, there’s a wonderful opportunity for personal relationships to blossom out of that mentorship and connection. And that’s certainly the way I feel today with many age peers of mine now who did search funds and are successfully investing now alongside all of us. And we have great personal and professional relationships that are multidimensional. And I think that all stems from, one, the community that attracts people in that are seeking mentorship, either to receive it or to give it, but two, that are excited to be active participants in that multi-dimensional relationship with the next generation of entrepreneurs.

Mitch Cohen: Alex, I would, if I were a young person who was looking at search or searching or a search CEO now, I think you have to remember to reach out and ask for mentorship. You have a board, for example, that’s focused a lot on day-to-day stuff in your business, strategic stuff. But as Coley pointed out, a big part of mentorship is also the stuff outside of the office. It’s the personal stuff that you need help with. And you need to feel super comfortable because there’s- this is a community, and I want to go back a little bit, I’ll circle back to kind of why I’m so excited about this community and investing in search funds. This is a community that I have never seen with another community that is so generous with its time. And you will rarely get a situation where a younger person will ask an older person, would you mind having a cup of coffee with me and talking to me about your adventure or talking about how you deal with work-life balance, or how do you deal with those kinds of things. And I’m concerned that we tend to just focus on the details and KPIs and we focus on the next strategic plan and the budget and comp and this and that. And I would really encourage searchers and CEOs to leverage Coley, leverage Jim, leverage me, Aaron, Scott, the rest of us about what it’s like to be a leader, what it’s like to have a life outside of the office. All that stuff is just as important as catching your KPIs. But you need to ask. You need to ask and reach out and take advantage of those resources and those opportunities that are out there in the space.

Alex Bridgeman: So you’ve both built really interesting organizations, investing in search. How do you build an organization around mentorship? It’s such a key ingredient in search investing, but how do you create a culture of mentorship within your teams and bring on the right people and encourage the right activities and the right- taking that call? How do you build a team that has that focus, that shared desire?

Coley Andrews: Yeah, I can take a crack at that out of the gate. I think it starts absolutely number one with culture. There’s just no substitution for that. And culture starts with people. This is a different job. It takes a long time. It’s a lot of work. You’re connecting with a lot of different people out there. And those characteristics or ingredients, along with many more, I think screen a lot of people out from even being interested in being a part of this ecosystem. But what that leaves behind is a lot of interesting people that are drawn to all those ingredients. And that’s a big part of what we look for when we’re looking for new people to join the Pacific Lake team. Like they’ve got to have energy to want to learn and be intellectually curious, to engage and connect and be relationships focused. And a lot of people, that’s not what they want to do. They want to work, they want to crank, they want to analyze, they want to execute, and that’s great, and those people have lots of roles out there in the world where they’ll be very successful. I think to be a part of an organization like Pacific Lake or Trilogy or others out there that operates in this very unique ecosystem, you have to be excited about the intangibles of connecting with people, continuous learning and discovery, and a willingness to be on that perpetual education train yourself so that you can also then provide some of those lessons to the next generation of folks coming behind you. Because guess what, there are a lot of things that searchers need to learn every year as a new wave of them come out. There are a lot of mistakes that we all repeat. You are going to make different mistakes than I’m going to make and Mitch is going to make. But guess what, I think there are 15 or 20 of them, that everybody is going to make three or four of them. And if you can be excited about understanding that and learning that, then you can build a team and build infrastructure and build content that can organize and categorize and then disseminate that content to generations of entrepreneurs. But it all comes back to people that get excited about that process. And I think it’s a small sliver of folks, but just like in the search fund community, that self-selection actually creates a very powerful web of people that do want to be a part of it.

Mitch Cohen: I would add on a couple of skills that it’s just super important to have as part of the teams we’re all building – we have to have people who are good listeners. We have to have team members that are willing to listen and digest what the searchers and CEOs are saying, and you also need to have people who have empathy to be honest, who have the ability to put themselves in the shoes and the struggles that these searchers and CEOs are going though. And if they don’t have those skills, it’s going to be a really difficult time building those relationships as Coley talked about. You also just have to have people who have a passion to work with smaller businesses. It is a really different, and it was one of the transitions I had, and I know Coley spent time at Golden Gate, a large private equity firm as well, the issues and the challenges we deal with in these smaller businesses are very different than the challenges and issues that we share on these larger companies. And unless you have a willingness to roll up your sleeves and deal with stuff that many people would think of as mundane or immaterial, but they are very, very important for these small businesses, if you don’t have that interest or that willingness to do that, this is probably the wrong space for you to be involved either as a searcher or as an investor.

Coley Andrews: Mitch, I really like your use of the word empathy, and it triggered a story for me. So just the other day, we had a handful of recently acquired CEOs in our office, and I was chatting with a woman who’s a CEO who is about 14 months into being the CEO and she’s got a 13-month-old first child as well. And that is pretty unbelievable to have searched, buy a business, have a child, and move somewhere new in the country all within a six month period. And that is a huge tax to pull all those things off on this individual. And she was excited and there and all in, and I think it’s important for us to be able to see that, hey, this is a journey in life and there are a lot of things that are going on at this stage of life beyond just trying to get the job done. And I think that’s cool and it deepens the relationships and understanding what people have going on in their lives and an appreciation for that so that yes, things take time in our world professionally to develop, to learn, for the businesses to progress, and all that is occurring in parallel which is with usually a lot of family evolution and location changes that, by the way, when you’re in a different world of private equity or investing, you’re hiring someone in their 50s or their 60s or their late 40s, and they’re just in a totally different phase of life where it’s crank time for their job at that point. Well guess what, for the search fund entrepreneur, it’s crank time on their job, crank time on their family, crank time on getting their life set up. I mean, it’s a whole mosaic of activity going on, and if you’re excited about that, that’s great. But you have to have some empathy and some patience too because it’s a lot.

Mitch Cohen: And you also, just to add on, as investors, which Coley and I are and a whole group of people, you actually have to really appreciate how lonely a job this is for a searcher and a search CEO. In larger companies, they typically would have peers, they might have other things. And this can be a very lonely experience for someone even during the search phase. And these are typically people who have been surrounded in most of their lives by great, talented people whether it was in their business school class or whether it was where they worked before. And now they’re parachuted and thrown into the deep end of the pond, and oftentimes, it is very lonely, there’s not a lot of peers, etc. And if we as investors don’t appreciate that that’s what they’re going through, it makes it really challenging to help, and it makes it super, super challenging for those people as well.

Alex Bridgeman: Are there any points in time in the last ten years either of you can remember that felt like an inflection point for your own patience and empathy with searchers and first time CEOs?

Mitch Cohen: Coley, I see you’re nodding. We are on Zoom, guys, so we can see each other. Coley, you are nodding, so I’ll let you start.

Coley Andrews: There’s not any one point, that’s for sure. There are multiple points. I just gave the story of the appreciation for the family evolution that’s going on at the same time as buying a company. That’s very recent, but that’s happened many, many times over the course of search, my search experience. There’s another situation that comes to mind where there were two really talented CEOs who had bought their company and were running it, and they’re about three years in, and they were just kind of bored. The business was doing really well, and they were like hey, this is good, but it wasn’t on a trajectory to be great at that time. And we had conversations about should one of them split out and go do something else or what have you. And I remember thinking to myself, well that wasn’t the way we-  the deal, I thought it was all in on this, etc. And in hindsight, that was just immaturity on my part. It was a very reasonable position for them to take, which is hey, we’ve been working on this thing and it’s going well, but we think we can do more. We think we can do something bigger, more expansive. And that was a cool moment. And what we came to was they decided to stay in the business they were in, they doubled down, and they took the business from probably a solid 3 to 4x at that point and tripled it from that point forward over the next couple years. And it really gave me a profound appreciation for hey, listen to the conductor. The conductor’s got something going on, and our job is to listen and process and absorb and understand what the motivations are there. And what it was was we just want to be better, we want to do something different, we think we can do something more, and how do we find a way to do that. And it started as maybe we need to do something else. Well, where it got to was like no, actually we think we can do more here, and they did that and far exceeded expectations in that company, well above and beyond what anybody ever thought it would be. And that was a really good lesson for me on always have the ears open, always have the aperture open, and really seek to understand what’s going on behind the scenes. And if you do that, you can be a supportive and trusted partner and you can really encourage and support entrepreneurs to go follow where they think they need to go. And sometimes it might be a little different than what you thought out of the gate but trusting that instinct and that judgement after some good listening and Socratic investigation can be a really powerful combination.

Mitch Cohen: And Alex, I know we’re going to talk a little bit about how investors can be good directors, and so I’ll save a little for that. But to Coley’s point about listening, I mean, some of the- and I wouldn’t say there’s one big thing like the epiphany aha moment, but I’ll flip what Coley  said to another which is I realized in a couple situations where I probably  wasn’t listening well enough and I wasn’t taking the cues well enough to really feel that the CEO was struggling and really needed help and was afraid or hesitant to reach out and really have that conversation to say hey guys, I am struggling, I need help. And we probably let situations go on too long where we as investors or other people could have come in and helped. And so, we didn’t optimize those situations. And so, it made me appreciate that I have to- we as investors, directors have to pick up on signals. These searchers, the common theme among searchers is they are all super, super accomplished, and very few if any of them have had a lot of failures in their life. And it’s inevitable that they will fail at something once they take over a company or even during their search process. And it is a challenging thing for people to reach out and talk about how they’re having problems. But that’s what we are here to help to do. We have a lot of pattern recognition, we’ve been doing this for a while, and I realize that sometimes, if we listen well enough, we’ll pick that up and we may have to inject ourselves in more because some searchers or CEOs may be hesitant to reach out to us. This is hands on. Compared to private equity and other types, this is hands on guerrilla warfare. And it oftentimes- And we’re going to talk about balance between when its right for Coley and me and others to dig in and when it’s less- it’s right to teach them how to fish and let them have their space. But there are times when we really do need to dig in and help these people. And we’re willing to do that. And we’ve built, going back to your teams, we’ve built teams that hopefully have the right people to be able to do this and make better outcomes for everybody.

Coley Andrews: And Mitch, picking up on that thread of noticing that a couple CEOs are struggling, I think there’s a common theme here that is just part of the structure in the search fund model, and the theme is the imposter syndrome which is I’m 30 or 31 years old, I’m now the CEO of this company, I had better know what I’m doing, and if I don’t, oh my gosh, what am I going to do. And I intentionally bring that up because I believe it’s real, it’s a powerful feeling. I believe it can stand in the way of open communication. I think it’s incumbent on those that are involved on the investor side or on boards to be aware of that and to find ways to break that down and create a trusting, safe environment for the CEO to talk about the things that are concerning to her or him, and I think it’s okay for the entrepreneurs and the CEOs out there to know that’s a very common feeling. They are in the same boat with everybody else out there. And many of us on the investor and board side understand that that’s real, and it’s okay to not know what to do. It’s okay to not know how to figure this out, and that’s part of what, again, back to our earlier part of the conversation, makes this a really cool job is that you can help problem solve collectively and collaboratively. So, I would wish for anyone who ends up listening to this that imposter syndrome sticks in their mind regardless of what role they play in the community because we can all find ways to break that down.

Alex Bridgeman: Mentorship is a really big role as an investor but also a board member. How do you translate mentorship as a board member? In what ways is it different from being an investor not on a CEO’s board?

Mitch Cohen: Well, I think- by the way, I think that is something, if you had to put a list of tactical things, I do think that once one buys a company and they create their board and let’s assume it was me and Coley and one other person on your board, I do tend to think that CEOs lean entirely on those three people, and there are still 10 or 12 or 15 other investors who are interested and willing to get involved. Obviously, the board members are the first point of contact, but I do think that searchers over time or CEOs tend to forget or they’re busy but they need to continue to build relationships with their other investors, particularly in areas- they spend a lot of time with all of these investors, built relationships with them during their search phase, and for them to not to still take advantage of some mentorship opportunities from some of their investors who may not be on the board is just a big- it’s a footfall. It’s a waste of potential resources there. And so, we spend, even on companies where we’re not on the board, a Trilogy representative on the board, I know it’s the case with the PL guys, we are still available and more than willing to help out on all kinds of situations, particularly around professional and personal development stuff. You just have to ask. I go back to we’re not mind readers. And so, if you’re struggling with something and really want help, you pick up the phone. You’ve got people who have serious vested reasons for wanting to help you succeed, not only because you are a good person, but they are investors in your deal and they want you to succeed. So don’t be shy.

Coley Andrews: So, a couple of things that come to mind for me are being a director and what that means from a mentorship perspective. The two things that come to mind are modeling and intentionality. So, I think one way you can be a mentor as a director is model the behavior that you as a director would like to see replicated. And that can be in how you communicate, how you ask questions, how you respond, how you listen.

Mitch Cohen: How you show up. Are you prepared?

Coley Andrews: Are you co-creating solutions, are you delivering directives. I mean, think about it, we’ve all worked for bosses that told us what to do and didn’t really care, just told us what to do, and sometimes that didn’t go so well. Whereas those that sort of tried to have you be a part of the process or even if it was a directive, said what is it going to take for this to be successful or what’s getting in the way of you being able to do this well, how can I support you, those are the people that generally folks want to work for. And this isn’t that dynamic because no one’s working for anybody. So, I think it works way better when you model and show the way you want to be treated yourself and then the CEO has an opportunity to learn and pull that down and incorporate that into his or her own style as a manager and a leader. The second part is intentionality which is this is more if you want it to be than just showing up at a board meeting three or four times a year. It’s being intentional and proactive about outreach in between meetings, about checking in even when there’s not a specific business topic to talk about, when you’re driving home from work, and just letting them know you’re thinking about that person and their company and just wanted to say hey and how are you doing, or how’s life as a new parent or how’d the move go, and what have you. And I wouldn’t say that I’m best in class in that department, but every now and then, you try to lob in a call or something in that way, and that creates a connection and a space that then can facilitate the teaching and the learning and the mentoring when things get tough because there’s always going to be a curveball or two that people face. And I believe part of my role is in those moments to be the first point of call when that curveball gets thrown, like the first phone call that the entrepreneur wants to make, like I don’t know how to deal with this, I don’t know what to do here. And it doesn’t have to be me, but the investors generally I think want to create that environment because if we can have that type of communication flow, then there can be teaching and learning, and in parallel, equally important, there can be avoiding big mistakes. And at the end of the day, I think that’s what the CEO wants, is how do I maximize my own probability to be successful. The best way to do that is to have a flow communication, but it’s incumbent on the investors to create the space for that, and it’s incumbent on the CEOs to ask for it.

Alex Bridgeman: So when the board is set up for the first time and this is a CEO who most of the time hasn’t run a company before and hasn’t had a board before, as a board member, what kinds of things do you tell them or establish to make them more comfortable relying on you as a resource and mentor to them?

Coley Andrews: I’ll kick that off, and I know Mitch has a bunch of thoughts on this as well. I really think setting expectations very clearly upfront is super important. So for example, hey, Alex, congrats, you just bought your business, yada, yada, yada, let’s have a call a month before the first board meeting. Let’s have a discussion around what this could look like. And that can be very specific, like hey, you should call me when something like this happens, or you should ask these questions, or I know that you probably don’t know what this means or might not know what that means. That’s all okay. And same thing around the list of norms and expectations for what are board meeting experiences supposed to be like, and it’s not just the meeting, it’s the conversation after the meeting, it’s about understanding what type of information is important and urgent versus not important or not urgent and how you incorporate that into the discussion flow. So, it’s the work around the specific of the meetings or being the director that I think really is the key work that creates the environment that can lead to a high functioning experience for all involved. But it takes setting expectations upfront. It takes being clear around communication so that the entrepreneur is not left guessing. Like that’s not fair. It’s their first rodeo; it’s not Mitch and my first rodeo. So, if we’re not delivering that for them, then we failed them, and that’s unacceptable.

Mitch Cohen: Yeah, I like to tell the story, and it kind of drives it home, is actually one of the first search fund boards I sat on, we’re  getting ready to have the board meeting. There are three of us on the board. And I get a call about three weeks before the first board meeting, and the new CEO called and said, Mitch, I’m kind of embarrassed to say this, but I’ve actually never been to a board meeting. I don’t know what happens at board meetings. And I think we oftentimes or many people take for granted that how are they supposed to know. Many of these people, they may have been a participant in a board meeting, they may have sat in a board meeting. But for most of these people, they’ve never been involved in setting an agenda for a board meeting or setting what the goals for the board meeting should be or what the material should look like. They probably in many of their roles, they helped gather information that people used at board meetings, but they never actually were in charge of that. And I think to Coley’s point, I think it’s incumbent upon the board to set expectations on how the board is going to function and work with the CEO. And I think it’s also important for the CEO to make it clear as to what they expect from their board, what they think they need the most help on. So it needs to be conversations very early. And you’re going to have some footfalls, and you’re going to have some missteps. And the first board meeting most likely will be a disaster because it won’t accomplish what anybody wants, but that’s okay as long as it’s a path to learning. I also think its important for the board members, each one of us has our very own style. I operate a little bit- Actually, Coley and I are pretty similar a lot and we have a lot of similarities, the way we work in board meetings. We’ve been on boards together. But a lot of board meetings have different approaches to board meetings themselves and different styles. Some are rougher, some are more direct, some are softer, some want more detail, some want less detail, etc. And I do think its super important for the board outside of the entrepreneur to set some ground rules as to how they as a board are going to interact with the CEO. It’s super confusing for a first time CEO to get different messages from board members as to what a board meeting should do. So, I think it’s important for the board members to be synced up on how they want the interaction to be with the CEO. And that’s just planning. That’s just getting off to the right start and making sure you’re being really, as Coley said, intentional about how these actions are all set up. That time, Alex, you put in at the front end, having a couple extra meetings and doing that is going to pay significant rewards down the line when you have a very functioning board going forward. And you’re actually able to- You’ve got to look for the prize. The prize is making progress and getting the input or getting the information that we need as board members to be helpful, but the bigger thing is to be able to support and help the CEO get to his and the company’s goals. And you’ve got to put that groundwork in at the beginning and plant those seeds really early to be able to have that successful relationship.

Coley Andrews: So I’ve got a story that popped as you were talking about that, Mitch, which I think is great. So one of our first companies we invested in, it’s a company called Little Sprouts. It was run by an entrepreneur named Mark Anderegg. And in that business, you have it’s a for profit daycare company, and you have certain regulations on how many teachers you have to have in the classroom based on the number of students you have. But the number of students can vary every hour just based on kids coming in and out based on the parents’ schedule. And so, we were trying to figure out how we could systematically collect some data around this. And I remember Jim Southern called Mark one day and said hey, can I come up to the office, he happened to be about an hour from Boston, and spend some time with you just trying to work through this. And it was three hours they spent one afternoon just together with pen and paper trying to figure out the different ways that we could collect this information because we had to stay within regulator compliance. And that’s a lot of time on an afternoon on one topic. But they ended up solving the problem in a very simple way that didn’t require some expensive software system to be implemented and teachers to have to fill out a whole bunch of forms, all this kind of stuff. And it was a really simple solution and it taught I think Mark, he would say this, that hey sometimes there is a more simple path than something that might be more expensive and more complicated, but you’ve got to put the time in to figure that out. And Jim did that with Mark, and he certainly did that with me early on as well. So I really liked Mitch’s comment that if you put the time in upfront on all these different dimensions, that’s mentorship, that’s teaching. And more often than not, the people we’re working with are really sponges to learn this type of stuff, and they’ll take it and run. And then the time required thereafter will be less and focused on different issues. But upfront, that’s sometimes what it takes. You’ve got to show up.

Mitch Cohen: I’ll do a pitch for Dave Dodson’s book, his managerial book. You’ve got to- the other thing too is we as a board are responsible for helping the CEO determine what their priorities are. And what is the key, to Coley’s point, what are the key factors, what are the KPIs we’re really going to measure success on, and what are the two or three or one thing that were going to use to drive that organization. And to be honest, we should start every meeting making sure we talk about what that one thing is, and everything we do should be focused around that. But it’s not clear in some of these situations. Some are easy, it’s very obvious as to what that key thing is going to be. But in some of these companies that we’re buying, there’s a hundred different things we can do, and we’ve got to figure out how to prioritize that. And that’s how we can mentor and help the CEO as far as determining how they should best spend their time, best spend their capital on things that are going to have the most amount of impact at the end of the day.

Alex Bridgeman: You’ve both been on the boards with some really accomplished CEOs. What do some of the highest performing CEOs in your experience do with their boards? How do they manage board meetings, communicate? Are there any takeaways from favorite CEOs of yours for new CEOs to start adopting?

Mitch Cohen: Yeah, let me give a couple, just a couple of- and by the way, some of this comes from not necessarily search fund CEOs but all the boards I sat on before I got involved in the CEOs is that around board, we should assume and you should assume as a CEO, and it goes back to your showing up as a board member, you should assume that your board members read all the material that was sent to them. And board meetings shouldn’t be about regurgitation of facts that you can easily have sent in a memo to me that I can read at my leisure on the airplane coming to the meeting. We should make these discussions generative. But you also have to give me two things – you have to give me the questions that you want to have answered, and you have to give me enough information so that I can give you some real feedback. And so, CEOs who work with their boards in that way which is here’s the data and here’s what the questions we’re wrestling with are, and you can give that to me in advance, and we can use these forums as those generative discussions tend to be the companies that have succeeded more. And there are a few great examples of CEOs I worked with before who are just masters of that.

Coley Andrews: Yeah, one example that comes to mind for me is a guy named Nick Mansour who is the CEO of Arizona College of Nursing. He does an amazing job of writing up a board memo that’s written in Microsoft Word but it has plenty of data that’s imported into it, and he always opens up with a handful of questions that wants to address in the meeting. And usually, he has an individual conversation with every director within a week before the meeting to talk about the one or two things that are really the most important things to cover in the meeting. So, it’s not a read out. It’s not a slide by slide data dump. It’s actually, to use Mitch’s phrase, a generative discussion around what are the key things that he would really like help and support on here going forward. And that’s not the norm out of the gate, and to be fair, Nick’s been doing this a long time now, so he’s got an experience curve he’s come up. But that is a great model that the sooner the younger CEOs can get to a place where they recognize it’s not a data dump, I can share the information that’s important to understand the data because we all need to understand the financials and sales and what’s working and what’s not, but then use that as a springboard to really talk about what are the things that are standing in the way of the company achieving its goals in the near term and the intermediate term, but what are the things we need to do differently to be looking over the horizon one, two, three years from now to make sure we’re successful. I’m not saying necessarily that’s appropriate in the first six months of running a company, but within 12-ish plus or so months of running it, assuming things are on track, that’s where you want to be. And there are a lot more great examples of folks that have done a really wonderful job of that and that allows them, when they get to years two, three, and four to really start working on the business and where they’re going to take it versus staying working in the business and just kind of getting through the day. And that’s a huge distinguishing factor between those that have good to great to phenomenal outcomes and those that just do okay.

Mitch Cohen: I think another kind of, I call it tactic for lack of a better word is what happens after the board meeting. You tend to get, the CEOs, and I can imagine its exhausting prepping for a board meeting. And when they get out of the board meeting, they say great, got that board meeting off, next board meeting’s a quarter from now, I can go back to work. And the follow up out of a board meeting  is super, super important, and  I think we tend to- what were the issues we talked about, what were the action items, and keeping the board apprised as to what the plan is now coming out of the board meeting. We tend to have a little bit of a vacuum, and it’s just natural. It’s human nature. I got through this board meeting, I had to prep all this material, all this generative discussion, that’s great, and then I’m just going to go back to work. And we have to figure out as board members how to follow through and have that thread continue. So a good tactic is the CEO going back the board member after the board meeting and saying here are my takeaways, here are the action items you laid out for me and here’s how I’m going to communicate progress against those between now and the next board meeting or the next time we convene. It’s a good way to keep that flow going from the peaks and valleys of a board meeting and then there’s quiet, and then there’s a board meeting, then there’s quiet. It’s super hard for directors, unless they are kind of kept up to date, and it doesn’t mean daily calls, it doesn’t mean weekly calls, etc., but those things that you want to flow through and that are super important, it’s super hard for us to contribute if we’re just talking about it every quarter.

Alex Bridgeman: I like that framework of having the key questions to ask your board that you both mentioned in various ways. As a CEO, what questions or what types of questions are most helpful to ask your board versus ones that maybe are more helpful for outside the board meeting, a quick phone call, text, what have you?

Coley Andrews: It’s a wide range. A couple things come to mind. There’s one, team and personnel. I think that’s an important conversation to be had usually within the group because, especially for an early CEO, you probably won’t develop high confidence in whether someone is great or not unless it’s so blatantly obvious, which usually is not. But you can replay stories and observations and data points that then those of us that that have been around the hoop a little longer can say, hm, I’ve heard that before, that’s concerning, or that actually is exactly what you would expect at this point. So, I think that’s a really important topic that should be, maybe it’s not every meeting but certainly a couple times a year, and I think you can get a lot of value from the experience on your board that can be drawn down through that, number one. Number two, I think the CEOs are working so hard in the day to day of doing the job, stepping back and asking what am I missing here or what am I not seeing or what do I need to do differently to get where I want to be not in the next three to six months but in a year or two from now is also a really important discussion to have. And it’s probably where CEOs would say they really get the most value from the board members with the exception of industry experience. I think that can be helpful to folks as well. But we’re really talking about the early first couple years, first couple innings of the search fund CEO’s journey. And if they’re not pulling up and asking those questions, then they’re really not benefitting from the people they’ve chosen to surround themselves with because I do think that’s where it can be really helpful. It’s certainly been very helpful to me with some of my advisors where they are looking a few years ahead and I can’t even get to the end of the day, and it’s changed the business at Pacific Lake because of those types of insights and observations that were multiyear, multi decade type opportunities that I’m not sure I would have been able to see myself because I’m not expected to when I’m just trying to get the job done. I think the same very much applies to first time CEOs.

Mitch Cohen: I don’t know where I heard this; I’m not going to take credit myself. But if you don’t hire or think ahead of the curve, there’s unlikely to be a curve. So those are the kinds of important things that I think a board can really be helpful on. Because we’re not in the weeds, and by the way, we shouldn’t be in the weeds. We can get into the weeds if needed, if there’s a crisis or an emergency. But that’s not what we’re supposed to be doing. We’re trusting that the CEO- we’re giving them the tools to be able to solve those issues themselves. But what we can do is help facilitate and allow the CEO to take those windows of time where they can step up above the fray and think more about the forest than the trees and giving them some prompts about that. And I think it’s super important, and it should be a- I think it’s important too, and Coley and I talked about it earlier, is that these board meetings need to be safe spaces where the CEO feels comfortable showing some vulnerability, showing that they don’t necessarily have that vision right now, or maybe they do, but that’s where we can be super helpful is on that front. I think the other thing, and I completely agree with Coley, that one of the most important things we see that CEOs struggle with and that they can lean on their boards a lot are HR related, personnel related things. You can learn about go to market in business school, you can learn about technology, etc., but until you’ve actually been on the ground managing people, evaluating people, hiring people, unfortunately in certain cases firing people, creating an org chart of A people, not B people but A people, how do you actually evaluate what an A person looks like? Those are the kinds of things that CEOs struggle with the most, and that’s the stuff where having a partner like your board or others can be super, super helpful with.

Alex Bridgeman: On the people side, I know it’s common for a board member to be involved in the hiring process for perhaps a very senior leader. I’m thinking Don Taylor might join an interview for a head of sales or someone like that. What are some ways like that that a board member could be involved in a key hire?

Mitch Cohen: I think it starts with the job spec. Going all the way back to the very beginning, what are the skills and the role we are trying to fill and making sure that we are thinking broad enough, we’re thinking aggressive enough in terms of hiring a person that isn’t going to be- It’s thinking about what that job looks like a year from now or two years from now, as Coley talked about, versus lets hire somebody who knows how to do this task today because that’s our pain point today. And I think a CEO is so in the weeds and says I’ve got this problem, I have to get my books balanced and closed by the end of the quarter, and I need a new CFO. And I think we can be helpful in creating the specs that say okay, that’s table stakes. What are the skills and what are the qualifications and what’s the culture of the person you want to bring in. And I think that’s the first place is in the job spec.

Coley Andrews: Yeah, building on that, I think a board member can be helpful in reviewing and grading resumes that come in in the candidate pool. I know Jim Southern did this with many of our early CEOs to  teach them what good looks like. I think participating with a CEO in an interview process but where the director or someone like Don Taylor who you mentioned, that person leads the interview and then the CEO is watching how that person conducts the interview. So again, teaching the fisherman or fisherwoman how to fish, not fishing for them. These are really specific tactical things that can bring the CEO up the development and learning curve much faster. And of course, there’s no substitution for just experience on something you pick up in a conversation that doesn’t feel good about a person’s integrity or what have you. But really, I think this is about driving skill development and helping the CEOs come up that learning curve much faster. And if you seek to incorporate your directors in a very tactical way as I just described, I think you can get that.

Mitch Cohen: You know it is really hard, like for a CEO who is not necessarily super technical to hire a CTO, how do they know what questions to even ask and whether they have competency. So you need to bring in a Scott from PL or Kevin Kinook from Trilogy or a bunch of other people to actually participate in those interviews to really test their acumen and their skill set. We have fractional CFOs out there. We’re all financial people. If you’re hiring a CFO and you’re not as financially driven as a CEO, how do you expect to know how to gauge their qualifications, so get Coley on the phone. Coley can drill them with some questions about- and you can come back, and this guy doesn’t actually really know financial modeling well. Those are the kinds of things I think we can be helpful with, especially on, we don’t really need to do that for mid-level, but for C-suite level people, it is super, super important.

Alex Bridgeman: Yeah, you mentioned Scott; Scott and I talked about that briefly recently, and he remembers times hiring technical folks and working with a former CEO he worked with and how he’d come out of an interview and think oh, that person’s probably not a great fit, and the CEO is like we are hiring that guy immediately. And so that difference in experience level and knowing what to look for and the true jobs to be done for a given role are really important and hard to understand as an early CEO.

Mitch Cohen: And I’ll make one other comment. If it’s a good candidate, they’re going to want to meet with those people because they are going to want to make sure they’re joining an organization with people who, like Don, who know sales or are engaged in it. So, it shouldn’t be viewed as a burden. Those people are going to want to be impressed that this is the kind of people I’m going to be working with in this organization.

Alex Bridgeman: You both, of course, have been investors for quite a while and on many, many boards. What changes or challenges have you noticed from the search fund world in the last handful of years? 

Coley Andrews: As it relates to being on boards or getting boards filled?

Mitch Cohen: I would say it’s a double-edged sword in that the growth of the community and the interest in search funds has been terrific. There are people who may not have- incredibly talented young people who might not have ever thought about a search fund who have now read about it, learned about it, maybe they have a friend who is in it who are now looking at this as a real opportunity for them. That’s great, and I hope that continues, and there should be no cap on the number of great people we are willing to absorb into the community. On the other hand, it does create real stress and pressure on our ability as investors to be good partners, mentors, and all of that for those people. And I am hoping that we will have more people join the ecosystem from an investor standpoint and a board standpoint, and it’s kind of our responsibility as well as investors to bring those people into our ecosystem so that we don’t become out of balance and we have not enough support for these new searchers. And I do feel, and Coley’s talked a lot about this, that stress that we’re seeing now on people available to go on boards, how well they are trained to go on these boards. I think that is an interesting trend that we’re seeing, and it’s really escalated over the past several years. So that’s one I’d point out. Coley, I don’t know if you have any comments on that.

Coley Andrews: We operate in a community, but it is a decentralized existence. Yet, the community has expanded quite substantially in all dimensions over the last ten years. And with that, it means it’s harder for training and development and culture and values to permeate, especially absent intentionality. So, I know that’s one thing that many folks in the community are spending time on right now is hey, in light of this growth that we’ve had and more importantly where it’s going going forward, how can we be intentional about defining the values we have in our community, which was done at the Stanford CEO conference recently, how can we be intentional about helping train and develop the next generation of board members so that we have capacity and coverage going forward to support entrepreneurs, which we also talked about at the Stanford CEO Conference. So, the challenge we face is the market is going to continue to grow, the industry is going to continue to rise. But how is it going to unfold? Is it going to become quite scattered and spread out? And likely in some form, that will be true. But are there things we can do to help keep the core ingredients of historical success as present as possible and as far reaching as possible. I think that’s going to require work at this point because the community has gotten big enough that it’s not just going to happen by itself.

Mitch Cohen: I agree with that and its intentional. I think the other piece of that which is super exciting but there is so much work to do which is the expanding number of people who want to get engaged in our ecosystem, we need to continue to be very intentional about changing what that group of people looks like, i.e., it’s still shocking to me that we have such a small number of females in our ecosystem, we have so few people of color. And we need to continue to figure out how to expand that. And it’s not from a standpoint of charity. I don’t want to use that word. I believe that bringing people in with diverse opinions makes you better investors. It will expand the universe of companies that we can see. It expands the skill sets in our industry. And how do we keep that moving because we still have a lot of work to do there as an industry. It’s a real challenge. We have to figure out how to break- we have to figure out whatever barriers are out there that exist for that, we have to figure out how to do that because there are companies out there that these potential searchers and CEOs would be great running, and they’ll bring great knowledge and points of view to all the stuff we are doing every day.

Coley Andrews: Yeah, I agree. And I think just to put a little bit of encouragement on that, six or seven years ago, I think this was a really big issue in the sense that it was essentially a white male predominately driven model. In the last three years, over half of the entrepreneurs that Pacific Lake has backed are non-white males. They are women or people of color, and that’s pretty unbelievable, certainly compared to where we were six or seven years ago. It’s an enormous amount of change. And I bring that up intentionally because I think one of the ways that we solve the problem which is still a big challenge that Mitch alluded to is awareness of what the reality is today. And we do that by showing the next generation of potential searchers that hey, the generation ahead of them looks different, physically looks different. That’s a good thing. The next generation of CEOs is starting to look different. That’s a good thing. The composition of investors out there in the community today both from the senior level down to the junior level looks different. And I believe in a lot of ways it almost could be that simple, just showing that this is now a much more broad and diverse community and is welcoming to all folks that are interested in entrepreneurship through acquisition. And for those that are coming up that are younger, to be able to look up ahead of them and see folks that look like them that are doing this that are searching, that are running companies or investing in companies, I think is an enormous boost to their confidence to say well, they did it, it can do it too.

Mitch Cohen: What was interesting, Alex, was you asked at the beginning what attracted us to this space. And when I first looked at search funds, I was attracted to I love investing, it’s kind of what I’ve been doing all of my life and helping build companies. I love the entrepreneurial energy out there. I also love the fact that you can make pretty good money. Let’s not dismiss that, that the returns in our asset class have been pretty extraordinary and they continue to be, so it is an attractive asset class to invest you money. The big surprise for me, and it was just how collaborative this community is. I had not been around- I’ve been in private equity, I’ve been a little in venture capital, I’ve been in other-  This is like off the charts as far as, and it’s the nature of what we do because not one of us controls a company. We all partner together on multiple deals. Coley, Pacific Lake, and Trilogy are in tens of deals together. So we are kind of forced to work together on things, but we actually enjoy working together on things. And that was kind of the biggest positive surprise once I got into this space was just how accommodating and inviting and collaborative this community is. And I think to Coley’s point, going back to, it is open to anybody to participate in this community, no matter what look you look like or what background you have. The key is you’ve got to really, really want to work with small businesses and have an entrepreneurial spirit. It can’t be that McKinsey isn’t hiring this year so I think I’ll go do a search fund, or I really don’t want to go to Goldman, back there, or I didn’t like this so maybe I’ll dabble. You have to have a real passion because the people, your investors have a real passion for wanting to work with people that have that. And if you don’t, we’ll pick it up pretty quickly, and it’s just not going to be a good equation. So, you’ve really got to want to do what we do here and think of it not as a job but as a journey and a calling. I mean, I don’t want to sound so- but it has to be a calling that this is what I want to do. Because that’s why we’re doing it. We could all go do different things, but we have focused on this space because of the impact that we’re having and what we get out of working with these companies and with these entrepreneurs.

Alex Bridgeman: That’s a perfect place to close. Mitch and Coley, thank you both so much for sharing your time for the final episode of our Launch Series this year. I really appreciate you sharing your time, and I’ve enjoyed getting to know you both over the last couple years. So, thank you again.

Mitch Cohen: Thanks for doing this Alex. I think its been a great service to the community, having these podcasts.

Coley Andrews: Great job. Thanks for having us.