My guests on this episode are Justin Burris and Tim Ludwig who together have co-founded a new search investment fund named Majority Search. Majority Search aims to be the preferred buyer of small companies while giving searchers the chance to own the majority of the companies they operate. This is a brand-new model they’ve spent the last year working on, and I’m so excited to see it finally become public.
This episode was recorded live on February 4th at SM Bash in Orlando, Florida, in front of over a hundred attendees, my first podcast ever in front of an audience. We did have a few microphones snafoos here and there, and the overall quality was affected some, which I apologize for. Even so, this is a fantastic episode that I hope you thoroughly enjoy.
Over the course of the conversation, Tim and Justin share their inspiration for Majority Search, the keys to being a better buyer, great investors they both admire and learn from, and advice for building great relationships. If you want to learn more about Majority Search, reach out to Justin and Tim at majoritysearch.com. Please enjoy the first live conversation of Think Like an Owner.
Live Oak Bank — Live Oak Bank is a seasoned SMB lender providing SBA and conventional financing for search funds, independent sponsors, private equity firms, and individuals looking to acquire lower middle-market companies. Live Oak has closed billions of dollars in SBA financing and is actively looking to help more small company investors across the country. If you are in the process of acquiring a company or thinking about starting a search, contact Lisa Forrest or Heather Endresen directly to start a conversation or go to www.liveoakbank.com/think.
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.
(4:12) – How Alex came into contact with Justin and Tim
(5:29) – Introducing Tim Ludwig
(6:24) – Introducing Justin Burris
(7:44) – How Majority Search builds upon the traditional search fund model
(9:53) – The inspiration behind Majority Search
(13:32) – What types of buyers have you studied when building Majority Search?
(16:00) – What are some of the challenges of designing a search firm?
(21:57) – What goes into being a perfect owner of a company?
(23:44) – How close is Majority Search to modeling how a high-net worth individual would behave investing off their own balance sheet?
(25:57) – What would you advise operators who don’t have access to capital do when searching?
(30:56) – How do you think about building a Berkshire-level cache of businesses from scratch to build a reputation as a buyer?
(32:44) – What college course would you teach?
(35:11) – What’s the best business you’ve ever seen?
(36:40) – What mechanisms that give YC its distinct notoriety?
(38:48) – Wrap Up
Alex Bridgeman: One quick piece of background, so Tim and Justin were some of the earliest folks who reached out after I started the podcast. I think Tim reached out in April 2019 after the fourth episode. So very early on. He sent me a DM on Twitter, and we started chatting after that and he came up to Portland and visited a few times for business. And then actually the same year, in 2019, I got to know Justin, and Justin at the time was working on a few experiments around search funds and how to run a search investment firm a little better and just some different ways to play with the model a little bit. And we got to chat about that and hearing that he worked at BDT and all these other projects he was curious about and wanted to learn more about was kind of fun. And so, one time, Tim visited Portland before I moved to Omaha, and I drove him to the airport, and on the way to the airport, he talked about this search model of potentially running a little bit different search fund with a slightly better model for searchers. And he was going to work with a guy from BDT. And I thought, okay, is that the one guy I know from BDT who’s also interested in search funds? And turns out, it was. So, I got to know both of you separately, which is really, really fun. And so, I’m excited to share this a little bit with you both. Tim, most folks are going to be more familiar with you. So, for intros, we’ll start with you. Give us your 30 to 60 second intro, and we’ll go to Justin then.
Tim Ludwig: Sure, great. All right, so my name is Tim Ludwig and I’ve been investing in search funds for almost 15 years now. Started with a very small fund in the depths of the Great Financial Crisis. My first investment was in January of 2008, invested in about 80 different search funds over the next decade or so, resulting in about 60 different acquisitions. And then three or four years ago, made sort of a pivot and moved down market to $1 to 2 million EBITDA sized businesses that I bought off my own balance sheets. I have a small portfolio of three companies that I own in different industries throughout the United States. And then over about the past year, have been working on developing a new concept for search fund investment that we’ll talk a little bit about here with Justin Burris.
Justin Burris: Hi, everyone. Hey, Alex thank you for having us, good to be here. I’m Justin Burris. Along with Tim, I am the co-founder of Majority Search. So, Majority Search is an investment firm that partners with talented operators to find and buy and grow small companies, taking a lot of inspiration from the search fund model with a couple of unique twists that we’ve added as well. And before Majority Search, I was with a firm called BDT Capital Partners for a little over six years, which is a much larger investment firm now that advises and invests in large founder and family-owned companies. And really in a lot of ways, what we are doing is taking some of the lessons from working with some of the largest and most successful family companies in the world and applying those to help operators buy much smaller companies and grow them over time and almost build them in the mold of some of what I’ve seen at the larger end of the market. So, I’m incredibly excited about what we’re building, and I hope it’s a little bit different in that it appeals to some people that may not otherwise get involved in entrepreneurship through acquisition.
Alex Bridgeman: Yeah. It was really exciting to see this project you both talked about for a while actually become public and see your messages on Twitter and emails and all this other stuff. It’s been really fun to follow and see come alive. Let’s get right into it though. So, tell us a little bit about what is Majority Search and perhaps a good framing for what it is would be a comparison to how the traditional search fund model works, and then how Majority Search tries to work with some of the pros and cons of that model to create something new and something perhaps fresher, better for searchers.
Justin Burris: Probably the easiest way to think about Majority Search is as sort of a blend between traditional search and self-funded search in some ways. The easiest way to describe it is sort of in contrast to the traditional search fund model, which is often large groups of investors in any given search and then also in the resulting acquisitions while we are really the sole backer both for the search and for the acquisitions. The second piece, which is pretty meaningfully different is just thinking about incentive alignment and compensation where, for the most part, there’s a pretty static structure earning up to call it 25% or so equity in a deal where roughly two thirds of that is not based on performance. And I looked at the model and sort of thought to myself I believe compensation should be based on performance. If we could do a better job of tying compensation to performance, I think that would align interests for all parties. And so, we set at this from the viewpoint of trying to offer a broader range of awards but having them be more fully tied to performance. So, offering people a chance to actually earn majority of a company, which wouldn’t otherwise, in most cases, be possible without a huge net worth coming into the model or with an SBA loan. And I came at this personally inspired by my own experiences where I looked at a deal a couple of years ago, thought it was very interesting, had all the characteristics I was looking for, but ultimately, I couldn’t get comfortable with a personal guarantee on the SBA loan for a multiple of my net worth. And I said if there are other people that are out there that are looking at things like me and get to that point and just don’t have the stomach for the personal guarantee, maybe we can build something that still gives the path to majority that they couldn’t otherwise get in the traditional search fund asset class which they would find more appealing.
Alex Bridgeman: Yeah. Can you dive a little bit more into some of the inspiration behind Majority Search? This has been a lot of thinking that you’ve done for several years and just looking at the opportunity set for what searchers have available today and not to mention all of the baby boomers passing on their businesses and trying to transition them. There’s this big opportunity that you’ve been studying for a while. I’d love to hear a little bit more about what was the inspiration behind all this.
Justin Burris: I think there are a few themes there let’s hit on, and then, Tim, you should as well. So I mean, like setting the stage, I think we saw a lot of the same themes that probably everybody in this room has as well, aging baby boomers that are looking to sell their businesses in order to retire. That is a growing trend that’s not abating anytime soon. There’s a huge opportunity in transitioning small businesses to the next generation. And at the same time, looked at the rising generation of incredibly talented, younger operators who in many cases are trapped at larger companies, thriving in their careers and are eager for more responsibility. And I thought to myself, entrepreneurship through acquisition, still relatively niche but growing quickly, is really a path for them to gain the autonomy and agency in their careers that they’re looking for. And there could be an amazing investment firm that emerges to match those operators, equip them with capital and allow them to pursue opportunities to buy small businesses from retiring owners. So that’s sort of the macro backdrop. The other piece, I think, it’s only natural, I’m a total Berkshire acolyte, and probably the most interesting things that Buffet says are not about what he can do, but about what he actually can’t do. And two of the things that he says he can’t do is he now has to buy larger businesses, he can’t buy small companies anymore, but he’s the first to confess that the returns are more attractive for smaller companies. And two is he says he can’t buy businesses that don’t have management in place because he can’t supply it. And I thought to myself, well, there is this technology out there called the search fund. It’s been around since the eighties. It’s performed incredibly well over a long time period. I think it basically is the future, it just isn’t evenly distributed yet. And to the extent we could take something that’s worked for a very long time period and broaden access to that approach, which has worked fabulously well and also created amazing opportunities for people to build really rich and rewarding careers for themselves, that’s something that I would love to be a part of.
Tim Ludwig: I’ll just add – I think that’s a pretty complete explanation – I’ll just add, I think Justin came at this from sort of a top down, more theoretical market-based approach. And I was sort of in the weeds, sort of grassroots, looking at just what I was experiencing around me, and initially with the traditional self-funded or funded searchers, there are only a certain number of highly pedigreed Ivy league MBAs that are graduating each year to comprise the supply of labor to fuel that model. And then through Twitter, I was seeing this explosion of interest from people that were pursuing this self-funded path, either with SBA loans or alternative or even friends and family money, and connecting the dots for me, I thought this model is so powerful and I’m such a big believer in small business and entrepreneurship that it would be wonderful to figure out a way to democratize that even further to give a lot of people access to an opportunity that they might not otherwise consider. And so, iterating on that model about what worked with the traditional funded search, what were some of the good parts of the self-funded search model, and how could we integrate the best of those and maybe fill in some of the gaps to create this middle ground was really the genesis of what became Majority Search.
Alex Bridgeman: And building on an inspiration just a little bit more, you have, just throughout our conversations, mentioned a lot of different other niche buyers of small businesses. And there are certain tactics that each of them do or certain strategies and ways they go about buying small businesses that you’ve kind of taken pieces of over time. Can you talk about some buyers that you’ve found really valuable in studying and designing something like Majority Search?
Justin Burris: Yeah, look, I think there are a lot of what I consider better buyers out there for specific types of businesses. And part of the approach with Majority Search was how do we craft a better buyer for small businesses more broadly? And so, when I think about what makes a better buyer a better buyer, there are examples like Thrasio, for example, which is an amazing buyer for Amazon FBA businesses and is able to pursue a bunch of them because they tend to look very much in common with one another. And if you look at strategic acquirers, you can go through a list, Constellation Software for niche vertical SaaS businesses, Waste Management for disposal businesses, AB InBev for anything in beer, wine, or spirits. I mean, for the most part, the better buyers out there for specific types of businesses are folks that are either deeply involved in those companies to begin with, so they actually have access to opportunities that they might not otherwise have, and then they also actually know how to add value to those businesses and really grow them over time. And in some cases, people call those synergies. Really what we are trying to do is create a better buyer for small businesses or large, regardless of what industry they lie in. So, Berkshire in many ways has done this for call it large family companies where through all of the aspects of what Berkshire has constructed over the years, they’ve done an amazing job of building this home for very large businesses, basically making themselves the Metropolitan Museum for families who care about their legacy. And I think at the smallest end of the market, there are the pieces that are held in common across transitioning small businesses which we could really focus on and really try to get right. And probably the single largest element of that is that, for the most part, and you see this in BizBuySell, for example, look at the reasons why people sell. The vast majority of the time, it’s folks looking to retire. And if we could basically pair both capital and management together, so that we could replace the retiring owner operator who is wearing two hats as the owner and the operator, provide both management and capital, that really is the key to investing in small businesses and transitioning them at scale.
Alex Bridgeman: And a number of the buyers you mentioned, some of them are really industry focused like Constellation or AB InBev, Waste Management, but then some are very broad and diversified, like Berkshire, of course. What are some of the challenges of designing a firm, at least on either side? I imagine both have a sense of pros and cons. Can you talk a little bit about what some of those might be?
Justin Burris: Yeah, and Tim, weigh in here as well. Look, the two pieces that are critical are having access to deal flow and actually being able to grow those companies over time. So, the pieces are, and you can talk a lot about the search and the acquisition and how advantaged are you by focusing on a specific industry versus having a broad focus, and even there are a lot of private equity firms out there that tend to start out for the most part as pretty industry specific before they actually go broad. From the outset, starting broad, and the reason for that really is that there is what people call an everything tastes like chicken layer in small businesses. And if we can almost engage in a talent arbitrage, I think of it as, finding incredibly smart, ambitious, hungry, gritty people and parachuting them into a segment of the economy that may not have a prior owner who’s been keeping their foot on the pedal for a long period of time, that’s powerful in so many instances. And ultimately, it’s the characteristics of a business that make it very attractive or not. I think if you look at any industry, there are going to be a couple of pockets that are very interesting in it, and I wouldn’t feel comfortable, for example, writing off just about anything.
Tim Ludwig: I think an interesting question for anybody that aspires to buy a business or sell a business – I suppose you have to go through the same exercise – is to think what’s the platonic ideal for the perfect buyer? And the answer is going to be different for every seller, but that I think is the starting point to think about crafting your own narrative when you’re going out to the market to talk with intermediaries and sellers about why you’re the right person for their opportunity. If you think about what those criteria might be, probably the one that comes to mind first is price. Whoever’s going to pay the most is going to be an advantaged buyer in that market. In a lot of cases, strategics are able to use that to their advantage because they’ve got synergies and other aspects that allow them to bid up assets to higher values and generate the same levels of returns as a buyer that maybe doesn’t have those attributes. I think committed capital base as opposed to having to go and passing the hat each time is something that’s viewed favorably by the market. Competent management that’s experienced and maybe networked within the industry is helpful. I mean, you can go down this list of criteria. And then I think the exercise for each of us is to think how close to that platonic ideal can we come? And it’s also a great filtering mechanism. You might say these kinds of deals I know that I’m not going to be a preferential buyer, and so I can discard that more quickly, which is a useful thing because it’s economizing your time and helping you to elevate priorities or situations that are priorities where you’re a better fit. And that’s what we’re really trying to do as buyers, all of us, is to make that perfect match. How close can we get so that we’re really satisfying as many needs of the seller at the point of transaction at the same time they’re meeting our needs as a buyer. And so, whether it’s Majority Search and what we think is a model that’s going to serve a part of the market in a compelling and differentiated way or an individual buyer that’s just prospecting in their own community here in Orlando, I think everybody needs to have that story in their mind to think about what’s my edge? What’s my advantage? How do I tell that story and articulate that value proposition to the people representing the seller or the seller themselves so that I am seen in their mind as the perfect buyer?
Justin Burris: Yeah, I think that’s interesting, too. So, the two ingredients there, there’s the capital and then there’s the management. The management, ultimately, it’s up to the person that we’re partnering with to be the perfect buyer for any given opportunity. If you’re from Cincinnati or you have experience in a certain industry or whatever it is, like some way of building a personal affinity, hugely important. I think ultimately that depends on our partners and who is ultimately the spearhead of the search effort. And then there is the capital part of the equation, which is the piece that is common across everybody who’s working. And it’s important to shape capital the right way. And all capital does have a shape. I mean, Tim mentioned the level of committed-ness for capital as an easy way to differentiate yourself if- there’s kind of a continuum where all the way on one hand, you could be a family office that has a bank account that is able to write a check for the full equity amount tomorrow. On the other hand is probably something more like an independent sponsor that ultimately would have to get a deal under exclusivity before and go out and pass the hat to raise the capital before they can ultimately close. And generally, the more committed your capital is as a buyer, the more appealing you are to sellers. So, thinking about how we position ourselves as hopefully a preferred buyer, it’s having more committed capital, which also helps the operators that we partner with be the best buyers that they can be as well. The other piece on shape of capital, which is super critical, is just the term, because all capital does have a term. Sellers for the most part that have built their businesses over long time periods like placing their businesses in the hands of others who are going to treat it like a family company themselves and are longer term oriented. And I think traditional search say on average is roughly four to seven year hold periods. Our preference really is that it’s hard enough to find an amazing opportunity to begin with. People take up to two years to do it for the most part. And if you’ve put the blood, sweat, and tears in defining an amazing opportunity, it’s usually worth it to ride it out and continue compounding over long time periods and optimize for a multiple of money rather than IRR. And we’re, I would say, as patient a capital provider as exists out there. Really the intention is to build long-term private companies.
Alex Bridgeman: So, you talked a lot about building the perfect buyer for small businesses, but what goes into being a perfect owner? So, after you’ve acquired that company and it’s being run, there’s a management team or a searcher, what goes into building-? What are the pieces of being a perfect owner for that company over a longer time horizon?
Justin Burris: I think there are a lot of pieces. Probably one of the foremost among them is it’s good stewardship. Small businesses are people’s life’s work. They’re all of their relationships – I mean, their employees, their customers, their suppliers, their families. These are not financial assets. These are businesses and webs of relationships really that people are deeply personally invested in. And nobody wants to sell to a buyer who is going to do damage to that web of relationships. And so being somebody- And selling to somebody is really entrusting those relationships to them. And it starts with acting with integrity and kindness and humility and understanding of you have to listen to everybody else around you and not- you can’t go into a small business with the expectation that you’re going to ride rough shot over everything that’s been built before. I mean, the number one tenant before anything else is do no harm, and after you’ve done no harm, then you can think about what it means to continue to grow. But the other piece on that is, I think, a lot of sellers are interested in transitioning their companies to somebody that’s not going to keep things the same, they’re also going to grow them. So going in with the mindset that there are specific levers you’re going to pull, and there are specific ways that you’re going to grow. And those ways are in accordance with the values that preexist your position. I mean, ultimately, the short answer is grow, but grow the right way.
Alex Bridgeman: Yeah, I agree. And one thing that’s been kind of interesting that you’ve built on so far here, and the rise of more permanent capital holding companies illustrates too, is there seems to be, at least from the way I see it, there’s a number of models that are trying to closer and closer and closer to what a high-net-worth individual would invest in off their own balance sheet, how they would behave versus with other people’s money. And it seems like each of these models gets a little bit closer. How close do you think something like Majority Search is to that style of investing?
Tim Ludwig: It’s amazing. Just even in the last five years, the willingness for investors to commit capital on more permanent terms has gone through a huge shift. Five years ago, if you would have gone out to investors and said I want to raise permanent capital or something that’s measured in decades, the door would have been slammed in your face by almost everyone immediately. And now there’s just a much greater willingness for people to engage in that dialogue and to consider it. And so, Alex, as you were saying, I think it is becoming a closer reflection of what high net worth individuals do off of their own balance sheet that have these indefinite time periods. And we’ve tried to honor that. We firmly believe in that, that the power of compounding is best earned over multiple decades. And so, our structure is sort of a quirky hybrid where there’s a traditional 10 year fund life, but then at the end of the fund life, investors will have the discretion on a deal-by-deal basis to opt into continuation vehicles to roll their equity and continue on potentially indefinitely. So, they have both discretion as well as an evergreen time period.
Justin Burris: Yeah. I mean, look, we raised a fund, we didn’t want to raise a fund. I mean, I think we almost got comfortable with the fund construct. Despite it being a fund, we have to sort of rewrite the rules of what a fund could be in order to enable longer term holds than is otherwise conventional for a fixed life fund. I mean, we went to the drawing board to come up with something that we felt served our partners, our investors, and the companies that ultimately sell to us as well as possible and enables optionality for long-term holds without necessarily locking people in. But I mean, really the goal is we want to be as close to the way that family companies operate as we possibly can.
Alex Bridgeman: So, if you’re an operator who’s confident in your skills and you feel like you can run a company, but you don’t really have the capital around you, what are some things that you advise them to do? Whether it’s working with certain buyers or approaching operators, what are some advice points that through your time researching Majority Search that you’ve come up with?
Justin Burris: Yeah, a couple of things. One, I think it does depend on what you want to do, and everybody wants to do different things. If you want to buy a single company and grow it, the best thing to do, if you don’t have capital, is to affiliate with folks that do have capital. So that could mean self-funded, traditional, family office sponsored searches. I mean, there are sort of a broader range of options out there that never existed before. But I think that finding a way to get as close to committed capital as possible is probably the best and easiest way to differentiate yourself as a buyer. And this is increasingly popular, actually, the idea that people want to pursue roll-ups. Then even, I’ve spoken to a lot of people who are interested in raising funds. I think it is easier to raise capital for a specific deal than it is to raise for a blind pool, I mean, for a lot of reasons. Investors can see and touch the specific company that you’re going out to buy. You can underwrite that much more easily than you can a couple of guys that are going out to pursue deals. The other piece of it that I think is actually critical is a lot of funds ultimately start out deal by deal. There are relatively few first time funds that raise a committed pool of blind capital to pursue ten acquisitions. Mostly they do one and then they do another, and then they talk to their investors and pool them together and stitch them together into a single vehicle that has exposure across multiple assets. So that’s actually even probably the more common approach. And even if you pursue something that’s one-off, I wouldn’t necessarily say that that shuts the door on a fund. The other piece is just roll ups. I mean, look, a lot of people are interested in pursuing roll-ups. Usually, the right answer is get comfortable with one company and then see what makes the most sense over time and sort of create like Carl in whatever direction is the most natural progression for the business. So yes, you can go in with a specific thesis about industry consolidation, and sometimes those can make all the sense in the world, but it usually it makes sense to keep your eyes on the asset that’s in front of you first for at least a little while.
Tim Ludwig: I’ll just add on one thing. There’s maybe a less obvious answer that I think is really compelling that I don’t see too many people doing, although I know it happens all the time, I think it’s just sort of done quietly, which is entrepreneurship through apprenticeship, which I would define as somebody either is already working with an organization or has approached them about buying it, but that option isn’t on the table. There’s a seller that’s willing to retire but maybe not today. And so, you affiliate yourself with them usually as an employee, work there for a period of time, which I view as sort of extended paid diligence, and then can create a very favorable transition structure to take over the business that you’ve then been operating for a long period of time. To me, it’s the best way to de-risk an acquisition and, also, I think would tend to lend itself towards more favorable terms. And so, your question I think was what do you do if you don’t have the capital – that actually pays you to buy the business and then you can maybe get a hundred percent seller financing or a bank loan or something. But I think that is a very viable path that probably should get a little bit more attention than it seems to.
Alex Bridgeman: I know there’s an entrepreneurship organization, Entrepreneurs on Deck I believe is the name, that’s probably the wrong one, but there’s a VC group effectively that goes and finds entrepreneurs or people who should be entrepreneurs and then turns them into entrepreneurs and helps them find a co-founder. That seems like something, the entrepreneurship through apprenticeship, it seems like a model that something like Majority Search or even perhaps a separate fund within Majority Search could do is connect those folks who want to be operators but want to de-risk things a little bit with operators or CEOs or owners who want to transition a company over time and perhaps train someone while that happens. Is that a model that you think could work or may perhaps you’ve already seen someone else try?
Tim Ludwig: I haven’t seen somebody try to do that. I think it could work. I don’t know that Majority Search or any one entity needs to try and create a program like that. I think, I mean, I just view our role as trying to be supportive of this whole ecosystem. And so, if we find opportunities where that’s the desire of the seller, I think we would just, out of trying to benefit the community, try and match those people up anyway.
Justin Burris: I think that’s right. Like ultimately, we are building an ecosystem. We have a relatively dispersed group of investors. We’re going to partner with multiple operators. We’re receiving inbounds from businesses that are looking to transition. It’s only natural to try to add value to all of those parties however we can. And I think, even already, we’ve received some inbounds actually that resemble the characteristics that you’ve described, and those are super interesting opportunities. I think if we can find ways to add value there, we’ll do so.
Alex Bridgeman: Earlier on, you mentioned, and we talked about this before, but how Berkshire Hathaway is so well known as a buyer of small businesses- or not small, not small businesses, very large businesses now.
Justin Burris: They’ve gotten bigger.
Alex Bridgeman: Yes, they have. And there’s a certain cachet and reputation that they’ve developed such that owners want sell to Berkshire Hathaway because there’s almost this little bit of status boost perhaps among peers, knowing that if you sold a company to Warren Buffet, that’s a pretty big deal if Warren Buffet believes your company was valued enough and valuable enough for him and his firm. So, if you think of that kind of reputation building, how do you do that as a new buyer? So, how do you think about building that cache from scratch when you’re starting from zero?
Justin Burris: I mean, look, I think it does, like all the things, reputation takes time, like ultimately acting with integrity over a long time period is the way to get there. That sort of thing doesn’t happen overnight. That comes from doing the right thing in a reliable fashion repeatedly over many years. Ultimately, when the seller has built their business over a very long time period, deals, unless they’re being shopped by a broker, even then, like they’ve got to get comfortable with you as a buyer. So, it’s being honest and open and straightforward and getting to know people in not just a professional sense but also a personal sense. And hopefully, if you don’t have the brand at the outset, it comes through building that personal relationship at the beginning. And then over time, those should scale and reputations travel quickly.
Alex Bridgeman: There’s a couple more questions I’d love to ask you, but I’m very excited to hear your closing question answers. And Tim, we’ve already asked you these questions on the podcast, so I’ll let you rest. But Justin starting with you, what college class would you teach if it could be about any subject you wanted?
Justin Burris: I love this question because I would love to teach college classes. The one that- I mean, honestly, the scale that’s been most advantageous to me throughout my career has always been research and the ability to find information that I’m looking for and basically bang my head against the internet until an answer falls out. And more often than not, it does, but sometimes it takes a little bit more headbanging than others. And I think there are ways to be more efficient with those efforts and to be more effective in those efforts. And there’s sort of a resource knowledge that has been a huge boon for my career. And I would love to share that with others as well.
Alex Bridgeman: How might you design that class? What would you have students do?
Justin Burris: I mean, really in reality, look into specific esoteric topics, something that nobody’s ever thought about before, something like beekeeping, and find something about beekeeping that is super interesting or novel, something that others don’t necessarily think about and then present the information in a way that’s digestible and truth seeking. It’s both subjects, it’s companies. I mean, ultimately, it’s sort of doing work to get to the answers you’re looking for. And I think it’s both hugely helpful and also wildly underappreciated.
Alex Bridgeman: Have you done any research on beekeeping? Maybe it’s a good business.
Justin Burris: I thought I had a way to invest. I don’t, but maybe I’ll look again.
Alex Bridgeman: Awesome. I hope you find a way.
Tim Ludwig: Ask Justin about pollination after our talk here.
Alex Bridgeman: I definitely will do that. What strongly held belief have you changed your mind on?
Justin Burris: Yeah, I don’t know. I mean, more of a mindset than a belief, but I think in general, I spent a lot of my life thinking that there was always somebody playing chess against me. No matter what I was doing, there was somebody who knew a little bit more or had done more work or had an inside lane and that basically, no matter what I did, there was somebody who was like just had that extra edge. And I think, time and time again, I found that there wasn’t, that the largest obstacle in the way of getting in the things I wanted to do was myself and personal psychology. And I think for a lot of people, ultimately, personal psychology is the largest enemy that they’re ever going to face. And conquering psychology or at least your own psychology I think is critical, especially for first time CEOs.
Alex Bridgeman: I love that. What’s the best business you’ve ever seen?
Justin Burris: Like Tim said, Pollination Services is interesting. But I don’t think that’s the best I’ve ever seen. Probably if I had to pick the one that I think is the most interesting and promising and if you could own a piece of the GP, you’d be very happy about it, is Y Combinator, just endlessly fascinating in so many ways. We do draw inspiration from Y Combinator and everything that they’ve been able to accomplish. And I mean, I think about YC as really their customers are the founders that they’re backing. The product is really having graduated from YC and the accreditation that goes with that. And the price that they’re selling it for is the equity that they’re taking. And I mean, it’s amazing. It’s a compounding moat that surrounds that business over time because they work with ambitious people who go on to do amazing things. The brand of YC just becomes stronger and stronger over time. It becomes more and more desirable to graduate from YC, and I mean, it started out with batch sizes of 10, now it’s batch sizes of 400, and they’ve scaled and compounded their brand and their reach. And I think if you look at the other sort of institutions that resembled them in some ways as highly desirable institutions to affiliate with, I mean, there are things like top tier universities, which have been around for hundreds and hundreds of years, and the brands have only grown stronger and stronger. And I don’t know that I would draw a line in the sand say that YC is going to be around for 400 years, but it wouldn’t shock me if they are around for a very long time to come.
Alex Bridgeman: Yeah. It seems almost like a luxury product for a founder to go and buy. And within that, like what are you thinking are some of the mechanisms that enable that luxury feel or that notoriety and reputation? Perhaps it’s just time that built it, but I’d be curious, what are some other things from YC that you studied that allowed them to build something like that?
Justin Burris: Yeah, probably the single largest aspect of it, I mean, there are a few, probably foremost among them is the community. And the others that have graduated in the past and also are still involved and are adding value and the comradery that goes associated with that. I mean, there are so many sort of network effect, compounding scale advantages to what they’re doing. I think in our case, for example, we really are obsessively fixated on building a community over time, both among the operators that we partner with, the investors that are investing alongside us, the companies that are ultimately selling into our fund and the ability to find ways for everybody to add value over time. And Majority Search shouldn’t be just us. Majority Search should be the entire community that surrounds us and building opportunities for others to add value to. I think one thing, just off the top of my head, that I think about a lot is the most common path for former searchers who have done incredibly well buying and growing one small company and seeing the value creation that can come with that is to start investing in other searchers, and a lot of these now. And I think it’s a natural progression. If the partners that we take on are doing incredibly well and they’re getting to the point where they’re starting to think about diversifying their exposure across a couple of other businesses as well, I mean, we’ve got a whole portfolio of them where they can get involved and whether that means sitting on boards or being a peer mentor. I mean, finding ways for people to add value to one another and almost like fostering that connectivity and that type of support because, yes, it can happen organically over time, but like so many things, you actually sort of have to point in the direction and say this is the kind of thing we want to do more of for it to actually happen. If I can fast forward 10 years and say the things that I think we really want to do well, it’s building a community that people never outgrow.
Alex Bridgeman: I love that. Well, thank you both for coming on the podcast today but also previously and chatting with me several, several times about ideas I have or ideas that you have. It’s been really, really fun to get to know both of you. So, thank you for sharing this with me today.
Tim Ludwig: Thank you, Alex. And thanks to Sam, Brandon, and Matt down here for organizing this. It is great to get everybody together. It’s a really special event that I think is an awesome thing for the whole community.
Justin Burris: Thank you. This was a ton of fun. I loved this. Thanks, Alex.
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