Paul Yancich and Ryan Beaver – Lessons from 14 Months Acquiring in Software

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(3:04) – What have been some early learnings as first-time investors and founders?

(5:50) – In what ways are you efficient with Arcadea and where do you focus your resources?

(9:42) – What do the first 1-2 years look like after closing?

(16:38) – What are some other ways you create value and make it collaborative with CEOs that join you?

(20:53) – What parts of a software business have changed and what’s stayed relatively the same?

(24:46) – When you look at software companies today, what are the most common technical best practices missing?

(30:56) – What are some key learnings you’ve had from chatting with folks like Will Thorndike and Mitch Rails?

(37:47) – What makes founders excited about Arcadea over other potential acquirers?

(40:04) – Do you have any ambition to be a public company?

Alex Bridgeman: Well, good to see you guys again. Our first episode went really well, and it was pretty cool to hear feedback from that episode. So, I’m excited to see you guys on again. One thing we didn’t do last time was, well, you had less time starting Arcadea because you had only just recently started it, but I would love to hear now that you have 14 months in Arcadea Group what have been some early learnings as first time founders, but also investors, and how have the first kind of year and a couple of months been for you?

Paul Yanchich: Yeah, great to be back. And congrats on what’s going on with your show, too, by the way. We listen pretty much every week and appreciate that. Let’s see, so the first year and a few months here have been, like any for any founder, very humbling and motivating and lots of ups and lots of downs and in rapid succession, back to back to back, rapid succession, that is. So, we’ve had a bunch of lessons, but I would call them things that we already knew but that we now more deeply understand and appreciate. So, some things come to mind like quality of team being everything in our type of business and in a software business, especially at the founding stages. So having a really high bar for people, being very clear with how you measure what success looks like both for their benefit and for our company, our investment firm’s benefit and making sure you’re very deliberate about investing in people and in certain skills of certain roles. And so, I think we’ve mostly got it right the first year. We’ve been lucky to have nobody in our sphere that isn’t really high quality people, but also there’s that lesson of you can have a really high quality individual who’s great for maybe a company that’s 50 employees or a company that’s 5000, and it doesn’t mean they’re not a really wonderful individual or performer, but in our context, we have a unique situation in that we’re a startup but we don’t really need to create a product and find ICP, we kind of know that. We’ve done it before, but never done it before on our own. And we’re kind of a training organization. But we also don’t have the infrastructure of a big private equity firm where we can give people two or three or four years to be ultra-productive. So there’s a much higher ask of our people. And I think we’ve gotten- and we think, by the way, a much bigger opportunity for those same people. That’s the tradeoff. But we’ve gotten much better about identifying amongst ultra high-quality people who will be a good fit in our uniquely complicated environment. I guess that’s the most salient learning, I think, that we have or the one that’s hit home the hardest for us.

Alex Bridgeman: Yeah, I know you’re also really heavily influenced by the equity efficiency at the head office of companies like Constellation or Berkshire Hathaway. How does that manifest with Arcadea? What ways are you really efficient and try to keep things lean? And where do you really emphasize and put more resources to?

Paul Yanchich: Sure. So, we absolutely take a page of the book, pardon the pun, from one of our most important investors, Will Thorndyke, who was the guy who really encouraged us to do something, day one. And so, as students of the outsiders, we know you just can’t walk around Will and have a fancy office. So, we’ve got a pretty Spartan office. We’ve got a pull up bar and a dip station. And we’ve got some nice water that we supply for each other and some coffee. But otherwise, it is pretty bare bones. I mean, we got the cheapest desks that you can buy, the most affordable but ergonomically supportive chairs. And there’s really not much to it. And it’s like borderline embarrassing, I think, for us. And that’s the way we want it. Because we never want to be proud of our office. Because as soon as we have that, I think we’re spending too much. And that’s money that can be either not called from our investors and used more efficiently elsewhere in their limited set of outside investments that they make, or more importantly, used in an organic or inorganic opportunity for us. So, office is one. And then the other side of things, I guess, is people. That’s really our only expense. I mean, we pay for Microsoft, we pay for Salesforce, for a couple of little data sources, but really, it’s people. And with people, we have, as I mentioned the last topic, we have really high expectations. So, although we have a team that’s focused on investment development, market coverage, market research, and then we have kind of separate an investment team, the investment team need to be putting at bats on the board for us on the sourcing side. And there’s an expectation that they’re bringing actionable opportunities to the table. So, it’s also very different from a typical private equity firm where you get books in or you have a team that just does sourcing and a team that just does execution. We don’t believe that that’s the way things ought to be done. So, we have really high efficiency out of a really high caliber set of people. And that also helps us keep our head office efficiency to, I hope, acceptable levels.

Alex Bridgeman: Yeah, I bet there’s a caliber of person that sees the type of team that you’ve built of very ambitious and motivated folks and also sees the very modest office and probably gets really excited.

Paul Yanchich: Hopefully, yeah, it’s definitely a filter for opt in. No doubt. There’s also a way to do that with compensation, which I learned firsthand from when I joined Constellation, and Constellation pays fairly, all that, but my first role there was a massive decrease in pay when I worked for Mark Leonard, and I was still overpaid, even if you’re paid $1, I was overpaid. But that said, it was an absolutely deliberate filter, I’m sure, that Mark put up to ensure that folks are valuing the opportunity. And while we’re not paying people dramatically under market or anything, we’re also not in the top 5% of the market. And that’s both a function of what we can afford as a new fund with 260 million US, 320 whatever it is today, Canadian. You just can’t match KKR, the fee game is not fair. But at the same time, we want people who are focused on the long term opportunity, opportunity to learn, the opportunity to build this business with us as opposed to be an employee of somebody else’s dream.

Alex Bridgeman: And speaking of building businesses, a topic we didn’t touch on nearly enough last time was plans after closing on a business and integrating those teams and using the Arcadea team to help drive value at those companies. What does that look like for the first year or maybe two years after close? You’re only 14 months in, but I’m sure you have a nice handful of case studies now so far.

Paul Yanchich: Yeah, sure. I’ll use this as a chance to introduce Ryan or rather have Ryan introduce himself and also just quickly give an update on where we are for context. So we have five closed investments. The sixth we’ll close, touch wood, next week. So, we’ve been averaging about one every other month. So, we’re in the first cycle of going through these value creation processes. And it’s definitely top of mind right now. So, I’ll use that to hand the mic over to Ryan, who joined us a few months ago. And maybe, Ryan, just give a brief intro on yourself. And then we can answer that question more directly, Alex.

Ryan Beaver: Yeah, for sure. So, Alex, I started my career as a software developer. So, I went to school for CS only because it seemed difficult not because I think at the time I was super, super interested in it. But did the standard kind of graduated from computer science college, pilgrimage, worked at a couple of startups early on in my career. One for kind of first responders and firefighters, which was actually pretty interesting. And the second one, not so interesting, which was tracking like telemetry on gas cylinders. But that being said, after kind of a run at startups, I went and joined CSI and I lived there forever, 18, 19 years at CSI and had kind of almost every role you could think of, which is part of the reason that I’ve come here at Arcadea, which is that I’ve been developer architect, I’ve have led development teams as a director of development, I have led professional services and support teams, I had the benefit of being CEO for a couple of different businesses there, and all of the kind of good learnings and benefits you get from doing that in a really just operationally functional place like CSI. And then also had a really interesting role for a couple years, which was something called the Initiative Champion. So, I worked with a group where we effectively built or acted as a small startup amongst a bunch of mature companies. So, it’s really legacy products. And we ran around building applications for these groups who either didn’t have the skill sets or the bandwidth to do it, but it was just such a good learning from day one to the day you sell the product, what value creation really looks like, knowing the product side, but the business side. And then I joined Arcadea here about two or three months ago to do exactly what you just mentioned, which is come alongside the guys, look at the VCP ideation and really execute against the ideation. And we do that in a couple different ways, Alex. So I think it’s relatively unique because it’s a blend of a lot of our experiences. But we take the ideation and we kind of break it up into a Microsoft DevOps board. So almost something similar to what you would anticipate seeing developers use. And we leverage all the benefits of that. So, we don’t go with big abstract ideas. We build really thoughtful cards on the board. We define really hardcore acceptance criteria, which is kind of our way of saying this is how we know that one of the value creation items is done. And then we share that with not only the internal Arcadea team that’s working on the VCP process, but also the leadership team who have recently acquired a company. And we use a process called Scrum band where people take cards that they feel like they can do, they pull them across the board, rather than us assigning or pushing cards to them, which is a much more effective way when you don’t have a captive audience to manage a big process like a VCP. And we’ve been really successful at it. We do kind of align ourselves to some fundamental processes that help us execute well, which is limiting work in progress, ensuring that you’re always pulling, really being measured in our throughput in who owns items on the board, and working alongside leaders rather than just assigning items to them. Which gets back to why Arcadea is different and why it was so interesting for me personally. It’s an investment group founded by a bunch of operators who have things to bring to the table for kind of founders and owners, whereas many other groups aren’t that way. I would say we even boil it down, I guess, Paul, to our individual days. So we’ve learned a lot from Deep Work from Cal Newport, and almost all of us have Eisenhower boards, Alex, where we prioritize our work. And then we spend time every single morning scheduling that work out to ensure that we’re super highly effective. We limit distractions. We really don’t use Teams or email very often to distract one another. And just really hold ourselves to the point that Paul just made, to a super high bar, not only when we’re executing the VCP as a team, but also in our individual efforts against that to just be really effective because that’s ultimately what determines whether or not we’re successful here. So kind of a deep history of doing that, and I’ve really enjoyed doing it here for my first few months.

Paul Yanchich: I would just add, Alex, it’s really, really helpful both in the courting process or let’s say prove it process when we’re dealing with prospects and after close to have folks like Ryan around. Andrew Hastings is also on our team. He’s another former operator on the sales and marketing side, a number of SaaS companies having built sales and marketing motions of various types. And there’s a huge difference when those people are part of the core investment and leadership team of the business as opposed to kind of the folks off to the side. There is no difference between the managing directors, of which Ryan is one, and the people who are driving value within the businesses or the people to whom certain deliverables or expectations are accountable. It is just really helpful because it brings a lot of credibility, and more importantly then the credibility, just a lot of value and a lot of empathy. And I think something that it took me a long time in my career to learn, which I learned at Constellation, after the growth equity world, was you can know all this stuff from a spreadsheet, and you can read all the books, and you can talk the talk in the boardroom, but if you’ve never gone in and adjusted pricing or taken teams out or hired teams yourself, there is an element of insight and effectiveness that you lack. And the last point on this, not to beat the dead horse too much, is for all of our investment professionals, they know that they have an expectation that they will run at least a division, if not an entire business, in our portfolio for a period of time when, I don’t know, a CEO, God forbid, gets sick or somebody goes on a sabbatical, which we offer to some of our CEOs who have been around for a long time. And that’s something that I think is really, really critical and most firms just don’t get right.

Alex Bridgeman: That makes a lot of sense. Ryan, you mentioned one tiny detail where instead of pushing ideas and cards, as you put it, to different CEOs and telling them to do different things, it sounds more like you offer almost a menu of ideas or options that they can take, and you’ll support the ones that they choose. I’d be curious, what are some other ways you make that process of kind of value creation in the early days, how do you make that more collaborative with the CEOs who just joined the Arcadea Group?

Ryan Beaver: I think, honestly Alex, it gets back to what Paul just said. So, there’s a really big difference between knowing what value creation is and understanding it. So, it’s really, really rare that when I sit down with one of the CEOs, and we start working through even really difficult items, whether it be price increases or how you build a team, so they know that I’ve also done all of this. So, it embeds a certain level of understanding between myself and them. And on top of that, there’s just a certain believability with someone who’s walked the same walk you have. So, to directly answer your point, Alex, we do have a generally kind of really good sense of what value creation looks like generally for the first kind of 12 to 18 months. And that fully transitions into more broad strategy in how we grow the business. But I think we’re always really open to just having a meritocracy of ideas when it comes to this. So we oftentimes have CEOs who come back and want to implement a value creation item a little bit differently or want to table it or work on it with a different group of people or a different group of customers. And we’re always open to that as long as we have the underlying data to back it up, which I know Paul and Daniel talked about this last call, but we’re just so data driven. We’re happy to be this kind of idea meritocracy inside Arcadea as well as the leadership groups and to adjust if people come up with really good ideas and they have the data to back it up, I think we’re almost always willing to seriously consider that and adjust their approach.

Paul Yanchich: I would add to that, there’s different levels of maturity or sophistication for CEOs. And it’s not a judgment about one being better than the other. But you can have a CEO and management team who are in their mid 40s or mid 50s or mid 60s, whatever, who have seen three or four or five businesses and learned along the way. Then you can have founders who are 32 or 37 or 40, whatever, typically younger, but not always, who have only ever had one experience in a software company. And so, for more sophisticated CEOs, or I should say more experienced CEOs with a broader set of experiences, we’re working on different things. For those who need to have the opportunity to learn more and more quickly because they’re starting from a different point, we may focus that first three to six months a lot more on teaching and explaining and sharing why things ought to be done a certain way. Versus an experienced CEO who if you say, hey, we need to measure the difference or the conversion chain from inbound leads to MQLs to SQLs to SQO to demo, demo to close and the cycle and the slippage from last quarter to this quarter so that we can properly size the BDR team and is that an SDR team or is it a BDR, like they get that, and we may have some better mental models that more accurately map to reality for them. But you don’t have to explain why do we need to measure these elements. So hopefully that gives you some more context too. And with a takeaway for the CEOs and the owners that we try to work with, we talk about this a lot with them, like we’re here to meet you wherever you are. Because we have a permanent horizon, we don’t need to immediately swap people out who aren’t as sophisticated. We have the time to breathe. We have the time to give people opportunities. It doesn’t mean that we hang on to people who can’t perform forever just because we want to be nice. I mean, that would be nice, but it’s not realistic. But it just means that we’re willing to let people come up the curve a bit. So, the first years really differ based on who is in the seat and then also what kind of position the business itself is in.

Alex Bridgeman: I’d be curious what you would say is the half life of experience, especially in something like software where the rate of change is so dramatic from a technical perspective. Like running a software company today in 2022 is radically different than 1995 or early 2000s. I’d be curious, how you would balance the experience of someone who maybe has run five companies over the course of 30 years and has seen that rate of change but balancing it with somebody who’s relatively new and has kind of some of the entrepreneur naivety to try new things and see what works. How would you balance the two? And maybe a better phrasing for the question is what parts of a software business tend to stay the same and have changed very little over the last maybe 20 to 30 years?

Paul Yanchich: So, I think that obviously, the thing that’s changed the most rapidly is the technical side – new languages, new approaches to development, the art and science of development, new libraries, new infrastructure products. I mean, look what’s happened with this public cloud. And then now you have businesses being built on top of mega platforms, the Salesforce.coms of the world, Service Nows of the world, etc. So that is always changing. And I think it just is a prerequisite for successful technical leaders that they’re extremely hungry, self-teaching, autodidacts, I guess, who are going to continually stay, if not in the absolute weeds of what’s new, at least at a heuristic layer, understanding what the new technologies can facilitate. That’s the one that obviously changes most. You compare that to, I guess, professional services. I don’t think that 15 years ago, at the beginning of my software investing career, the way you would go about a successful implementation for a big ticket ERP implementation for a multi-site industrial customer is all that different than today. Sure, you can probably do a lot more provisioning remotely. COVID has accelerated the ability to do that. And we probably have better project management hygiene. And using not just waterfall implementation methodologies, but it’s Scrum or Kanban, or whatever. But more or less, you’ve got to do the same thing. And so, I think you have a range of variability over time. And I guess, could you bring somebody from a time machine 20 years ago and stick them in a software business? A developer would probably not do so well. And meanwhile, the head of sales and marketing would probably do really well, if he or she were a really data driven person, because they would find themselves with all of these tools that they used to wish that they could have, like knowing who their website visitors are and which segment of their ICP is buying when or engaging with product. But I think that no matter what function you think about, anyone can last for a really long time, so long as they’re committed to learning and they’re constantly critical of their knowledge and suspicious of whether or not what they know is up to date or not.

Ryan Beaver: It seems like having come from development myself, I feel like a lot of the year to year changes across the board are more impactful or proportionally more impactful to frontline employees compared to leadership teams. It really drives home the point that you have to build your teams with the types of people that Paul talked about, these constant learners, always discomforted by changes in the environment, which helps you ensure that on the frontline, you’re making all the really good decisions that relate to those incremental changes where hopefully most of the time the leadership team’s a little more long term focused.

Alex Bridgeman: Yeah, and Ryan, I might keep with you on this question. But when you look at software companies today, among the five investments you’ve made so far and this one that hopefully is going to, knock on wood, close next week, and any others you’re looking at, what are the most common technical or best practices that you see missing most often in software companies today? Like where are the shortfalls that you see most commonly?

Ryan Beaver: Yeah, that’s a really good question. So, I’m going to actually pivot away from technology and change. And I would say, I always want to see software companies have the same rigor for what they put on their roadmap and their backlog as they would for any other investment in the group. And it’s really interesting because it doesn’t happen as often as you think it might. But development in these companies is a huge optics line item, like they’re spending enormous amounts of money on it. But if you were to ask the founders or at least the leadership team to really go through the roadmap in a meaningful way, explain where the value creation is, how does that support long term strategy in the business, oftentimes, they can’t. It can even sometimes be a bit of a black box or some level of magic when it comes to development teams. And that’s always a struggle because finishing with a VMS company, they’re growing, or they’re at least fighting attrition by running really good development teams and building really high quality products. So what we really like to see is, or at least trying to assess with whom we dive in, is just getting people being highly analytical about what shows up on the roadmap, really data supportive, big feature items on the development roadmap. I love seeing development teams or at least product owners who actively seek out feedback loops, oftentimes with some of their harshest critics, as long as it’s accurate. Really harsh criticism of what you plan to do to a product can be so valuable. And then I really like to see, Alex, a split of two things. I love seeing product owners be accountable for building business value in the product. So, they’ve really thoughtfully designed the product and all the acceptance criteria that goes along with it. I love seeing development really just focus on building quality and maintainable implementations. And when you have the accountability really, on some level, sitting in the two different groups, it seems to work really, really well. And they connect together during whether scrum sessions or product grooming. But these people understand how they add value to the company. And I’ll say just briefly, I mentioned that I was a product kind of initiative champion in a past life, Alex, and I really learned a lot because I would take kind of with my group of startup developers new products from the value or ideation stage all the way to we would sell the first five or ten. And you just become really accustomed to looking for those core things like I mentioned, really harsh feedback loops, data driven on everything. And really, if you’re good at it, you’ve polished all of your ideas through mockups and conversations before there’s ever a line of code written. So those are the things that we really try to drive home in the teams which are all interlaced with kind of the best practices here at Arcadea.

Alex Bridgeman: One thing I’m also going to be really excited to see over time with Arcadea is as you have more and more companies and case studies and examples where you’ve worked with management teams on some of these product investments you just talked about, I imagine that that data, that marginal company, company 10, 11, 12, 18, 20, it’s going to get a lot more value from Arcadea as a result of a lot of the work that you’ve done, that you’re currently doing. There’s got to be a compounding hive mind of data and information that you have on how software companies work, how product development works, and all these other best practices that over time must contribute a lot of value. So, I imagine that Arcadea in 20 years is going to add a ton more value than maybe Arcadea today just from that kind of compounded learning over time.

Paul Yanchich: Yeah, I hope so. Otherwise, we’ll be obsolete. And one of our major investors, Mitch Rales, the founder Danaher and the all famous Danaher business system, likes to remind us anytime we text or talk or see him is that we’ve got to evolve, and Arcadea for the next five, six years, we kind of know what it’ll look like. But we also know that in 10 years, it’s going to look dramatically different, unless we want to become just another aggregator that is kind of doing the same thing and probably hitting barriers to scale with respect to quality of people and investments. And we don’t want to do that. So we’re very anxious about making sure that we’re learning all the time, and we learn from our worthy rivals, who we study in the market with great admiration, whether they’re in software or they’re in health care services. And we learn mostly from talking to founders, which is why Ryan, Daniel, and I, as the three MDs of the firm, are on so many calls with founders because, yes, it helps build rapport and all that sort of stuff, helps our funnel conversion metrics, etc. But the real reason is we’ve got to always be learning, and that’s the best way to do it. It’s not from Harvard Business Review or some TechCrunch blog or Axios or something like that. It’s from people who are actually living and breathing software operations, technical decisions, strategic decisions every day. So yes, our companies 10 years from now are going to be a lot more better off than our first several companies. And we’re, of course, building on what we’ve learned at really great firms like Torquest, which is a wonderful world class private equity firm in Toronto, and we love those guys, and Arsenal Growth, where I started my career after Citigroup, and obviously Constellation. And we owe a lot to the learnings that we’ve picked up over the years. And we’re obviously trying to evolve those pretty aggressively because we also see a lot of opportunity that those firms are not taking advantage of. Hence, Arcadea.

Alex Bridgeman: What are some key learnings you’ve had from chatting with you mentioned two of your key investors, Will Thorndyke and Mitch Rales, who both have worked in and studied compounding companies that had strong acquisition strategies? I would love to hear key lessons or key takeaways for Arcadea from chatting with those folks and others.

Paul Yanchich: Yeah, sure. So, I think the huge encyclopedic amount of knowledge and wisdom that Will Thorndike has on the subject is best covered by his book and his podcasts and 50X and all that. The one that he probably doesn’t write about that has really struck a chord with us is this tension between this being a 30, 40 year journey for the rest of our lives and not needing to go out and kill it next quarter and get the capital out and try to go raise and expansion, all that sort of stuff on the one hand. On the other hand, we’re, as he says, divinely discontent. And every quarter that we’re not doing something to the absolute peak expectation we have, we’re going to feel like we’re let down, which by the way, means every quarter, we feel a little bit let down. And that’s what drives us as people. That’s what drives us as a firm. And he’s just put those two contradictions, I guess, together, a paradox, in front of us in a really peaceful way. And we love hearing from somebody like him who’s both invested in us financially, but also just in terms of being a mentor. I think, from Mitch, again, you can study Danaher and Colfax and Florida, and learn a lot of what to do from those guys. There isn’t a lot of what not to do because they don’t seem to have made too many bad decisions ever. But I think something I’ll share kind of on the personal side is I love seeing a guy like Mitch who has achieved so much, he’s still young, he’s still got a lot of years left, but a lot of people that achieve that are kind of feet up and relaxed and shipping it in, and that is the opposite of how I’d describe Mitch. And so, he’s extremely high energy, high commitment, super helpful, willing to help little old us with anything, a founder call, looking at a small little deal that’s worth like one minute of Danaher’s annual revenue. And I think that it’s just a really great example of what it means to be passionate about something and not have it be about the money or about the metrics, it’s about just being excellent. And that’s just really motivating to see because we really would like to be doing that when we’re in our 60s.

Alex Bridgeman: Yeah, and all of those folks are really good at getting extremely talented people and ambitious people to come work for them and get excited about the businesses and projects that they were building. What kind of lessons from them have you taken on recruiting and hiring and building management teams that are both aligned but also really excited and have similarly long runways? Because if you have someone who’s great, you want them to stick around and help you build this thing for a really long time as much as possible. How do you attract those types of folks?

Paul Yanchich: So, I think, I’ll de-specify it to any one individual, but just say, the learnings we have from both some of our investors who have also built world class private equity firms and are investing out of their family offices as well as our prior mentors at previous firms have mentioned are as follows: First, you got to have skin in the game. We’re a big believer in that. So that means equity upside. And equity is extremely valuable right now, we think, because we’re at a low basis, and we’ve got 30, 40 years to run. So, we’re very careful about who gets that when. We want to see that there’s some ability to stick and fit before we grant that out. But that’s obviously there. You need to take care of the economic incentive question, and nobody’s going to work out of the kindness of their heart only. So, we’re realistic in that regard. The second is you’ve got to advertise your values early, often, almost ad nauseam, especially early on in a company or when it’s a small company, even if that’s 20 years on. So we talk about our values a lot, long termism, meritocracy, which leads to autonomy, data not stories, customer centricity. And we talk about those a lot. And we want people to opt out of Arcadea, both at the recruiting stage and once they’re in. And we’re very happy with folks leaving if it’s not a good fit. And we want there to be a clearly not punitive, not painful, not shamed filled exit ramp out of this place. And we’re okay with that. And we’re going to support people who come in and who realize that it’s just not the right fit for them. So, I think letting people know that upfront also helps people take a risk and go for a newer firm. And that’s really important. And then I think lastly, people have to just be into what we’re doing. What we’re doing is growth-y smallish vertical SaaS investing over really long horizons. We’re very different from the aggregators of the world, very different from the Quick Flip investment firms of the world. And luckily, there are enough people who are passionate about investing and technology where there’ll be some overlap of those two, of that Venn diagram to make Arcadea a place that is unmatched by anyone else. And we’ve just got to do a good job finding those people and making sure we have enough feelers out there so that they know we exist, and they know what we’re about. It’s otherwise really simple, like treat people fairly, give them tons of opportunity, let them have a lot of rope but don’t let them hang themselves completely, maybe a little bit, feel the tension pulling in there for a little while, but then let them loose. And that’s kind of it. I don’t think there’s any other magic to it.

Ryan Beaver: Alex, I think having just started two or three months ago now, I would add one thing that Paul’s missing, which is there’s a certain level of authenticity to Paul and Daniel do here, but the team as a whole. So you see it bear itself out in how we talk to possible acquisitions, how we interact with one another, we argue really, really well. Regardless of who you are in the team, best idea wins. Like, it’s true authenticity, and that’s one of the big drivers that brought me here is I wanted to be part of that. And that combined with kind of a small team that’s really excited and passionate about all of the principles that Paul mentioned is huge. But without the authenticity of that amongst all the team members, it just would fall flat. So, I absolutely love that part of Arcadea.

Alex Bridgeman: Yeah, when you’re talking to founders who are presumably fielding offers from perhaps several different buyers, what stands out to them with Arcadea? What makes them excited about Arcadea versus similar software acquirers like Constellation or Vista Equity or someone else? What stands out to them about Arcadea?

Paul Yanchich: Yeah, we should take a blind survey of people that have chosen and are choosing to come to us. So I’m kind of uncomfortable to answer the question because I think we’re just guessing, well, we’re guessing to some extent. But from the feedback that people have given us, they like the fact that we’re long term. Like truly time is just another variable. And it makes no sense to be so constrained on time. It’s like the most important driver of all of our lives. And so many firms arbitrarily put a used to be three to five, now it’s like one to two year timeframe, especially the growth oriented buyout shops that are playing in lower to mid market VMS, vertical market software, VSaaS or whatever you want to call it. So, time is a variable. We prefer to have forever horizons, but we don’t need to. And we tell folks that; if we think that, together, this is a great business to sell after 14 years because then we see the market changing, we’ll do that. But there’s going to be a high barrier to us doing that ever. And then I think the last point, which we don’t want to toot our own horns too much on because we’re not the best operators, well, Ryan is pretty damn good, but Daniel and I aren’t the best operators in the world, but between the three of us, we really know what it means to run a software business. That means we know how to really diligence what matters. We don’t rely on a bunch of FDD, financial due diligence people or consultants, and I think that that’s probably the one that I’m most comfortable saying confidently. Every single diligence we’ve been in, folks have said wow, you guys really know your shit. And this is very different from anyone else who has looked under the covers. And that’s probably where we have the most pride, but also, it’s the area that can decay the fastest if we’re not really paying attention to these businesses operationally.

Alex Bridgeman: Coming from a public company like Constellation where financials are filed publicly and public information is a lot more dangerous to work with or private information, do you have any ambition to being a public company? I would love to hear more about that.

Paul Yanchich: Anti ambition. I would hate that. You can never say never. We have no religious points of view, so to speak, whether it comes to- we won’t buy a shrinking business or one that’s only grown like 2 or 3% a year. We’ll leave that for others who are really good at it. We’re looking at- I guess we’re somewhat religious about that. It’s got to be 20 to 100, 150% growth. But otherwise, I guess I can’t say never. That said, that’s not why we did this. We and our investors don’t really think about liquidity like that. And other than, I guess, providing liquidity for our employees, for which, by the way, we have mechanisms in place and full commitment from both me and Daniel and the other investors, I just don’t see the benefit of it. You have to tell folks what you’re doing. All else equal, probably don’t want everyone else to know what we’re up to. And in granular detail, there’s costs, headache, like I just don’t have any interest in that. And we also don’t want to be the biggest thing we can be. And so, I don’t think we will- there’s no ambition to do that. I think some folks have that; I don’t get it personally. But it also comes down to the investors you take. If you have ABC venture or a growth equity firm, and they’re paying a $900 million valuation for your business, you can basically only exit unless you’re going to have a massive down around outcome. So, who your investors are dictate that. With our investors, none of them need liquidity and don’t, I think, necessarily cherish the idea of us doing that for its own purposes. And we won’t need more capital from anyone else other than our current investors if we even need it. So, we’re in a lucky position. But I also know what we’re saying is like very much not for a lot of founders and even, it seems like, a lot of private equity firms who the bigger ones obviously have gone public over the years. But it’s just not on our horizon. Who knows, 30 years from now, maybe, but that’s not the goal.

Alex Bridgeman: Yeah, I heard an anecdote recently from somebody who gave a talk to a couple MBA classes. And a couple decades ago, when you’d ask how many of you want to run a public company one day, you’d get a lot more hands, and they said that there was almost no hands raised. The allure of being the big public company CEO has diminished dramatically, it seems. And I remember Richard Reit and I talked about it being one of the loneliest jobs on the planet.

Paul Yanchich: Totally. I mean, you’ve got to- it just seems like a really tough situation. There are obviously some companies that have amazing shareholder bases, and they’re public. And they have so much credibility with public management that they might as well be private, and they never get any pushback at all on anything from anyone. But I mean, that’s pretty rare. And we don’t want to- we’re very deliberate about not letting the proverbial Carl Icahn into our shareholder base, both with who we selected and who we said no to, which was a lot of folks. And also what happens in the future if way down the line, somebody, an investor does want to transition out, we can make sure that we ultimately control who comes in. We being me and Daniel and a majority of the investors, not just us alone. So, I’m not surprised by that.

Alex Bridgeman: Yeah. Well, the lack of public ambition bums me out for not being able to buy stock one day, but totally understand from the work and lifestyle perspective not wanting to be public. But we’ll leave it there. Thanks, both Paul and Ryan, you guys, for coming on the podcast. It’s always good to chat with you. And I’m looking forward to episode three at some point.

Paul Yanchich: Yeah, appreciate it. It’s always really fun.

Ryan Beaver: Yeah, thank you.

Alex Bridgeman: Thank you for listening. I hope you enjoyed today’s episode. If you enjoyed the show, please consider leaving us a review and telling a friend to help more folks find Think Like an Owner. I also want to thank our show sponsors Live Oak Bank, Hood & Strong, and Oberle for their support. For full episode transcripts and more information, please visit our website at alexbridgeman.com/podcast.