Welcome back to the Mid Market Insider!
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Let’s jump in…
Last week we spoke about 7 operational inefficiencies within your business that are impacting profitability.
These 7 consist of:
1. Overproduction
2. Defects
3. Motion
4. Over-processing
5. Waiting
6. Overhandling
7. Inventory
If you missed out on that newsletter do not worry as I created a YouTube video that covers it.
Check it out here:
7 Hidden Inefficiencies That Could Be Costing You In Business - How Process Improvement Works
This week I want to change it up and focus on the good, the bad, and the future of PE.
The Story
Now I know you are probably tired of hearing it, but if you haven’t let me explain why I got into PE.
I started my journey because the entrepreneurial spirit has always resonated with me.
The idea that I could be the architect of my own life.
But I never had the Bill Gates or Steve Wozniak gift of inventing a great idea or an app.
Unfortunately, I was not blessed with that talent. And trust me, the world is better off that I stuck to my lane.
My GoDaddy account stands as a monument to failed startups - a collection of domains that thankfully never saw the light of day, or at least never will again lol.
However, that lack of talent sparked a curiosity that ultimately led me into the world of entrepreneurship through acquisition.
Thus my 20-year journey in PE started and Four Pillars was born.
Enough of my rambling folks, let's get to it.
The Good, The Bad, and The Future
If you are a business owner at some point you are going to need to sell your business.
During that thought process you most likely have considered working with a PE firm to facilitate an exit.
However, you may be hesitant to explore this idea given the rep Private Equity has.
While some of PE's reputation is earned, much of it stems from misconceptions.
I am saving a more thorough discussion on why private equity gets a bad rap for a future issue, but for this issue, I want to share a bad experience I have had with private equity as well as a good one, and then offer my thoughts on where PE is headed.
Let's start with the bad.
1. Everything is Bigger in Texas, Even Egos
Quick background:
We at Four Pillars are an independent sponsor. We do not have a committed pool of capital. Instead, we work with a variety of investors and other PE firms to raise capital for each deal we work on.
So we were working on a deal for a structural and miscellaneous steel fabricator with a family office out of Texas.
From our first meeting, the Texas family office saw the strategic value. The deal aligned perfectly with their existing holdings, and their enthusiasm was evident in every interaction.
Everything seemed to line up perfectly.
Within weeks, red flags started waving. Communication went from steady to sporadic. Sure, everyone gets busy – I'm guilty of slow responses myself – but this felt different
A few days later we received an email from the general counsel saying they were sidelining me. I went from a starter to the bleachers.
I couldn’t exactly do anything because, at the end of the day, this was a huge family office with billions of dollars in capital under management.
The point here is that some PEs think they are more important than the little guy and feel like they can do whatever they want. Because of their size, they often get away with it.
Let’s move on to the good.
2. A Great Partner
Whatever PE firm you decide to partner with will determine what experience you have.
I learned this first-hand from partnering with Brian Lueger at KVCI.
KVCI is a Small Business Investment Company (SBIC) and they are the lead investor in our investment in EPSM and Turk Manufacturing.
In private equity, it's easy to get caught in the weeds of legal documents and contract clauses. Egos can flare over the smallest technicalities.
But Brian?
He showed me what true dealmaking looks like. Even when sellers came to the table with outlandish demands, he never lost his cool.
While he could have dug in his heels – and often had every right to – he chose the bigger picture over being right.
His solution-first mindset taught me that sometimes the best negotiation tactic is simply checking your ego at the door.
Brian I doubt you will read this but thank you for being such a great partner.
3. The Future
I’ve covered the good and the bad, now it’s time to talk about the future of PE and where the industry as a whole is headed.
Let me share a concerning trend that's reshaping private equity as we know it.
There's an elephant in the room that I can't ignore: the increasingly corporate feel of PE.
Like many American industries before it, PE is falling victim to the 'bigger is better' mentality.
With dry powder sitting at $1.1 trillion, the industry has swollen far beyond its entrepreneurial roots
That initial entrepreneurial spirit that saw businesses that were diamonds in the rough and transformed them through smart capital and stronger management – is fading.
It's being replaced by something more mechanical, more disconnected. Today's PE principals often build their careers hopping between firms rather than rolling up their sleeves in actual businesses.
And while the industry's laser focus on profits isn't inherently wrong – after all, we all have obligations to our investors – it's the 'profits at all costs' mentality that concerns me.
At Four Pillars, we've chosen a different path. We believe success flows from putting relationships and people first from:
- The sellers
- The employees
- The management teams
Our philosophy is simple: Take care of your people, and the profits will follow.
Can PE still be an excellent exit path for business owners? Absolutely.
But finding the right buyer is like dating – it takes time.
You need months to truly understand each other, to ensure your values align, and to feel confident that your legacy will be honoured. Some might call this approach soft or inefficient.
But for me, success isn't just about the numbers – it's about being able to work with the people that you want to. If I'm going to hand over something I've built with my blood, sweat, and tears, you better believe I want to know exactly who's taking the reins.
🧑🎓The Lessons:
1. The Human Side of Private Equity Matters:
Traditional business wisdom focuses on numbers and returns, but successful PE deals often hinge on relationships and shared values.
2. Due Diligence Goes Both Ways:
The Texas family office story serves as a cautionary tale about the importance of vetting potential partners, not just deals. Business owners should take time to thoroughly understand not just the terms, but also the character and communication style of their potential PE partners.
3. The PE Industry Is at a Crossroads:
The industry is becoming increasingly institutionalized. For business owners considering an exit to PE, this means it's crucial to determine whether they want a partner focused on pure financial engineering or one that, like Four Pillars, prioritizes relationships and legacy preservation.
📅 Next Week:
Next week I want to dive into the 3 biggest mistakes that cause over 50% of businesses to fail and how you can avoid them. Stay tuned!
Keep building,
Nick
P.S.
I just launched my new podcast Ambition with Nick!
The Ambition podcast features conversations with business leaders who have embraced risk, shattered ceilings and leaned into the tension between building both a business and a life they are proud of.
Make sure to check it out here:
Apple: https://podcasts.apple.com/us/podcast/ambition/id1775963497?ls=1
Spotify: https://open.spotify.com/show/0JvsO1vTlNGnF9RpB53mXZ
P.P.S
If you want to hear more from ‘The Most Boring Guy In Private Equity’, follow me on LinkedIn and YouTube. I dive into the world of private equity, share some tips and tricks for small business owners, and most importantly, share my industry knowledge.
Make sure to follow me so you don’t miss out!
LinkedIn: Nick McLean
X: https://x.com/NickFourPillars
Youtube: NickFourPillars
