The Operator Weekly: 50X Analyst Q&A + An Exciting Announcement

We are very excited to share that starting this past week Think Like An Owner will now be publishing episodes twice per week. This change coincides with our decision to close the Operators Handbook and move those topic-specific conversations to the podcast for Thursday morning episodes. You can expect these episodes to focus on topics like sales, culture, hiring, debt, capital allocation, leadership, board meetings, and dozens of other topics.

This is an addition we have wanted to make for a long time, and we finally feel like the podcast is ready to go to this next level towards our endless pursuit of better in small business.

Alex got to meet with Miles Wood, who helped Will Thorndike assemble the 50X podcast. If you haven't listened to the 50X podcast yet, you have likely heard of Will's book The Outsiders.  The 50X podcast will sporadically dive deep into companies that (you guessed it) 50X'd in value.  The premier season dove into Transdigm with Nick Howley and Rob Small to cover the start of the business, going from operator to capital allocator, and more.

Let’s set the stage a bit. What is Compounding Labs and how does it relate to 50X? What are you aiming to build with 50X?

Compounding Labs is an investment collaboration between Will Thorndike, Kent Weaver, Jay Davis, and Jason Pananos focused on building exceptionally high-quality businesses over multi-decade time horizons. Not unlike The Outsiders was for Will, 50X is a natural outgrowth of our investing activity and related curiosities. We enjoy studying companies with rigor and find the nuanced lessons improve our technique.50X dissects the anatomy of extraordinary long-term investments. Through in-depth research and extensive interviews, we study key themes around long-term value creation. In each episode, we highlight the investor’s—and in unique cases, the operator’s—perspective.

50X seems to depart from traditional podcast conventions. How did you land on your model?

Though our interviews stand on their own as podcast episodes, we aim to produce more comprehensive case studies by publishing our research product and proprietary, previously confidential materials from the company and its investors. Our standards for depth, rigor, and quality necessarily force infrequent cadence and low volume. As you mentioned, this approach stands in contrast to convention in which podcasts are released weekly, prioritize synthesis over depth, and offer limited-to-no supplemental information. Our approach was in part inspired by Outstanding Investor's Digest (OID), a beloved, now legendary, publication that thrived from the 1980’s into the 2000’s with a format that featured in-depth interviews with top investors published at length and on a somewhat unpredictable schedule. Among contemporaries, we also admire The Observer Effect, Acquired, and Song Exploder for their irreverent depth.

There was clearly a significant amount of research that went into your first series on TransDigm. Can you describe your process?

We begin each process by gathering all insightful public and private resources including investment memos, shareholder letters, raw financial data, board presentations, and anything else we can get our hands on. From there, we rigorously study what we’ve uncovered to produce an internal research report with analysis on the investment’s history, strategy, financial performance, capital allocation, and more. In TransDigm’s case, this was over 100 pages. This report then serves as the foundation for a series of interviews with insiders that refine our understanding of the investment with unique insights and stories. Finally, we’ll conduct the podcast interviews with our lead protagonists. We learned a lot in this first series and will continue to iterate on our process as 50X grows. If people enjoy performing rigorous analysis of this kind and are interested in leaning in, we welcome you to reach out.

How are you applying lessons from 50X to investing at Compounding Labs?

Though we anticipate it will be a fruitful source of wisdom as it compounds, 50X remains incredibly nascent. Fortunately, TransDigm aligned nearly perfectly with our focus at CL: long-term consolidation of recurring revenue businesses in niche industries. Among many, a few of our key lessons include the importance of game selection, aligning all elements of human capital (culture, organizational structure, and compensation) with the specific opportunity, slower acquisition pacing in the early years, and superior operational execution. Since the podcast’s publication, we’ve spent a lot of time digesting these and other lessons with our CEOs and incorporating each into our companies.

How can folks get in touch with you? Who would you be most excited to hear from?

You can learn more at CompoundingLabs.com and 50Xpodcast.com. If you’re interested in working together, please reach out at the emails listed on either site! We’re particularly keen to connect with entrepreneurial learning machines relatively early in their careers. We are always looking for talented prospective executives, particularly in operations and finance.

Thanks to Everest Brady for his help, writing, and research in assembling this week’s newsletter.

Read

You've seen people discussing various terms relating to the flow of money from a business, whether it's in a live deal or not.  Everyone's definitions vary.  Guesswork Investing breaks down how to better understand profitability and the terms around it in this post.

Listen

This Week on Think Like an Owner

My guest on this episode is Trevor Flanagan, COO of Flint Group, a home services roll-up founded by Collin Hathaway. Our conversation covers how great companies scale, how crucial of a role sales and hiring play in scaling, the role of debt, and everything in between. Like Collin, Trevor has an amazing ability to make hard problems simple and teach through storytelling and I'm positive you'll enjoy hearing his story.

This episode Q&A featured Oakbourne Advisors, an independent retirement plan consulting firm that helps small companies design and implement great retirement plans for their teams.  Whether you already have a 401(k) in place or are looking to start one for your team, please reach out to learn more about how Oakbourne can set your people up for success in retirement at oakbourne.com/think.

Jessica Markowitz, President and COO at Paragon Legal, kicks off our new topic-specific episodes. Paragon offers outsourced legal services to corporate legal departments, which Jessica and her partner Trista Angele acquired in 2018. Our conversation covers all things culture, including defining culture, maintaining and enforcing culture, and how to build a culture in a remote-first company. Enjoy.

This episode Q&A featured More Staffing, a recruiting firm to help find the most talented and experienced professionals in the Philippines to level-up your business. To learn more about More Staffing, check out their website at morenow.co and get in touch to see how they can help level-up your business with a great team.

The second episode also means we have more availability to partner with great companies serving operators and investors through podcast sponsorships. If you're interested, please send Alex an email at [email protected] or connect with him on Twitter or our website alexbridgeman.com. We would love to chat.

This Week in SMB Twitter

Think Like an Owner is sponsored by:

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

Oakbourne Advisors – Oakbourne is an independent retirement plan consulting firm that helps small companies design and implement great retirement plans for their teams.  Whether you already have a 401(k) in place or are looking to start one for your team, please reach out to learn more about how Oakbourne can set your people up for success in retirement at oakbourne.com/think.

More Staffing – More Staffing is a recruiting firm to help find the most talented and experienced professionals in the Philippines to level-up your business. To learn more about More Staffing, check out their website at morenow.co and get in touch to see how they can help level-up your business with a great team.

Interested in sponsoring? Reply to this email and let’s chat.