The Knowledge Project with Shane Parrish
#196 Brent Beshore: Business Brilliance and Happiness at Home
Tue Jun 11 2024Description
This episode covers a wide range of topics including investing, personal growth, building trust, philanthropy, healthy relationships, debt management, private equity, business strategy, decision-making, and the journey of small businesses. The speakers share insights and experiences related to these areas, providing valuable lessons and perspectives for listeners.
Insights
Investing and Business Strategy
Investing involves assuming risk that is knowable and can be mitigated. Setting incentives for CEOs is crucial in the ideal system. Hiring practices can lead to significant improvements that many overlook. Taking over a company requires following a playbook. Brent Bishore, founder of Permanent Equity, focuses on buying and growing 'boring' essential businesses. Brent's approach to business involves finding value in overlooked areas rather than chasing the next big thing. Personal life changes, including marriage and exercise habits, have had a significant impact on Brent.
Self-Reflection and Personal Growth
The speaker reflects on a conversation that made them realize their relationships were not as good as they thought. They acknowledge the need to compare their relationships and marriages to higher standards for improvement. This realization leads them to seek guidance from a counselor and confront issues of shame, fear, and self-improvement. The speaker describes a transformative journey of surrendering to self-reflection and acknowledging personal faults for growth. Transitioning from denial to awareness without healing initially worsened their situation, highlighting the importance of both awareness and healing. The speaker shares an example of personal growth in friendships by learning to accept help and not always being the one who pays.
Understanding Behaviors and Building Trust
A friend's positive transformation after intensive counseling retreat led to the speaker seeking similar help for his own struggles. Through counseling sessions, the speaker discovered underlying behaviors influencing his actions and relationships. The counselor highlighted the importance of relinquishing control in friendships to build trust and true connections. Realizing the mixed motivations behind his actions, the speaker learned to offer agency to others in relationships to avoid resentment. Discussion on psychological dynamics like victim-hero-judge triangle and the concept of doing good for others.
The Pitfalls of Being a Hero
Heroes often act to cover up their own shame and insecurities by helping others. Acting as a hero can lead to removing agency from the person being helped, creating victims. Dramatic acts of generosity without understanding the real consequences can unintentionally harm recipients. Deep relationships and respecting the needs of others are key in effective philanthropy.
The Importance of Bidirectional Support
Engaging in behavior of trying to be a hero without being asked can take away agency and dignity from others. Healthy relationships require bidirectional support and not just one-sided help. Recognizing and apologizing for past behavior of creating hero-victim dynamics can lead to stronger, more balanced relationships. Living out of fear versus genuine love and care for others and oneself is at the core of behavior patterns. Operating from fear-driven self can lead to achieving a lot externally but may not foster genuine connections.
Choosing Love Over Fear
Operating on 'clean fuel' (love) versus 'dirty fuel' (fear) in relationships and personal life is a constant battle. Recognizing the need for praise and control can lead to high anxiety and stress, impacting health negatively. Transitioning from seeking short-term wins and competitiveness to focusing on relationships brings freedom and healing. Acknowledging the negative impact of seeking external validation through behaviors like excessive email communication or social media addiction.
Overcoming Addiction and Embracing New Habits
The speaker reflects on their past addiction to social media for validation and praise. They discuss the shift in mindset towards focusing on genuine relationships rather than seeking external validation. The speaker shares their journey of self-discovery and transformation, including struggles with weight and food as coping mechanisms. They mention a shift in perspective towards celebrating with alcohol only on special occasions.
Improving Physical and Mental Health
Realizing the importance of making working out a daily part of one's identity and routine. Recognizing the impact of negative self-talk and changing it to promote a healthier mindset. Understanding the connection between physical health, mental health, and overall well-being. Acknowledging the effects of alcohol consumption on testosterone levels and decision to stop drinking for better health. Embracing new rules and habits to improve life quality and unlock personal growth.
The Role of Habits and Building Intimacy
Habits play a significant role in shaping one's life and require focus to change. Understanding how others feel loved is crucial for building intimacy in relationships. Operating from a mindset of abundance and love leads to sustainable success. Creating win-win relationships is essential for long-term sustainability in business.
Trust, Care, and Sustainable Business Practices
The speaker believes in being open to vulnerability and allowing others to potentially take advantage early on in relationships to gauge trust and compatibility. The speaker emphasizes the importance of mutual trust, care, and abundance in their business operations, considering not only buyers and sellers but also executive teams, employees, customers, vendors, communities, and regulators. They aim to create a work environment that promotes happiness, fulfillment, and sustainable lifestyles for employees by avoiding overwork and prioritizing healthy relationships. The speaker criticizes the finance world's focus on short-term gains through leverage buyouts and advocates for a more sustainable approach that values long-term returns and treats people with respect. They highlight the negative impact of prioritizing financial success over personal well-being by referencing individuals who are wealthy but unhappy.
Navigating Conflict and Responsible Debt Usage
Interactions can often feel transactional and extractive, but it's important to give grace and not judge or condemn others for this behavior. Recognizing conflict patterns can help navigate disagreements effectively, with moves against, towards, and away being common responses. Debt can amplify returns in business but should be used cautiously, especially in unpredictable environments where the future is uncertain.
The Risks and Benefits of Debt in Business
Using debt in business involves assuming risks that need to be properly analyzed and mitigated. Debt can be used irresponsibly, benefiting only the buyer and seller while potentially harming other stakeholders. Avoiding or minimizing debt can provide resilience during economic downturns and allow for long-term growth and success. Businesses with little to no debt are considered stronger and less fragile investments. High interest rates and unexpected changes in revenue can quickly consume free cash flow when a business is heavily leveraged.
The Impact of Debt on Cash Flow and Sustainability
Debt can quickly consume free cash flow with just a small downturn in business, leading to chaos. Putting debt on businesses can jeopardize their independence and long-term sustainability. The speaker emphasizes stewardship over ownership when managing businesses for families. Aligning incentives for CEOs with the company's goals is crucial for success and sustainability.
A Unique Approach to Private Equity
Traditional private equity operates on a two and 20 model with a 2% annual fee and profit sharing after returns are paid back. Private equity deals can take up to 10 years due to the time required for finding, operating, and selling businesses. Private equity firms typically aim for a two to three-year turnaround on investments, with longer periods indicating distress. The traditional private equity model incentivizes short-term gains over long-term sustainability, leading to negative impacts on companies and communities. One private equity firm follows a unique fee model with no fees or reimbursements, aiming for complete alignment between stakeholders. This firm reinvests cash flow from successful projects for high returns and sustainability.
Reinvesting Cash and Focusing on Free Cash Flow
Investors and leaders prioritize reinvesting cash in high return projects over holding excess cash. Traditional private equity structures often incentivize building bigger businesses rather than focusing on efficient cash flow management. Permanent equity firm aims for perfect alignment by incentivizing CEOs based on free cash flow and high return investments. The firm acknowledges the need to improve accountability and performance evaluation of CEOs to enhance overall success. CEO reflects on past mistakes of tolerating underperformance and emphasizes the importance of addressing issues promptly for better outcomes.
Navigating Roles and Understanding Human Behavior
Changing roles within a company can be challenging due to internal politics and personal pride. Self-awareness is crucial in understanding one's strengths and weaknesses, as others may perceive them differently. Transitioning to a new role within the same organization can be difficult due to ego and identity tied to current position. Utilizing personality tests like Myers-Briggs and Enneagram can help predict human behavior and improve relationships in business. Understanding why people behave the way they do is essential for effective leadership and decision-making. Personality tests provide a framework for empathy and predictability in relationships, but individuals cannot be perfectly categorized.
Insights into Personality Traits and Self-Discovery
Understanding where one gets their energy from, either inner life or external sources, is crucial in determining their perspective on life. Distinguishing between intuitive and sensing individuals helps identify those who focus on future possibilities versus those who are present-oriented and practical. Differentiating between thinkers and feelers reveals whether someone prioritizes ideas and truth or relationships and values in decision-making. Identifying lifestyle preferences as a judge (J) or perceiver (P) can shed light on how structured or flexible an individual is in navigating the world. Recognizing personality traits through tests like Enneagram can provide insights into underlying insecurities, primary drives, strengths, and weaknesses.
Acquisitions and Business Strategy
During the hiring process, candidates are tested to ensure they are a good fit for the job. The podcast host discusses the importance of understanding a company's core business and looking for mispriced opportunities in acquisitions. An example is given of a pool business that appeared to be a construction business but was actually a durable marketing and logistics business. When acquiring a business, the focus is on identifying its moat, growth opportunities, and ensuring the price aligns with value.
Managing Investments and Problem-Solving
Using price as a major due diligence filter can help in assessing investments. Small companies often come with challenges and complexities that need to be managed. It's important to stress test business assumptions and not rely solely on projections for growth. Attempting to drastically change the trajectory of a business post-acquisition can be challenging and may not yield immediate results. Operating a business involves constant problem-solving and firefighting, contrary to the belief that it's easy. Skill and judgment are crucial in navigating the inefficiencies of private markets. Regularly reviewing investments through detailed updates like 'baseball cards' helps in learning from successes and failures.
Improving Decision-Making and Communication
The podcast discusses the importance of constantly evaluating investments and learning from them. The structure of the organization involves a financial team working closely with small businesses to improve feedback loops and decision-making processes. There is a focus on identifying key metrics that provide high signal information amidst a sea of data. Regular communication with CEOs helps in offering support, guidance, and being a relational connection for them. Understanding the processing style of CEOs (internal vs. external) is crucial for providing appropriate support and preventing inappropriate relationships within the organization. Post-close, there is emphasis on ensuring compliance with laws and regulations to avoid legal issues.
The Journey of Small Businesses and Active Management
Small businesses require dynamic leadership, vision, risk-taking, and capital to grow. Buffett and Munger's early struggles with small businesses led to their success in Berkshire Hathaway. Acknowledging luck and seeking help are important in business success. Leaving small businesses alone often leads to failure due to their complexity and variability. As businesses grow, the need for active management may shift depending on size and access to capital.
Serving Others and Finding Fulfillment
Scaling a business involves challenges such as managing multiple companies, dealing with regulators, and reinvesting earnings. Building a team and organization is crucial for sustained growth in business. The speaker finds fulfillment in helping families transition and views work as a meaningful co-creation process. The ultimate goal for the speaker is to be an ambassador of the kingdom of God by serving and loving others.
Chapters
- Investing and Business Strategy
- Self-Reflection and Personal Growth
- Understanding Behaviors and Building Trust
- The Pitfalls of Being a Hero
- The Importance of Bidirectional Support
- Choosing Love Over Fear
- Overcoming Addiction and Embracing New Habits
- Improving Physical and Mental Health
- The Role of Habits and Building Intimacy
- Trust, Care, and Sustainable Business Practices
- Navigating Conflict and Responsible Debt Usage
- The Risks and Benefits of Debt in Business
- The Impact of Debt on Cash Flow and Sustainability
- A Unique Approach to Private Equity
- Reinvesting Cash and Focusing on Free Cash Flow
- Navigating Roles and Understanding Human Behavior
- Insights into Personality Traits and Self-Discovery
- Acquisitions and Business Strategy
- Managing Investments and Problem-Solving
- Improving Decision-Making and Communication
- The Journey of Small Businesses and Active Management
- Serving Others and Finding Fulfillment
- Conclusion and Additional Information
Investing and Business Strategy
00:00 - 06:53
- Investing involves assuming risk that is knowable and can be mitigated.
- Setting incentives for CEOs is crucial in the ideal system.
- Hiring practices can lead to significant improvements that many overlook.
- Taking over a company requires following a playbook.
- Brent Bishore, founder of Permanent Equity, focuses on buying and growing 'boring' essential businesses.
- Brent's approach to business involves finding value in overlooked areas rather than chasing the next big thing.
- Personal life changes, including marriage and exercise habits, have had a significant impact on Brent.
Self-Reflection and Personal Growth
06:37 - 13:11
- The speaker reflects on a conversation that made them realize their relationships were not as good as they thought.
- They acknowledge the need to compare their relationships and marriages to higher standards for improvement.
- This realization leads them to seek guidance from a counselor and confront issues of shame, fear, and self-improvement.
- The speaker describes a transformative journey of surrendering to self-reflection and acknowledging personal faults for growth.
- Transitioning from denial to awareness without healing initially worsened their situation, highlighting the importance of both awareness and healing.
- The speaker shares an example of personal growth in friendships by learning to accept help and not always being the one who pays.
Understanding Behaviors and Building Trust
12:55 - 19:23
- A friend's positive transformation after intensive counseling retreat led to the speaker seeking similar help for his own struggles
- Through counseling sessions, the speaker discovered underlying behaviors influencing his actions and relationships
- The counselor highlighted the importance of relinquishing control in friendships to build trust and true connections
- Realizing the mixed motivations behind his actions, the speaker learned to offer agency to others in relationships to avoid resentment
- Discussion on psychological dynamics like victim-hero-judge triangle and the concept of doing good for others
The Pitfalls of Being a Hero
18:54 - 25:34
- Heroes often act to cover up their own shame and insecurities by helping others.
- Acting as a hero can lead to removing agency from the person being helped, creating victims.
- Dramatic acts of generosity without understanding the real consequences can unintentionally harm recipients.
- Deep relationships and respecting the needs of others are key in effective philanthropy.
The Importance of Bidirectional Support
25:14 - 31:42
- Engaging in behavior of trying to be a hero without being asked can take away agency and dignity from others
- Healthy relationships require bidirectional support and not just one-sided help
- Recognizing and apologizing for past behavior of creating hero-victim dynamics can lead to stronger, more balanced relationships
- Living out of fear versus genuine love and care for others and oneself is at the core of behavior patterns
- Operating from fear-driven self can lead to achieving a lot externally but may not foster genuine connections
Choosing Love Over Fear
31:16 - 37:37
- Operating on 'clean fuel' (love) versus 'dirty fuel' (fear) in relationships and personal life is a constant battle
- Recognizing the need for praise and control can lead to high anxiety and stress, impacting health negatively
- Transitioning from seeking short-term wins and competitiveness to focusing on relationships brings freedom and healing
- Acknowledging the negative impact of seeking external validation through behaviors like excessive email communication or social media addiction
Overcoming Addiction and Embracing New Habits
37:16 - 43:31
- The speaker reflects on their past addiction to social media for validation and praise.
- They discuss the shift in mindset towards focusing on genuine relationships rather than seeking external validation.
- The speaker shares their journey of self-discovery and transformation, including struggles with weight and food as coping mechanisms.
- They mention a shift in perspective towards celebrating with alcohol only on special occasions.
Improving Physical and Mental Health
43:08 - 49:03
- Realizing the importance of making working out a daily part of one's identity and routine
- Recognizing the impact of negative self-talk and changing it to promote a healthier mindset
- Understanding the connection between physical health, mental health, and overall well-being
- Acknowledging the effects of alcohol consumption on testosterone levels and decision to stop drinking for better health
- Embracing new rules and habits to improve life quality and unlock personal growth
The Role of Habits and Building Intimacy
48:48 - 55:33
- Habits play a significant role in shaping one's life and require focus to change
- Understanding how others feel loved is crucial for building intimacy in relationships
- Operating from a mindset of abundance and love leads to sustainable success
- Creating win-win relationships is essential for long-term sustainability in business
Trust, Care, and Sustainable Business Practices
55:10 - 1:01:29
- The speaker believes in being open to vulnerability and allowing others to potentially take advantage early on in relationships to gauge trust and compatibility.
- The speaker emphasizes the importance of mutual trust, care, and abundance in their business operations, considering not only buyers and sellers but also executive teams, employees, customers, vendors, communities, and regulators.
- They aim to create a work environment that promotes happiness, fulfillment, and sustainable lifestyles for employees by avoiding overwork and prioritizing healthy relationships.
- The speaker criticizes the finance world's focus on short-term gains through leverage buyouts and advocates for a more sustainable approach that values long-term returns and treats people with respect.
- They highlight the negative impact of prioritizing financial success over personal well-being by referencing individuals who are wealthy but unhappy.
The Risks and Benefits of Debt in Business
1:07:07 - 1:13:45
- Using debt in business involves assuming risks that need to be properly analyzed and mitigated.
- Debt can be used irresponsibly, benefiting only the buyer and seller while potentially harming other stakeholders.
- Avoiding or minimizing debt can provide resilience during economic downturns and allow for long-term growth and success.
- Businesses with little to no debt are considered stronger and less fragile investments.
- High interest rates and unexpected changes in revenue can quickly consume free cash flow when a business is heavily leveraged.
The Impact of Debt on Cash Flow and Sustainability
1:13:22 - 1:20:06
- Debt can quickly consume free cash flow with just a small downturn in business, leading to chaos.
- Putting debt on businesses can jeopardize their independence and long-term sustainability.
- The speaker emphasizes stewardship over ownership when managing businesses for families.
- Aligning incentives for CEOs with the company's goals is crucial for success and sustainability.
A Unique Approach to Private Equity
1:19:46 - 1:25:47
- Traditional private equity operates on a two and 20 model with a 2% annual fee and profit sharing after returns are paid back.
- Private equity deals can take up to 10 years due to the time required for finding, operating, and selling businesses.
- Private equity firms typically aim for a two to three-year turnaround on investments, with longer periods indicating distress.
- The traditional private equity model incentivizes short-term gains over long-term sustainability, leading to negative impacts on companies and communities.
- One private equity firm follows a unique fee model with no fees or reimbursements, aiming for complete alignment between stakeholders.
- This firm reinvests cash flow from successful projects for high returns and sustainability.
Reinvesting Cash and Focusing on Free Cash Flow
1:25:23 - 1:31:49
- Investors and leaders prioritize reinvesting cash in high return projects over holding excess cash.
- Traditional private equity structures often incentivize building bigger businesses rather than focusing on efficient cash flow management.
- Permanent equity firm aims for perfect alignment by incentivizing CEOs based on free cash flow and high return investments.
- The firm acknowledges the need to improve accountability and performance evaluation of CEOs to enhance overall success.
- CEO reflects on past mistakes of tolerating underperformance and emphasizes the importance of addressing issues promptly for better outcomes.
Insights into Personality Traits and Self-Discovery
1:37:55 - 1:44:14
- Understanding where one gets their energy from, either inner life or external sources, is crucial in determining their perspective on life.
- Distinguishing between intuitive and sensing individuals helps identify those who focus on future possibilities versus those who are present-oriented and practical.
- Differentiating between thinkers and feelers reveals whether someone prioritizes ideas and truth or relationships and values in decision-making.
- Identifying lifestyle preferences as a judge (J) or perceiver (P) can shed light on how structured or flexible an individual is in navigating the world.
- Recognizing personality traits through tests like Enneagram can provide insights into underlying insecurities, primary drives, strengths, and weaknesses.
Acquisitions and Business Strategy
1:43:51 - 1:50:44
- During the hiring process, candidates are tested to ensure they are a good fit for the job.
- The podcast host discusses the importance of understanding a company's core business and looking for mispriced opportunities in acquisitions.
- An example is given of a pool business that appeared to be a construction business but was actually a durable marketing and logistics business.
- When acquiring a business, the focus is on identifying its moat, growth opportunities, and ensuring the price aligns with value.
Managing Investments and Problem-Solving
1:50:18 - 1:56:44
- Using price as a major due diligence filter can help in assessing investments.
- Small companies often come with challenges and complexities that need to be managed.
- It's important to stress test business assumptions and not rely solely on projections for growth.
- Attempting to drastically change the trajectory of a business post-acquisition can be challenging and may not yield immediate results.
- Operating a business involves constant problem-solving and firefighting, contrary to the belief that it's easy.
- Skill and judgment are crucial in navigating the inefficiencies of private markets.
- Regularly reviewing investments through detailed updates like 'baseball cards' helps in learning from successes and failures.
Improving Decision-Making and Communication
1:56:16 - 2:02:50
- The podcast discusses the importance of constantly evaluating investments and learning from them.
- The structure of the organization involves a financial team working closely with small businesses to improve feedback loops and decision-making processes.
- There is a focus on identifying key metrics that provide high signal information amidst a sea of data.
- Regular communication with CEOs helps in offering support, guidance, and being a relational connection for them.
- Understanding the processing style of CEOs (internal vs. external) is crucial for providing appropriate support and preventing inappropriate relationships within the organization.
- Post-close, there is emphasis on ensuring compliance with laws and regulations to avoid legal issues.
The Journey of Small Businesses and Active Management
2:08:05 - 2:15:07
- Small businesses require dynamic leadership, vision, risk-taking, and capital to grow.
- Buffett and Munger's early struggles with small businesses led to their success in Berkshire Hathaway.
- Acknowledging luck and seeking help are important in business success.
- Leaving small businesses alone often leads to failure due to their complexity and variability.
- As businesses grow, the need for active management may shift depending on size and access to capital.
Serving Others and Finding Fulfillment
2:08:35 - 2:15:07
- Scaling a business involves challenges such as managing multiple companies, dealing with regulators, and reinvesting earnings.
- Building a team and organization is crucial for sustained growth in business.
- The speaker finds fulfillment in helping families transition and views work as a meaningful co-creation process.
- The ultimate goal for the speaker is to be an ambassador of the kingdom of God by serving and loving others.
Conclusion and Additional Information
2:14:40 - 2:16:16
- The conversation ends with a message of serving others with love and gratitude.
- Listeners are encouraged to visit the website for more episodes, show notes, and transcripts.
- The host shares that they record reflections on interviews for supporting members of The Knowledge Project.
- Information is provided about the host's new book 'Clear Thinking' and where to learn more about it.