Rick Ruback

That doesn't occur so much in big private equity where you're dealing with big companies, but it occurs a lot with small companies where they have one big legacy client. And so you really want to try to avoid concentration with customers or vendors would be number two. Third, avoid economic cyclicality. Again, it pairs poorly with the financial leverage you'll need to buy this

That doesn't occur so much in big private equity where you're dealing with big companies, but it occurs a lot with small companies where they have one big legacy client. And so you really want to try to avoid concentration with customers or vendors would be number two. Third, avoid economic cyclicality. Again, it pairs poorly with the financial leverage you'll need to buy this

To Rick's point, often we have people express astonishment to us that the newly minted MBA who has maybe five or six years of middle managed experience can go into a business they've never operated in. And the percentages are very high for successful operation of that business. And how can that be?

To Rick's point, often we have people express astonishment to us that the newly minted MBA who has maybe five or six years of middle managed experience can go into a business they've never operated in. And the percentages are very high for successful operation of that business. And how can that be?

And the reason it can be is partly they're talented, energetic people, but it's the point Rick has just made, which is they're selecting for businesses that they feel they can fit with and learn how to run. They're not randomly picking businesses on this dimension. They're choosing very carefully because they're aware of that risk too.

And the reason it can be is partly they're talented, energetic people, but it's the point Rick has just made, which is they're selecting for businesses that they feel they can fit with and learn how to run. They're not randomly picking businesses on this dimension. They're choosing very carefully because they're aware of that risk too.

Right. And when we call them, they say, it's just like running a platoon.

Right. And when we call them, they say, it's just like running a platoon.

I thought it was so interesting. So what Rick's referring to is we assemble a library of recent small company purchases from a network of cooperative brokers. And the students filter through those and then come up with a company they really like. And then they break into groups of six or seven of our students who have done the same thing.

I thought it was so interesting. So what Rick's referring to is we assemble a library of recent small company purchases from a network of cooperative brokers. And the students filter through those and then come up with a company they really like. And then they break into groups of six or seven of our students who have done the same thing.

And they collectively come up with which is the best company to buy. And so you have 14 or 15 groups now in our class. And what, about 100 companies, about 100 sims that they've paged through and looked through. And the result is they come up with about 12 different companies. There's no consensus on this. They're different.

And they collectively come up with which is the best company to buy. And so you have 14 or 15 groups now in our class. And what, about 100 companies, about 100 sims that they've paged through and looked through. And the result is they come up with about 12 different companies. There's no consensus on this. They're different.

I think on this point, we arm our students with this list that we've just gone through. It's a filtering criteria. But the truth is, you're never going to find a company that has all of those boxes checked, particularly if attractive price is on the list too, which it surely is. You're just not going to find that have all of those qualities.

I think on this point, we arm our students with this list that we've just gone through. It's a filtering criteria. But the truth is, you're never going to find a company that has all of those boxes checked, particularly if attractive price is on the list too, which it surely is. You're just not going to find that have all of those qualities.

And so the piece that we really try to tune our students into is that they have to develop judgment about how good is good enough. And they do that by, as Rick and I like to say, bathing in deal flow. And eventually you start to see what different qualities of companies are. And you see that next company, you say, okay, it has five of my seven criteria, but it's in the upper quartile.

And so the piece that we really try to tune our students into is that they have to develop judgment about how good is good enough. And they do that by, as Rick and I like to say, bathing in deal flow. And eventually you start to see what different qualities of companies are. And you see that next company, you say, okay, it has five of my seven criteria, but it's in the upper quartile.

So I ought to keep working on this because this is a good one. That's the other piece that's really hard to teach, but you can teach people to keep their eyes open to judgment.

So I ought to keep working on this because this is a good one. That's the other piece that's really hard to teach, but you can teach people to keep their eyes open to judgment.

The way most searchers like to structure their cap table is they like to have 10 or 12 different investors. Some investors push really hard to get a big chunk of the cap table of these funds for the reasons you asked about. But for the most part, searchers want a diversified base of investors for a variety of reasons. They want a variety of advisors and voices.

The way most searchers like to structure their cap table is they like to have 10 or 12 different investors. Some investors push really hard to get a big chunk of the cap table of these funds for the reasons you asked about. But for the most part, searchers want a diversified base of investors for a variety of reasons. They want a variety of advisors and voices.