Podcast Summary
Primary research and partnerships in investing: Tegus offers efficient primary research and expert calls, while MIT Investment Management Company partners with new investment funds for long-term focus and backing early careers
Effective and efficient primary research is crucial for investors, and Tegus provides a solution by offering an extensive primary information platform with expert calls available on demand for a fraction of the cost of traditional methods. Additionally, the MIT Investment Management Company, also known as Matimco, is looking to partner with new and small investment funds, offering a long-term focus and a history of backing investors early in their careers. Tracy Graham, founder and managing principal of Graham Allen Partners, shares his unique origin story and discusses the undervalued opportunities in secondary or tertiary US markets and the potential of technology to improve old businesses. Overall, the episode emphasizes the importance of research, partnerships, and identifying undervalued opportunities in the investment world.
Lessons from a challenging childhood: Growing up in a tough environment can develop intuition, creativity, and awareness. Experiences like attending a private high school, playing football, and being coached by Lou Holtz further shaped perspective and provided valuable lessons.
Growing up in a challenging environment, as the speaker did in the Inglewood district, can provide valuable skills and experiences that are essential for success later in life. These skills include intuition, creativity, and being aware, which were developed through navigating the hardships of daily life. The speaker's experience attending a private high school on a scholarship, playing football, and being coached by Lou Holtz at Notre Dame, further shaped his perspective and provided him with invaluable lessons. Holtz's ability to unite diverse groups of people towards a common goal and his continued support of his players, served as a foundation for the speaker's approach to businesses and leadership. Ultimately, the speaker's upbringing and experiences instilled in him a strong sense of empathy, focus, and resilience, which have proven to be invaluable assets in his personal and professional life.
Lou Holtz's consistent coaching message resonated with players: Effective communication and consistency in delivering a simple, meaningful message can help build strong relationships and influence others. This was demonstrated by Lou Holtz's coaching style and the enduring friendship between him and Jerome Bettis, who later invested in his business.
Effective communication and consistency in delivering a simple, meaningful message are key to building a strong reputation and influencing others. This was evident in the coaching style of Lou Holtz, who instilled valuable lessons in his players with a disciplined approach and a message that never changed. This approach resonated with his players, including Jerome Bettis, who later became an investor in the entrepreneurial venture of his friend. The friendship between the two continued from their college days, and Bettis played a crucial role in helping launch the business, Cybercom Business Directories, by providing initial funding. Despite the early success of the company, the lack of understanding of the potential of the Internet at the time led to financial struggles, ultimately leading Holtz to seek additional investment to keep the business afloat.
A chance encounter with a football coach led to the speaker's first business deal and financial success: Early experiences with secondary market businesses and technology investments shaped the speaker's current investment strategy in lower middle market companies
The speaker's first entrepreneurial experience involved a football coach named Chase, who initially declined to invest but introduced the speaker to Jay Jordan instead. This introduction led to the speaker's first business deal and significant financial success. The speaker also learned valuable lessons about the midsize businesses in secondary markets and the importance of technology and data in these companies. Graham Allen, the speaker's current venture, focuses on investing in lower middle market companies in secondary and tertiary markets, believing they are often undervalued due to their location. The firm aims to help these companies adopt technology and data to improve operations, expand margins, and grow. The speaker's early experiences influenced this investment strategy, as he gained insights into the culture and needs of these businesses while acquiring technology companies that served them.
Traditional businesses in secondary markets can modernize with data and tech for better margins and growth: Private equity firms like Grandmother Partners help traditional businesses in secondary markets modernize with data and tech to improve margins, increase revenue, and compete with larger competitors, particularly in labor-intensive industries like health care back office.
There is a significant opportunity for traditional businesses in secondary markets to modernize their operations through the use of data and technology. This can lead to improved gross margins, increased revenue growth, and the ability to compete with larger competitors. The health care industry, specifically the back office of health care providers, is one area where this opportunity is particularly prevalent due to its labor-intensive and inefficient nature. Private equity firms like Grandmother Partners are uniquely positioned to help these companies make the transition and generate alpha through the use of data and AI. The deployment era of technology is expected to see a wave of traditional businesses catching up in the technology and data spheres, presenting both opportunities and challenges.
Technology enhancing traditional operating companies, particularly in healthcare and oncology: In the healthcare industry, companies possess valuable, exclusive and perishable datasets that can provide unique insights and forecasting capabilities. Valuing such datasets is complex, but their potential value is expected to increase as more companies explore data science.
There is a significant opportunity for technology to enhance traditional operating companies, particularly those with high labor intensity and a strong focus on intelligence and ideas. An example of this can be seen in the healthcare industry, specifically in the oncology space. Companies in this sector possess valuable, proprietary datasets that can provide unique insights and forecasting capabilities. These datasets are often exclusive and perishable, making them highly valuable. However, valuing such datasets is a complex process that involves determining the potential margin expansion from accessing the data and running intricate models. Currently, many lower middle market companies do not fully recognize the value of their data, but this is expected to change in the coming years as more companies begin to explore the potential of data science.
Unlocking value from undervalued data sets in manufacturing: Manufacturing data sets can provide valuable insights for informed decision making, but accuracy and creativity are essential for extracting value. Smaller manufacturing companies may lack resources to fully leverage their data and grow, presenting an opportunity for external support.
There are valuable data sets in various industries, particularly in manufacturing, that are undervalued by the sellers and can provide significant insights when used effectively. These data sets can help companies make informed decisions in real-time, such as benchmarking sales and understanding the impact of different choices. However, not all data is equally valuable, and some, like clinical data in healthcare, can be particularly challenging to work with due to the high level of accuracy required. Additionally, having data alone is not enough; creativity and a solid business model are necessary to extract valuable insights. A typical manufacturing company in the Midwest falls into one of two categories: large organizations with numerous plants producing various products, or smaller companies with one or two plants and a focus on one or two core products. These smaller companies, despite their size, can still be strong and profitable, but they may lack the resources and expertise to fully leverage their data and grow. These companies present an opportunity for external support and collaboration to help them unlock the value in their data and expand their business.
Untapped Potential for Midwest Manufacturers to Scale with Technology and Data Analysis: Midwest manufacturers with $50M revenue lag behind in data utilization, but data can improve product quality, customer experience, and supply chain management. Future: data-driven plants with sensors on machines and reduced manual labor.
There is significant untapped potential for manufacturing companies in the Midwest to scale and improve their operations through technology and data analysis. These companies, often with $50 million in revenue, have yet to fully adopt a scale mindset. While they have been successful in manufacturing and process efficiency, they are lagging behind in generating, producing, and utilizing data. Data is an untapped resource in manufacturing, with opportunities to improve both the manufacturing process and the business model. Engineers are already using data to improve products, and collecting data on product usage in the field is a growing trend. However, many smaller manufacturing plants struggle to effectively collect, label, clean, and analyze the data. The primary use cases for manufacturing data involve improving product quality, enhancing the customer experience, and optimizing supply chain management. With the increasing automation of manufacturing processes, the vision for the future is a plant that functions as a big data center, with sensors on each machine and a significant reduction in the need for manual labor. Companies that support the manufacturing industry, rather than being direct manufacturers themselves, are also of interest as they contribute to the data-driven future of manufacturing.
Data drives efficiency and productivity in maintenance and marketing for lower middle market businesses: Data from connected machines enables predictive maintenance and cost savings, while customer insights lead to marketing efficiency and profitability for lower middle market businesses
Data plays a crucial role in optimizing various aspects of lower middle market, tier 2, and tier 3 businesses. In the realm of maintenance, data enables more efficient servicing and predictive maintenance by collecting information from connected machines. This leads to cost savings and improved productivity. In marketing, data helps businesses understand their customers better, leading to increased marketing efficiency and profitability. By analyzing net income at a transactional level, businesses can uncover hidden costs and adjust pricing strategies accordingly. Overall, data-driven insights can significantly enhance the performance of these businesses.
Analyzing customer data for optimization and profitability: Access to individual customer data and AI analysis enable businesses to optimize marketing efforts, client success, and overall profitability.
Access to transaction-level data and the ability to analyze it individually for each customer is crucial for businesses to optimize their marketing efforts, client success organization, and overall profitability. AI plays a significant role in making this analysis possible at an efficient and effective scale. From a distribution perspective, traditional software companies often build their software in tech hubs and sell it through a combination of direct sales for larger customers and channel partners for smaller ones. However, there's a growing trend towards controlling the distribution of software directly, especially in targeted customer segments. Companies like Apple and Tesla have successfully implemented this model by selling their products directly to customers, providing a controlled customer experience from end to end. The question is whether customers want just another software tool or the full service that comes with it. In secondary markets, where talent for data analysis is scarce, providing a full-service solution might be more appealing. Companies that can develop strong products and provide these services could have a significant opportunity in the market.
Emphasizing affordability and ethics in software sales: The speaker advocates for software with affordable entry prices and ethical business practices, challenging the traditional high-cost model and emphasizing long-term relationships.
The traditional model of selling software with full service and high costs may not be in the best interest of customers, and there's an opportunity to deliver software with more affordable entry prices and still generate value. The speaker also emphasizes the importance of treating others well in business and maintaining long-term relationships. He believes that doing business the right way, even when it's difficult or not profitable, is essential for success. Additionally, the speaker questions the high valuations of software companies in the public market and suggests that reasonable multiples of EBITDA or sales are more appropriate. The speaker's unique perspective comes from his experience straddling the modern and traditional business worlds. Ultimately, the speaker values long-term business relationships and believes that acting ethically and fairly is the key to success.
Essential values for success in business and life: Strong ethical principles and treating others with respect are essential for navigating difficult decisions and conflicts in business, allowing businesses to unite and make informed decisions that benefit everyone involved. Personal stories and influences can inspire and shape our lives and careers.
Strong ethical principles and treating others with respect are essential for success in business and in life. Graham Allen, the founder of Graham Allen Partners, emphasizes that these fundamental values, which he learned from his childhood friend Kenneth Allen and legendary football coach Lou Holtz, are crucial for navigating difficult decisions and conflicts that inevitably arise in business. Allen believes that simplifying these core principles allows businesses to unite around them and make informed decisions that benefit everyone involved. He shares a personal story about how his friend Kenneth Allen's influence shaped his life and inspired him to name his company in his honor. Additionally, Allen highlights the kindness shown to him by Chris Murphy and Jay Jordan, which significantly impacted his career and personal growth.
Two influential encounters changed the speaker's life: Acts of kindness and new experiences can shape our future and form meaningful relationships
Acts of kindness and providing opportunities for growth can have a profound impact on individuals. The speaker shared stories of two influential encounters that changed the course of his life. The first was a business meeting that turned into a 7-day trip to Naples, Florida, where he met a successful businessman and his family. The second was a trip to the Hamptons with another businessman. Both experiences exposed him to new worlds and perspectives, shaping his future and leaving lasting relationships. These encounters serve as a reminder of the importance of generosity and the potential for transformative experiences that can come from unexpected opportunities.
