Episode Twenty-Four… How Many Companies are We Going to Add?

Episode Description

While the notion that “bigger and faster” may seem superior, that isn’t always the case.

In this episode, Chris Fredericks, CEO of Empowered Ventures, and Emily Bopp, Chief of Staff at Empowered Ventures, discuss the growth strategy of Empowered Ventures. They share insights on how these strategies tie into the long-term goals when creating value and stability for the ESOP.

Tune in to gain a deeper understanding of Empowered Ventures’ strategic vision and thoughtful approach to growth.

In this episode, you’ll learn:

  • How Empowered Ventures is taking a deliberate and cautious approach to adding companies to the portfolio, focusing on creating meaningful diversification for the ESOP.
  • How recognizing the pitfalls of rapid expansion, Empowered Ventures is pacing growth and understanding that slow and steady can lead to a more enduring and robust enterprise.
  • The Empowered Ventures approach is flexible, considering the changing dynamics of the market, the performance of existing companies, and the opportunities that may arise. By maintaining a patient and adaptable mindset, we can make informed decisions about the future of Empowered Ventures.

Jump into the conversation:

[01:36] Chris and Emily review “Same as Ever” by Morgan Housel
[02:16] The downside of too much, too soon, too fast
[04:48] How many companies are we going to add?
[09:02] Meaningful diversification
[11:16] Slow and thoughtful growth

How to Listen or Watch

Listen below or wherever you listen to podcasts.

Watch below or @Empowered_Ventures on YouTube.

Read the full transcript here or below the following media links.


Episode Transcript

Chris Fredericks: I think we’re definitely building a skill set and we’re building a team at the holding company that I think is going to be really awesome at doing this, at buying companies, helping them become part of our employee ownership group, unlocking value in those companies by stewarding them really well. And that in and of itself will be a skill set that could lead to just a desire for us to keep doing more, because it’s going to create value for the ESOP to keep doing that.

Chris Fredericks: Welcome to Empowered Owners, the podcast that takes you inside Empowered Ventures. I’m your host, Chris Fredericks. In each episode, I’ll have a discussion with one of our employees to discover and highlight their distinct personalities, perspectives, and skills while also keeping you in the loop with exclusive news, updates on company performance, and a glimpse into the future plans of Empowered Ventures. This is an opportunity for me to learn more about our amazing employee owners and an opportunity for you to hear regularly from me and others from within Empowered Ventures. On this episode of Empowered Owners, Chief of Staff Emily Bopp and I answer a question we’re often asked: how many companies are we going to add to the EV family of businesses? We touch on various related topics, including the minimum level of diversification EV is targeting. We also discuss a great book we both read recently, same as ever by Morgan Housel. Let’s get to the conversation. Hi Emily. Welcome back.

Emily Bopp: Hey, Chris, how’s it going?

Chris Fredericks: I’m doing really well. How are you?

Emily Bopp: I’m awesome. And I have to thank you for recommending a really great book that I hope we get to talk about for a second called “Same as Ever: A Guide to what Never Changes” by Morgan Housel. How’d you come across this book? Why? Did you recommend it?

Chris Fredericks: Yeah. First off, for anyone that likes personal finance in general, as a topic, I think Morgan Housel is one of the best people to come across and read, at least for me. It’s one of my favorites. And yeah, how I came across it, honestly, I don’t know. I came across Morgan’s writing at some point. He’s a writer first and foremost, like a blog post and stuff like that. But he’s done a few books and this is his latest. I just, I can’t recommend it highly enough.

Emily Bopp: Yeah, well, I’m glad you did. And I picked it up and I’ve been reading through, so it’s really cool because every chapter is its own standalone topic. So if you’re someone who likes to just dive in and out, it works. So the one that grabbed my attention, well, they’re all great, but there’s a chapter called “Too much, too soon, too fast” and it’s all about how we make an assumption. So this is a book about what never changes. So he’s proving a point that over time, every generation, every time throughout history, something that never changes is that we tend to make the mistake of thinking that bigger and faster is better. And he debunks that.

Chris Fredericks: What I love about him in general, and in this chapter, too, if I’m remembering correctly, is he likes to talk about evolution a lot, like the way animals evolve. And there’s, like, a natural tendency of animals to evolve to really large sizes, but that’s counterbalanced by the fact that larger animals are more susceptible to extinction events, basically. So that’s why everything doesn’t always get bigger forever and ever. We all know the dinosaur example. So it’s just versus, on the flip side, tiny organisms can go forever without being extinct. Basically, billions, millions and billions of years in theory. Yeah, I love that. And it just illustrates that concept really well that he says there’s advantages to being bigger a lot of times, but there’s some really big disadvantages when it comes to extinction events especially. So I think that’s pretty fascinating.

Emily Bopp: Yeah. And not just about size, but, like, the pace that you took to get there, that was another thing that I was like, oh, my gosh, how interesting. So he’s talking about trees and how little saplings, when they grow in the woods, they have to fight for sunlight and water. And there’s all these other trees around them, so they grow really slow because they didn’t have plenty of what they needed to grow fast, but in growing slow, they actually grow stronger. And how trees that don’t have to fight for that, they have plenty of sunlight. The tree that’s planted in your neighborhood, in your front yard, with everything that needs it, can grow really fast. But in growing fast, the wood is softer, it’s more susceptible to fungus and other things, and that generally, the faster growing trees die sooner, the slower growing ones live to be old. And so pace, like, not only size, but pace, has something that there’s not only a convenient size, but a convenient pace. Oh, I’m using a phrase. So that’s the other thing I loved about. One of the things he said is that everything has its convenient size. Okay. That’s a word that I wouldn’t normally assign. It’s convenient for a nat to be the size of a nat. It’s convenient for a human to be the size of a human, that there’s inappropriate. So, shifting gears, we get asked the question often, how many companies are we going to add? How big is Empowered Ventures going to grow? And we think about it in terms of what’s the right size for us. We don’t want to get too big. We don’t want to stay, too, but also, what’s the right pace? So I’d love to be able to answer that. Just came up again at our summit. Our employee ownership committee members were asking, so how many companies are we going to add? So lead us, what can you tell us about how we think about how many and how big and how fast?

Chris Fredericks: Yeah, and my mind’s going back to when we launched empowered ventures, which is almost four years ago. We officially launched in June of 2020. So coming up on EV’s kind of four year anniversary in not too long. And when we did that, we had a pretty specific idea around how empowered ventures would grow and how fast, too. And we kind of, as I like to do a lot of times, use like a crawl, walk run mindset. I’m definitely someone who prefers a thoughtful early stage when it comes to anything like this. We were careful to outline what the crawl phase would look like for EV, which we initially thought would be one to two years, and it would involve buying our first one or two companies. And that’s really what took place from 2020 to 2022. We were careful we didn’t build a really large team at the holding company right off the bat, but we did bring on Spencer and make sure we were capable of actually doing these two first one or two acquisitions. And we were fortunate to do that and found two great companies in first arm Paramount. With that, we were often walking. We had two companies, and we were starting to feel that with that pace of growth happening at that point and the reality of growth happening, it was time to shift into that walk phase, which meant investing into the team and building a team and starting to think about continuing to add more companies and going back to the beginning. Not just how fast do we want to grow, but how big do we want to grow right off the bat, what’s the purpose of empowered ventures is a key question with all this, and a big part of our purpose is to create diversification for our ESOP. Empowered Ventures launches its TVF is our core operating company, the founding operating company. It’s great business. And we think really long term, we like the idea of diversification, because if we build a portfolio in a group of successful companies that’s diversified, which means different industries, maybe different geographies to some degree. But ultimately, just if any one company does really well, or any other company doesn’t do as well, the impact on the ESOP is still more stable, ultimately, and we’re not risking everything on one industry or one company or whatever, because these ESOP accounts are so important. They’re people’s probably their largest retirement account. If we’re being realistic, if anyone works for an empowered ventures company for a long time, it’s going to be the largest chunk of their financial being in the future, especially when it comes to retirement. So protecting that is like one of the most important things I think we can do. And so I think I went all around the topic a little bit there. But as far as how big we want to grow, we had to think about what the minimum level of diversification is that we care about, and that would be meaningful ultimately for the long term. We try to define a pace of growth, but then in the end, we have some sense of what we’re trying to get to, which is meaningful diversification.

Emily Bopp: Love it. And so, what does meaningful diversification look like in terms of numbers?

Chris Fredericks: Yeah. Where we landed, just to cut to the chase, is that eventually it would be really good for EV to have, let’s say, eight to twelve independent companies that are as diverse as possible in terms of end markets and things like that. And that we wouldn’t want to have any single company more than 25% of EV’s total value. So those two elements combined, in the long run, would create a much more diverse and stable group of companies.

Emily Bopp: Okay, so what I hear you saying is growing at about one to two companies per year, roughly. And that our first, most convenient size would be eight to twelve companies, maybe because, and that’s not just an arbitrary number, but because that would accomplish potentially the diversification that we’re looking for. Specifically, that no single company would represent more than 25% of the total value of the enterprise.

Chris Fredericks: Yeah, the 25% was key. And also there has been work done by some professional investors that twelve to 15 companies creates a really optimal amount of diversification at the minimum amount of companies or investments that would create, especially if they’re in truly diverse markets and industries would create. So that kind of informed it too. But also I would add that that’s like the truly long term mindset, like getting to that twelve and truly diverse. We also have a sense that there’s a pit stop in there somewhere, let’s say five to six companies, where maybe that’s when we’re thinking about what shifting from walking to running is. When we think about pace. So I definitely am excited that we’re still very much in this walking phase building ev. We’re going very carefully right now. We’re trying not to grow too fast. We could easily be buying more companies faster right now, but we’re very mindful to not do that just because of that reason of not wanting to shoot up really fast, but ultimately not be durable as an enterprise. Ultimately, absolutely.

Emily Bopp: I’m remembering another quote from the book Morgan Housel quotes Warren Buffett, who has a joke that many people have probably heard that you can’t make a baby in one month by getting nine women pregnant. And you and I both said that might be a little bit of a sexist remark. But anyway, the point is still, yeah, I love that we’re being slow and careful and thoughtful and growing that hardwood that is going to put in place a way for us to endure. But I still have to wonder when we get asked this question, how many are you going to buy? Like, does it end at twelve, or do we leave that open? How do you think about that?

Chris Fredericks: I think it’s a great question. I don’t think we have a great answer today. Part of that is that life changes and the world changes, and to get to twelve is going to be a huge accomplishment. And it could take us ten to 15 years or something to get to actually twelve companies that we’re really happy with as a diverse portfolio of businesses. But in doing that, I think we’re definitely building a skill set and we’re building a team at the holding company that I think is going to be really awesome at doing this, at buying companies, helping them become part of our employee ownership group, unlocking value in those companies by stewarding them really well. And that in and of itself will be a skill set that could lead to just a desire for us to keep doing more because it’s going to create value for the ESOp to keep doing that. Having said that, I also could envision a future where that opportunity changes for some reason. Maybe private company valuations go way too high and we don’t think it’s a good thing to keep buying companies that way because of some market reasons. Or maybe we’re just really happy with our group of companies and some of those have found growth opportunities themselves that deserve more attention and support. Maybe some of our companies are growing through acquisition themselves, and it makes more sense to focus and support them in those efforts way down the line. Whether we go beyond ten to twelve companies, eight to twelve companies, we’ll just have to see and be patient and it’ll be a conversation I’m sure we’re all having year to year as we think about how the next near term looks for empowered ventures. But I think it’s exciting to know that if we get to that point, we’re going to have a lot of great options to consider.

Emily Bopp: Absolutely. Thank you so much. What I’m taking away from this is that we’re not making the mistake that is one that never changes back to where we started. This whole conversation, where we’re just making the assumption that bigger is better and faster is better. Too much, too fast, too soon is not. At least we’re doing our darndest to not fall into that pit. And so again, I’ve said this many times before, I’m so thankful for our approach. It’s remarkable to be a part of a business that doesn’t make those assumptions that bigger and faster is always better.

Emily Bopp: So it gives me a lot of confidence in the strength of the enterprise we’re building. So thanks for elucidating on that some today. Really appreciate your thoughts.

Chris Fredericks: Thank you, Emily. Appreciate it.

Emily Bopp: All right, catch you next time.

Chris Fredericks: I hope that conversation was interesting and informative. Thank you, Emily, for joining me and Share Your Genius for producing this episode. As always, remember, we want to hear from you. If we mentioned anything that sparked a question or idea or feedback, please tell us to reach us. Email [email protected]. Thanks for tuning in.

Tags: Podcast
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