Thread by @BrentBeshore

How Private Equity Buried Payless: nytimes.com/2020/01/31/ups…

Article tries (unsuccessfully) to condemn all PE, and capitalism generally, using Payless as the case study.

But, some points raised are worth reflection and beg for nuance. PE is not a monolith.

Here goes...

Caveat: Business is brutally hard. People are messy. Journalism, especially when focused on taking down an entire industry and our modern economic system, can get facts wrong.

With that said, many points should be examined. And, PE should continue to self-reform.

To set the table, PE is gaining steam. It’s the path to liquidity for many family owned businesses and can be helpful in properly allocating capital.

That’s why it’s also important for the industry to be self-reformed. Better ways will greatly impact many people’s lives.

Pride before the fall. It’s easy to confuse expertise in one area for competence in all areas. We all do it and PE is no different.

First rule should be “Do no harm.” Requires listening and learning and not taking for granted the deep knowledge of seasoned operators.

The biggest downfalls of PE start with time horizon. When you have to flip a company every 3-5 years to payback your investors, it limits your ability to make long-term decisions. Everything gets reduced to immediate payoffs.

Owners who think about the next 100 years open up creative investments/strategies that unlock massive value.

It starts with LPs who are largely unwilling to trust GPs for longer than 10 years, which makes buying and holding longer for 5 years difficult or undesirable.

Family businesses became successful because they reinvested, took risks, and had margin for mistakes. Typically PE capital structures eliminate this flexibility with big debt payments and dividends.

Debt is one of the few ways to make a good company bad.

There are smart people in Kansas (said painfully by the Missouri guy) and everywhere else. Elitism is a poison that harms everyone. Good ideas can come from anywhere.

It starts with treating people as people — with respect and care.

Stuff happens. The only thing you can assume is that life won’t play out the way you predict. Sustainable businesses require a margin of safety — plenty of cash, redundancy, and time to get out of the muck and mire and think.

Piles of debt, a short shot clock, and high pressure create some phenomenal outcomes and a lot of lives destroyed. There’s a better way.

Use less/little debt. Hire operators, not financiers, to run companies. Treat people as you'd want to be treated. Think long-term.

To achieve this, sellers have to care more about who buys their company and what they do with it.

LPs have to find GPs they can trust and lower their short-term return expectations.

GPs must stop creating heads-I-win-tails-you-lose situations and aim to get rich slowly.

If this sounds fanciful, you're probably right. Cynicism is usually accurate in the short term.

But, we've tried to implement these ideas @adventur_es and, so far, it's working. Are we doing things perfectly? Oh, hell no. But, we're trying and open to feedback. Fire away.