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2:33

J-O-Y-S. Hello and welcome to the Joys

2:35

of Compounding. We're still on the same

2:37

mission to study greatness in order to

2:39

help you find and compound your life's

2:42

work as fast as possible for as

2:44

long as possible. I'm Paul Buzer and

2:46

I'm Rick Berman. We're your hosts, and

2:49

each session, our teachers will be some

2:51

of the world's most compelling people from

2:53

across the vast range of human achievement.

2:55

This show is brought to you by

2:58

Pine Grove Studios in collaboration with Colossus.

3:00

The host of the show, Rick Berman

3:02

and Paul Buser, are the co-founders and

3:05

co-seos of Sadagrove Management Company. All opinions

3:07

expressed by any of Rick, Paul, or

3:09

their podcast guests, are solely their own,

3:12

and do not reflect the opinion of

3:14

either Sadagrove Holdings or Sadagrove Management Company.

3:16

This podcast is intended for informational purposes

3:18

only and should not be relied upon

3:21

as the basis for investment decisions. State

3:23

Grove Holdings or clients of state of

3:25

Grove Management Company may maintain positions and

3:28

securities discussed in this podcast. Take your

3:30

seats. Classes in session. Hey friends, it's

3:32

Rick here and on behalf of Paul

3:34

and me I want to wish everyone

3:37

in the JLC family a happy and

3:39

very grovy 2025. We've got such an

3:41

exciting year planned including class episodes coming

3:44

up with the undisputed Queen of software.

3:46

as well as the person both Julian

3:48

Robertson and Seth Karmon called perhaps the

3:50

greatest analyst of all time. But before

3:53

we turn the page on 2024, we

3:55

wanted to shine one more light on

3:57

the man behind our most popular class

4:00

of the last year, and that's Mitch

4:02

Rales, co-founder of Danaher, one of the

4:04

most impressive businesses to have been built

4:06

anywhere in the world this past century.

4:09

Having co-founded Danaher 40 years ago alongside

4:11

his brother and best friend Steve, the

4:13

rails boys have strung together a track

4:16

record of compounding that might even make

4:18

Buffett blush. Consider that Danaher has annualized

4:20

it over 21% for four decades, resulting

4:22

in an 1,800 times multiple on invested

4:25

on invested capital. And while the numbers

4:27

are mind-blowing, the story of how it

4:29

all went down is even more remarkable.

4:32

This is Mitch's first recorded long-form interview

4:34

of any kind, and so we feel

4:36

especially honored to share with you our

4:39

candid conversation with somebody who has shaped

4:41

and transformed us and the business world

4:43

in so many positive ways. In my

4:45

opinion, this class is more than just

4:48

revealing the anatomy of a human compounding

4:50

machine. It's learning firsthand the ideas and

4:52

principles behind greatness that are available for

4:55

all of us to more deeply embrace

4:57

and embody. In this conversation, you'll learn

4:59

from Mitch about the key inputs to

5:01

his outlier success. Why greatness is a

5:04

journey that takes an unusual time horizon?

5:06

The role benchmarking plays in standing up

5:08

any winning organization. Why it is essential

5:11

to cultivate learning agility and embrace transformational

5:13

pivots over time in order to adapt

5:15

and thrive in an ever-changing landscape? How

5:17

an uncommon commitment to continuous improvement and

5:20

long-term thinking, both at the individual and

5:22

corporate level, have fueled one of the

5:24

most impactful companies of our time. and

5:27

also the qualities that Mitch looks for

5:29

both in leaders and businesses he looks

5:31

to support. Now more recently, Mitch has

5:33

turned his focus to Glenn Stone, the

5:36

foundation and museum he co-founded with his

5:38

wife Emily, with a vision that emerged

5:40

from their shared passion for three fundamental

5:43

elements, art, architecture, and landscape, and seeks

5:45

to be the preeminent foundation devoted to

5:47

the visual arts in the world. Having

5:50

signed the giving pledge, they've committed to

5:52

building and investing for the benefit of

5:54

mankind. and now permeates through to every

5:56

pursuit Mitch takes on. We even talk

5:59

a little football and how Mitch has

6:01

applied some of the the same principles

6:03

of success in his ownership role of

6:06

his hometown team, the Washington commanders, helping

6:08

to restore the boys in Burgundy and

6:10

gold back to glory. In fact, just

6:12

days ago, and with the remarkable play

6:15

of rookie quarterback, Jade and Daniels, the

6:17

team clinched a playoff berth while having

6:19

their best season since 1991, cementing one

6:22

of the fastest and most impressive team

6:24

turnarounds in NFL history. With that, I

6:26

hope you enjoy class with our good

6:28

friend, Mitch Rales. Well

6:31

Mitch, welcome back to the Art

6:34

of Investing. I guess this is

6:36

our first time recording, but by

6:38

now with all the teaching hours

6:40

you put in on campus in

6:42

order to aim, you're pretty much

6:44

a tenured professor. We're on a

6:46

different campus though today, the beautiful

6:48

campus of Glenstone Museum. Maybe it's

6:51

appropriate to start here. I mean,

6:53

this is such a remarkable place

6:55

for those who haven't yet visited.

6:57

I mean, the integration of nature

6:59

and architecture and of course art

7:01

and this vision. of building something

7:03

preeminent in the world around the

7:05

visual arts. What's the Genesis story?

7:08

Glennstone is obviously something that's near

7:10

and dear to my wife Emily

7:12

and my heart. The two of

7:14

us co-founded this place, oh, I

7:16

guess in September of 2006, with

7:18

the whole vision and purpose of,

7:20

number one, art is essential to

7:23

life, and that we could create

7:25

something very different, very different. that

7:27

hasn't really been seen in the

7:29

world today, and what do I

7:31

mean by that? We're about the

7:33

seamless integration of art architecture in

7:35

nature. We sit on a campus

7:37

of about 400 acres where people

7:40

can come and experience all three

7:42

of these pieces of the equation

7:44

in a slow, calm way that

7:46

just isn't seen in the museum

7:48

world anywhere else. We were aghast.

7:50

at many places. that we visited

7:52

over the years where you stand

7:54

20 feet away from the picture

7:57

and you're taking a picture of

7:59

the picture because there's 10 or

8:01

15 people in front of you.

8:03

So you never get a chance

8:05

to engage with an artwork in

8:07

a way that you get to

8:09

at Glenstone. We actually did a

8:12

study. We wanted to dedicate about

8:14

350 square feet per visitor versus

8:16

what happens at a famous New

8:18

York Museum on a weekend where

8:20

they allocate about 20 square feet.

8:22

per visitor. So it gives you

8:24

a feel for the sense of

8:26

calm that would be here and

8:29

in a way that once again

8:31

a visitor can engage with the

8:33

artwork in a great way. They

8:35

could stand in front of her

8:37

for 10, 20 minutes if they

8:39

want. And by the way to

8:41

get you started when you arrive

8:43

at Glenstone you come into our

8:46

parking facilities. Each space has a

8:48

tree. You're feeling the calm of

8:50

nature as soon as you come

8:52

in. It's not the traditional parking

8:54

lot that you would see. You

8:56

get out of your car, you

8:58

go to our arrival hall, and

9:00

you check in, and you then

9:03

make a six, seven, eight minute

9:05

walk through the landscape to get

9:07

to the building, to get to

9:09

the pavilions itself. So you have

9:11

a chance to decompress along that.

9:13

walkway. You'll see some monumental sculpture

9:15

along the way. The building is

9:18

kind of hidden until you start

9:20

to approach the last couple of

9:22

minutes of the journey itself. And

9:24

when you actually get to the

9:26

building, you're really ready to start

9:28

to engage. You've left your negative

9:30

thoughts about what's happening in the

9:32

world, what's happening in your daily

9:35

life, the hustle, the bustle that's

9:37

going on, and you really do

9:39

get a chance to decompress. So

9:41

that's what we're about. We're on

9:43

a mission. We're now 15 plus

9:45

years in. We think we need

9:47

another 15 plus years to really

9:49

create something great here. We're good

9:52

now, but we're not. And greatness

9:54

is a journey that takes time.

9:56

We hope that all the good

9:58

decisions that we make at Glenstone

10:00

in the years to come and

10:02

in the years past will continue

10:04

to compound on one another. So

10:07

we'll talk about compounding a lot

10:09

today, but... Glennstone is compounding as

10:11

well with the decisions we make

10:13

every day and the learnings that

10:15

we have and the things that

10:17

we continue to do to try

10:19

to up our game and create

10:21

an experience for our visitors. It's

10:24

just second to none. That's what

10:26

we want and that's the philanthropy

10:28

that we're trying to create here.

10:30

It's hopefully going to be one

10:32

of the revered museums around the

10:34

world in its day and it's

10:36

got a long-term endowment that's been

10:38

put in place to sustain it

10:41

in perpetuity in perpetuity. in a

10:43

way that will keep it unique

10:45

to what we're trying to do.

10:47

I think it's evident that some

10:49

of the things that have been

10:51

so important to the story of

10:53

Danner, this ethos of continuous improvement,

10:56

commitment to excellence, customer satisfaction, all

10:58

of that, it's clear that those

11:00

are elements that are also being

11:02

integrated into Glenstone, but talk more

11:04

about just you and Emily having

11:06

that shared vision and that kind

11:08

of dream. talk a little bit

11:10

about the first 15 years of

11:13

execution, how you've gone about building

11:15

it. Well Emily and I have

11:17

become disciples of the author Jim

11:19

Collins and he's written the book

11:21

Good to Great, Bill to Last,

11:23

how the Mighty fail, and the

11:25

takeaways and learnings that we've had

11:27

from Jim over the years, by

11:30

the way he comes and speaks

11:32

at our conference every four to

11:34

five years for our businesses, have

11:36

just been profound. And it all

11:38

starts with creating a purpose statement,

11:40

a set of core values, a

11:42

vision statement of what you stand

11:44

for, and a b-hag, a big

11:47

hairy audacious goal, which is what

11:49

you really aspire to over a

11:51

20 to 30-year period of time.

11:53

And for Emily and I, it

11:55

all started about what we thought

11:57

there. And we started with our

11:59

purpose statement, which is art is

12:02

essential to life. And we build

12:04

a set of core values that

12:06

we live by every day. I

12:08

mean, we even do interviews that

12:10

we call core value interviews when

12:12

we're hiring associates to come to

12:14

work at Glenstone to see if

12:16

their values are aligned with the

12:19

values of the institution itself. This

12:21

helps make sure that you're hiring

12:23

great people who have a shared

12:25

purpose and vision that's similar to

12:27

yours. It started there, and we

12:29

can talk for hours about how

12:31

we select an artwork, but it's

12:33

very similar to the way we

12:36

select a business. Do you want

12:38

a business? It's a C or

12:40

a B minus? Hellno! You want

12:42

businesses that are A-plus, that are

12:44

anchored tenants, that are the defining

12:46

type of businesses in the industries

12:48

that they support. It's no different

12:51

in the way we select art.

12:53

We want the A-plus works of

12:55

the most defining artists of the

12:57

time when these works were created,

12:59

and that compounds on itself over

13:01

the course of time as well.

13:03

So there's 2,000 plus artworks in

13:05

the collection now. We've made some

13:08

mistakes along the way, but we

13:10

correct those mistakes and we continue

13:12

to up the game on the

13:14

collection of art that we have

13:16

as well. And the same thing

13:18

has taken place in the architecture,

13:20

the same thing has taken place

13:22

in the care of the landscape.

13:25

I mean, we want forested areas,

13:27

we want pastures with flowers, we

13:29

want people to be able to

13:31

really wander and see lots of

13:33

different things. I mean, we've planted...

13:35

pretty close to 20,000 trees now.

13:37

Some very, very large, some one-inch

13:40

caliper. But we pay attention to

13:42

all these details in what we

13:44

do and how we've gone about

13:46

it. And it's been a great

13:48

journey for Emily and I to

13:50

share, but we also think institutions

13:52

of greatness aren't. once again built

13:54

quickly. You can't be great quickly.

13:57

Great takes time and compounding. So

13:59

this journey of 30 years to

14:01

get to that point is what

14:03

we're really after. And that's the

14:05

behag that we want. We want

14:07

to create something that doesn't exist

14:09

anywhere else in the world. We're

14:11

lucky to be here, I think

14:14

just before Peak Dogwood blooming were

14:16

beneficiaries of that vision. I love

14:18

to dig in just a little

14:20

more. on those first couple of

14:22

years because we're going to get

14:24

into some learnings from your time

14:26

at Danahur and in so many

14:29

other businesses. One of the key

14:31

things that comes out of Danahur

14:33

business systems and what we've learned

14:35

from you these past few years

14:37

is this idea of benchmarking. And

14:39

so before you, you enact that

14:41

B. HAG in that vision, there's

14:43

a long period during which you

14:46

find out what the other grades

14:48

have done and what they might

14:50

have made mistakes on or what

14:52

they've gotten right. Talk about benchmark

14:54

marking as it relates to Glenstone.

14:56

Oh, it's a great question. And

14:58

one that we spent a considerable

15:00

amount of time on, not only

15:03

Emily and I, but taking our

15:05

architects, taking our builder at times,

15:07

the people that were going to

15:09

be very active in the build

15:11

out of Glenstone as a whole.

15:13

And we actually benchmarked 50 museums

15:15

around the world. And we had

15:17

great access to meet the teams.

15:20

And we would sit down and

15:22

have a nice conversation to get

15:24

started with the team before we

15:26

did the tour. And the first

15:28

question we would ask is, so

15:30

if you had to do it

15:32

all over again, what would you

15:35

do differently? And the stories they

15:37

told us were absolutely amazing. The

15:39

learnings of what not to do

15:41

was profound. And for our architects

15:43

and our builders to hear these

15:45

things, we got into the minutiae

15:47

of things like loading docks. How

15:49

would you do your loading dock

15:52

differently? than what you've done today

15:54

and how they created square footage

15:56

for entertainment space rather than the

15:58

artworks and how The sun would

16:00

shine in certain glass areas that

16:02

was distracting and what you could

16:04

do to eliminate that type of

16:06

thing. There's 101 different learnings that

16:09

came out of this and we

16:11

brought all of those back with

16:13

us that became part of our

16:15

architectural brief and how we wanted

16:17

to build this place out. And

16:19

I think we've created something pretty

16:21

unusual. We made some mistakes along

16:24

the way. I mean, if you

16:26

want to know, as a for

16:28

instance, our cafes were way too

16:30

loud. We didn't look at the

16:32

acoustics as properly as we should

16:34

have. It was an expensive fix,

16:36

but we were able to take

16:38

care of that. We have preferated

16:41

ceilings now that you can even

16:43

really see, but that take a

16:45

lot of the impact of sound

16:47

out so that you can hear

16:49

yourself have a conversation over lunch

16:51

with your friends. So plenty of

16:53

things that we continue to continue

16:55

to learn, but... you make a

16:58

mistake, you correct it. Where did

17:00

that commitment to benchmarking emerge? I

17:02

know there is the at least

17:04

early story of you and Steve

17:06

dividing up the world and looking

17:08

for benchmarking exercises in other great

17:10

companies in the early days of

17:13

Dan Herr and I think it

17:15

was Steve who drew Japan and

17:17

came back with this concept of

17:19

Kaizen that ultimately has evolved to

17:21

being Dan Her business systems. Was

17:23

that the early roots? That was

17:25

the early roots and that would

17:27

have been 1985, 1986. When we

17:30

were two young guys, we had

17:32

made a series of acquisitions and

17:34

we kind of looked at each

17:36

other and said, we don't know

17:38

much about manufacturing. We better figure

17:40

out how to run these businesses

17:42

and we did divide up the

17:44

world. I went to Europe, Steve

17:47

went to Asia and we split

17:49

North America. And when we looked

17:51

at... GM Ford, Chrysler, Toyota, Volvo

17:53

over in the Scandinavian countries, we

17:55

learned a ton. And we saw

17:57

something amazing in Japan or Steve

17:59

saw. I didn't actually see it,

18:01

but what we learned was in

18:04

watching GM change a two-ton die

18:06

that took them six weeks to

18:08

change that die over and we

18:10

watched Toyota change that same die

18:12

in six hours and we said

18:14

something is going on here that

18:16

we need to understand and what

18:19

came clear was Toyota adopted the

18:21

principles of a famous quality guru

18:23

by the name of Edward Demi.

18:25

And he had a bunch of

18:27

principles, 10 or 11 different quality

18:29

principles that he stood by. And

18:31

he tried to sell his bill

18:33

of goods to GM Ford and

18:36

Chrysler at the time. They weren't

18:38

buying it. And in 1959, Toyota

18:40

bought in hookline and sinker to

18:42

these principles. So what we like

18:44

to say... is all we were

18:46

doing was importing Edward Deming's principles

18:48

back to America because he had

18:50

exported them to Toyota. And when

18:53

we learned what the Toyota production

18:55

system was all about, it was

18:57

clear that they were the best

18:59

of the best of doing this

19:01

compared to anybody else in the

19:03

world. And we were able to

19:05

adopt those principles and bring them

19:08

back to America. and start to

19:10

integrate them into the business and

19:12

it started as Dan Aher is

19:14

the Jacobs production system because we

19:16

took it to one of our

19:18

most difficult manufacturing facilities that we

19:20

had that was upside down with

19:22

problems and introduced it there. It

19:25

went and evolved from the Jacobs

19:27

production system to the Dan Aher

19:29

production system and over the course

19:31

of time as we learned how

19:33

applicable all of these learnings were

19:35

not just to manufacturing, but to

19:37

the business as a whole, whether

19:39

it's accounts receivable management, whether it's

19:42

your call centers, whether it's things

19:44

like contracts and the likes, you

19:46

can continuously improve. all of these

19:48

things, so we were able to

19:50

create a business system out of

19:52

this, not just a production system.

19:54

So that was at the root

19:57

of what started to happen in

19:59

1985-86, and that compounding journey over

20:01

the last almost 40 years now

20:03

has served as well. It's a

20:05

common thing, like this idea of

20:07

finding a great idea somewhere out

20:09

there. Somebody else's idea. adopting it

20:11

or aspects of it, and then

20:14

over time advancing it and improving

20:16

it in a way that when

20:18

we talk about Dana Her business

20:20

systems, I mean, I think even

20:22

today the concept of Kaisen and

20:24

lean manufacturing, really, it's usually prosecuted

20:26

in a more narrow way devoted

20:28

only to the concept of, say,

20:31

manufacturing as opposed to the way

20:33

in which Dana Her has allowed

20:35

it to inform every aspect of

20:37

the business, the culture. the talent.

20:39

I do think benchmarking is still

20:41

a hidden art. How would you

20:43

advise folks to think about bringing

20:45

the concept of benchmarking into their

20:48

business or lives more generally? Well,

20:50

we have a Japanese concept known

20:52

as going to GEMBA, and that

20:54

means going to where the action

20:56

is. So let me give you

20:58

something real time. We were on

21:00

with our CEO at Danahur yesterday,

21:03

my brother and I. He took

21:05

an hour out of his day

21:07

to spend with us on some

21:09

important things we needed to review

21:11

with him. He's in Pensacola Florida

21:13

right now at one of our

21:15

largest manufacturing facilities, leading what we

21:17

refer to as a president's Kaisen.

21:20

And many of our presidents from

21:22

around the world this week are

21:24

leading Kaisens. We have 2,000 of

21:26

our associates engaged in Kaisens around

21:28

the world this week. So that's

21:30

called walking the talk. and making

21:32

sure that you're setting an example

21:34

at the highest levels of an

21:37

organization? If Reiner Blair shows up

21:39

in Pensacola and dedicates a week

21:41

of his time to a president's

21:43

Kaisen, what do you think is

21:45

going to... happen with everybody else

21:47

in the business. They know that

21:49

that needs to be part of

21:52

our culture, part of our DNA.

21:54

They need to buy in and

21:56

become part of this in a

21:58

profound way that just is enabling.

22:00

So I think the idea is

22:02

you just have to get started

22:04

and you have to be committed

22:06

to it. And you can read

22:09

a few books, you can learn

22:11

a little bit about what are...

22:13

Toyota production system is or there's,

22:15

God knows, a ton of information

22:17

out there on what Dan Herr

22:19

is done, but you need to

22:21

get the journey started. And it's

22:23

a compounding journey. Once again, you're

22:26

making little decisions and little changes

22:28

every single day that add up

22:30

to nickels and dimes and quarters,

22:32

become dollars. And these things add

22:34

up over the course of time

22:36

to big money when you've been

22:38

on it for 40 years and

22:41

doing it over a prolonged period

22:43

of time. When you look back

22:45

to your pre-Dannier days, what do

22:47

you reflect on as the most

22:49

formative experiences in people in your

22:51

life? My dad would have to

22:53

have been a very formative experience.

22:55

He was a very humble guy.

22:58

He grew up in New York

23:00

City. His mom passed in childbirth

23:02

of his youngest sister at the

23:04

time, and his dad was a

23:06

fruit vendor on the streets of

23:08

New York City and couldn't care

23:10

for the family, and as a

23:12

result. He and several of his

23:15

siblings were put into an orphanage.

23:17

He went into Hebrew or from

23:19

asylum when he was 11 or

23:21

12 years old, left when he

23:23

was 16 years old with a

23:25

toothbrush and five bucks, saying, Norman,

23:27

good luck, the world is all

23:30

yours. And he always told the

23:32

story, I believe the guy. Here's

23:34

a guy in my dad who

23:36

probably never finished his high school

23:38

education and was a ditch digger,

23:40

worked the carnival circuit. was on

23:42

a boat at some point in

23:44

his life working that side of

23:47

the equation eventually settled in Pittsburgh

23:49

with my mom and created a

23:51

home improvement contracting business that did

23:53

very very well but I think

23:55

he had a hard time dealing

23:57

with the complexities and personalities of

23:59

home improvement salesman and he ultimately

24:01

said I would rather sell to

24:04

them product than have to manage

24:06

these cast of characters. So he

24:08

came... picked up the whole family

24:10

and moved us to the Washington

24:12

DC area when I was 10

24:14

years old and just decided he

24:16

was going to start a wholesale

24:18

building products distribution business and he

24:21

did. So here's a guy who

24:23

wasn't scared to take risk, had

24:25

the entrepreneurial spirit and drive, and

24:27

at the same time created a

24:29

business that he ended up selling

24:31

and what We are told was

24:33

the first ESOP done in America

24:36

where he sold the business to

24:38

the employees because one of his

24:40

themes is, want to be a

24:42

champion of the underdog. So the

24:44

truck drivers got equity in the

24:46

business as a result of this

24:48

ESOP. And the business still exists

24:50

to this day. I think when

24:53

he sold it, it was about

24:55

a $10 or $12 million business.

24:57

He sold it to the employees.

24:59

And by the way, they couldn't

25:01

pay for it. So he took

25:03

a note back for 100 percent.

25:05

So they paid him out over

25:07

time for the business. And today,

25:10

Mid-South building supply still exists. And

25:12

I'm told it's a $150 million

25:14

business and the truck drivers are

25:16

millionaires. But how great is that?

25:18

That's my dad. But when my

25:20

dad didn't have in formal education,

25:22

he had in what I referred

25:25

to as the School of Hard

25:27

Knox and people asked me where

25:29

I got my NBA. I said

25:31

I got it from the Norman

25:33

R. Rail School of Hard Knox.

25:35

And he understood the psychology of

25:37

what it was like to be

25:39

out there on the street competing

25:42

every day without a formal education

25:44

and how to get things done

25:46

and I watched him with bankers

25:48

over the years and how he

25:50

maneuvered bankers and convincing them to

25:52

give him loans when he didn't

25:54

really deserve to get loans and

25:56

how he just managed people and

25:59

how he sold and his nights

26:01

at home were spent on the

26:03

phone calling people and we just

26:05

were in the general vicinity of

26:07

where he was making his calls

26:09

so we heard all the different

26:11

things that went on so I

26:14

like to think the apple doesn't

26:16

far too far from the tree

26:18

and he taught me the street

26:20

smarts and you know one of

26:22

the stories that I never forget

26:24

that he told was if you're

26:26

in a poker game. And after

26:28

three hands, you haven't figured out

26:31

who the sucker is, you're it.

26:33

It's really true in life, just

26:35

teaches you the different ways that

26:37

people think and manage things. People

26:39

draw conclusions from the same facts

26:41

that are presented to different people

26:43

that are opposite ends of the

26:45

spectrum. It's kind of amazing to

26:48

see how people look at facts

26:50

so differently, but they do. And

26:52

so you need to be prepared

26:54

for that, just when you think

26:56

and say, there's no way somebody

26:58

could come to this conclusion, yet

27:00

they do. You just need to

27:02

be prepared to deal with things

27:05

like that. So he's probably the

27:07

one who's had the biggest influence

27:09

on my life. Have you thought

27:11

it all about how your dad's

27:13

time in orphanage shaped him? I

27:15

mean, just as somebody who has

27:17

had a number of foster children

27:20

ourselves in thinking about the ways

27:22

in which children can often respond

27:24

to that kind of early challenge.

27:26

It can build tremendous resiliency and

27:28

it can also be something that's

27:30

very difficult. I think he came

27:32

away with both. I think the

27:34

sense of accomplishment was my dad

27:37

used to tell a story where

27:39

he'd sneak out of the orphanage

27:41

at night and he'd buy a

27:43

pie for a nickel back in

27:45

the 30s during the depression area

27:47

time. And then he'd come back

27:49

into the orphanage and he'd slice

27:51

it into eight pieces and he'd

27:54

sell each piece for a penny.

27:56

So he made three cents on

27:58

a five-cent purchase. He said, now

28:00

Mitch, that's a pretty good margin.

28:02

And I said, oh. He obviously

28:04

learned at a very young age,

28:06

the hustle and the entrepreneurial spirit.

28:09

On the other side of the

28:11

equation, I think he always dealt

28:13

in his life with a sense

28:15

of abandonment because he was put

28:17

into an orphanage, not because of

28:19

anything other than his father was

28:21

incapable of taking care of the

28:23

children. But that left a lasting

28:26

imprint on his life as well.

28:28

So there's good and there's difficult

28:30

that come with situations. like this,

28:32

and I saw it in his

28:34

life till the day he passed

28:36

at 89 years old. Incredible stories

28:38

about your dad and all he

28:40

did for your family and his

28:43

employees. Shifting gears a bit, you

28:45

mentioned earlier the work that Danahur's

28:47

current CEO, Riner Blair, and his

28:49

team are doing to continue to

28:51

spread the Kaizang gospel at Danahur.

28:53

And Riner is the latest in

28:55

a string of many leaders across

28:58

the history of Danahur. I remember

29:00

last year when you were with

29:02

us in class, you told the

29:04

story early on, it was many

29:06

years in the day and her,

29:08

but very early in the 40-year

29:10

journey of you and your brother

29:12

Steve, in a way, having to

29:15

transition to Chief Stewart's of the

29:17

business. And you met a gentleman

29:19

named George Sherman, but can you

29:21

tell that story? Maybe as an

29:23

example of how you think about

29:25

decentralization and harnessing talent and identifying

29:27

talent? Well, yes. The story starts

29:29

with the fact that I think

29:32

Steve and I... understood what we

29:34

didn't know. We were not meant

29:36

to be great operators. We tried,

29:38

we did okay, but I think

29:40

we understood that we really needed

29:42

to professionalize the business. We could

29:44

create long-term vision and strategy and

29:46

how to properly allocate capital. We

29:49

were very good at those type

29:51

of things, but the details of

29:53

what you need to do to

29:55

run a business. Day to day

29:57

is a heavy lift. There is

29:59

a sea. a CEO, publicly traded

30:01

company, really requires you to be

30:04

in 24-7, 365 days a year.

30:06

And we're prepared to commit the

30:08

time and the energy, but the

30:10

details were something that really needed

30:12

to be paid attention to. And

30:14

so we like to say in

30:16

1990, we fired ourselves. And we

30:18

hired a fellow by the name

30:21

of George Sherman to become Danher's

30:23

first real CEO outside of the

30:25

business. He was actually an outside

30:27

hire. George came to us from

30:29

what was known then as Black

30:31

and Decker. Today we know it

30:33

is Stanley. Black and Decker George

30:35

was the C.O. And we had

30:38

dinner with him one night. We

30:40

thought we were going to be

30:42

talking about deintegrating their drill truck

30:44

manufacturing plant in South Carolina and

30:46

that he was going to give

30:48

us the business if we would

30:50

take over the facility. We were

30:53

ready to go and we had

30:55

all of our ideas. And what

30:57

George said was I'm... really thinking

30:59

about leaving Black and Decker. I'm

31:01

thinking about going to work for

31:03

this organization and I know you

31:05

know these guys at this organization.

31:07

What do you think? And I'm

31:10

kicking Steve under the table and

31:12

he understands exactly why I'm kicking

31:14

him because we had always said

31:16

to ourselves, the type of leader

31:18

we're really looking for is George

31:20

Sherman. Here it is, he teased

31:22

it up for us and we

31:24

didn't even expect it. And to

31:27

make a long story short, 90

31:29

days later. We had a deal

31:31

with George. He did extensive due

31:33

diligence on the business. And remember,

31:35

this is when Danahur was primarily

31:37

a tool company and George was

31:39

a tool guy. And George gave

31:42

us a great 10-year run. He

31:44

was an exceptional CEO. He professionalized

31:46

the business. He brought processes in.

31:48

He helped us roll out the

31:50

Danahur business system in meaningful ways

31:52

that were really important to becoming.

31:54

the culture of the organization are

31:56

DNA and like I said 10

31:59

great years with George and a

32:01

seamless CEO transition to Larry cult

32:03

as part of his exit was

32:05

just pretty cool to see and watch

32:07

and be part of. Yeah, I think about

32:09

whether it's the act of finding yourselves

32:12

in the company that you

32:14

found it or or even

32:16

just to practice a benchmarking.

32:18

It does seem like those are in some

32:20

ways in service to something that

32:22

we've observed about you and

32:24

about everything that you involve

32:26

yourself with this dual commitment

32:28

to Ambition and patience. If

32:30

you're only ambitious and you

32:32

don't have that long-time rise

32:35

and doing extensive benchmarking might

32:37

seem like a waste of

32:39

time or time that you don't

32:41

have, but when you're thinking in

32:43

terms of decades and even centuries,

32:46

it refrains how you answer

32:48

certain questions. I'm just curious

32:51

to try to understand better

32:53

where that long-term gene came from.

32:55

I'm not sure where it came

32:57

from, but it's there. We don't

32:59

think in terms of quarters or

33:01

years, we really think in terms

33:03

of decades, and in many cases

33:06

we like the concept of

33:08

having an unlimited time

33:10

horizon on our investments.

33:12

And we've now been at it for

33:15

40 years with Danahur. It'll

33:17

be 40 years in September of

33:19

this year that Danahur was

33:21

founded. And the power of

33:24

compounding over that 40 years, tax

33:26

free by the way. is what I refer

33:28

to as the eighth wonder of the world.

33:30

It's a phenomenal thing. And you

33:32

don't really get started until

33:35

you hit the 10-year mark.

33:37

So we watch a lot

33:39

of what's happening in the

33:41

world of short-termism today, whether

33:43

it's the day-to-day mark-to-market that

33:45

hedge funds have to go through,

33:47

the three-to-five-year cadence that PE

33:49

and venture capital are engaged

33:52

in. It's really hard to

33:54

build anything lasting that's

33:56

great. when you take those type of

33:58

time horizons, it's why. I said

34:00

when we talked about Glennstone, I

34:03

think we're on a 30-year journey

34:05

to create greatness at the institution.

34:07

It's no different in the business

34:09

world. It just takes time. And

34:11

compounding whether it's business practices or

34:14

financial returns, it just takes time.

34:16

If you want to get to

34:18

the Promise Land, which is a

34:20

hundred times outcome on your investment.

34:23

you need 20 to 30 years

34:25

to do it. And if you

34:27

can't get to 10 times in

34:29

10 years, you have no chance

34:32

to get to 100 times in

34:34

20 to 30 years. So everything

34:36

that I think about is when

34:38

I'm sizing up an investment or

34:41

an opportunity with my private investing

34:43

practices is, do we have the

34:45

youth in place that are talented

34:47

enough and have the learning agility

34:50

and the desire to become great?

34:52

And if they do, Can they

34:54

give us that 20 to 30

34:56

year time horizon that we need?

34:59

And will they be able to

35:01

make the pivots at the right

35:03

time that need to be made

35:05

in every business? It's interesting to

35:08

see this, but that's the way

35:10

I'm thinking about things before we

35:12

even really get started. If they're

35:14

just a three to five year

35:17

person, it might be a very

35:19

good return over three to five

35:21

years. I still don't want any

35:23

part of it, because at the

35:26

end of the day, you've put

35:28

a lot of time and effort

35:30

in. that you have to start

35:32

all over again and do another

35:35

three to five years on that

35:37

journey and for okay returns but

35:39

the real goody basket starts post-year

35:41

10 when you start to go

35:44

from 10x outcomes to migrating to

35:46

the chance at 100x outcome. You

35:48

need almost that high-level vision like

35:50

that in order to last decades

35:53

and to pivot and Danher was

35:55

a tool manufacturer. It's not that

35:57

today. It's a life sciences, key

35:59

life sciences player across the world.

36:02

Can you just talk about the

36:04

idea of pivoting? And it is

36:06

just so hard for people to

36:08

conceive. How much Danner and you

36:11

personally have had to pivot over

36:13

40 years? And what advice do

36:15

you have for people to actually

36:17

embrace that? Change is a necessary

36:20

phenomenon. And the world changes. We

36:22

all go back to the 80s.

36:24

The Japanese were going to take

36:26

over the world on manufacturing. They

36:29

were the de facto standard that

36:31

we all wanted to live by.

36:33

Look at what happened to Japan

36:35

at some point. Events. Globalization. new

36:38

competitors, early stage businesses, things happen

36:40

that disrupt. And you have two

36:42

choices. You can be the disruptor,

36:44

or you can be the disrupted

36:47

one. I prefer to be the

36:49

disruptor, which means you have to

36:51

be thinking constantly about what's happening

36:53

to your businesses, per se. And

36:56

we're now in the midst of

36:58

Danaher 4.0, which means we started

37:00

at Ground Zero, which was Stephen

37:02

Mitch. We had the Sherman era,

37:05

which was 1.0, we had the

37:07

Culp era, which was 2.0, we

37:09

had the Joyce era, which was

37:11

3.0, and we're now on to

37:14

4.0 with Reiner. And it's interesting

37:16

that these things tied to the

37:18

CEOs, because the idea was, as

37:20

one CEO pivoted out and another

37:23

pivoted in, we had to make

37:25

sure we had the CEO who

37:27

was aligned with what the business

37:29

needed to do. to continue to

37:32

reinvent itself for that next transformation.

37:34

Each was required if we wanted

37:36

to continue the compounding journey and

37:38

to change the nature and makeup

37:41

of what we have. I really

37:43

do believe that each business, whether

37:45

it's Dan or her, whether it's

37:47

our business at ESAB, which is

37:50

our global welding business, or many

37:52

of these early investment that I'm

37:54

making today, everybody needs to think

37:56

about transformation along the way. And

37:59

do these CEOs have that intellectual

38:01

learning agility to want to make

38:03

the transformation that's necessary? and see

38:05

beyond what's happening in any given

38:08

year. It's about thinking about what's

38:10

going on out in the world

38:12

that could change the nature of

38:14

what's happening to you as a

38:17

business and make those adjustments now

38:19

before you're forced to make them

38:21

down the road. You mentioned intellectual

38:23

agility. I think, at least from

38:26

the outside looking in, these kinds

38:28

of pivots are rare in any

38:30

company and it strikes me that...

38:32

It's likely that the way you

38:35

and Steve evolved your role to

38:37

be Chief Stewart's and to give

38:39

these leaders cover in order to

38:41

make these pivots has been critical.

38:44

We have the good fortune of

38:46

not being in the day-to-day meat

38:48

grinder that a CEO is in

38:50

today. Think about these poor souls.

38:53

They're on the 90-day clock. They

38:55

got a report to investors every

38:57

90 days. And you hear the

38:59

same questions from the investment community.

39:02

All the questions are dealing with

39:04

what happened during this 90-day period

39:06

and what's likely to happen the

39:08

next 90 days. Rather than, what

39:11

are you doing today to preserve

39:13

and protect and grow your investment

39:15

for decades to come? Nobody focuses

39:17

on that. The zero. And it's

39:20

hard for these CEOs. I mean,

39:22

I'm really respectful of the challenge

39:24

that they have. So what Steve

39:26

and I can do is give

39:29

them the air cover, particularly in

39:31

the boardroom and with the outside

39:33

investors, that we are here to

39:35

support them in ways that really

39:38

create a long-term vision for the

39:40

company so that they can be

39:42

also working on. the long-term side

39:44

of the equation as well as

39:47

having to deal with the complexities

39:49

of what happens quarter in and

39:51

quarter out with the business. And

39:53

I think that's different than what

39:56

you see with most companies. We

39:58

care deeply at the board level

40:00

about how to help these folks.

40:02

navigate all of this. And I

40:05

think investors have now learned that

40:07

the board can play a very

40:09

valuable role in helping to steward

40:11

the business for the long term,

40:14

rather than just thinking about the

40:16

90-day clock, day in and day

40:18

out. It's tough. What aspect of

40:20

the day in or her story

40:23

is least understood from the outside

40:25

that's most important to its history?

40:27

I think the deeply ingrained culture...

40:29

of continuous improvement in long-term thinking

40:32

that mitigates that I don't want

40:34

to personally think about day to

40:36

day. I want to think about

40:38

what we're doing for the next

40:41

decade. This 4.0 pivot that we're

40:43

in the midst of, Reiner's been

40:45

working on for the last several

40:47

years. And we're not done yet,

40:50

but we're closer to the finish

40:52

line. We probably have another year

40:54

or two to go. And then

40:56

we'll let that pivot play out

40:59

for years, but we'll start thinking

41:01

about what 5.0 is going to

41:03

look like. And I don't know

41:05

the answer to that today. I

41:08

really don't. But we'll have to

41:10

start thinking about that as we

41:12

enjoy the fruits of what that

41:14

pivot was all about for several

41:17

more years. But something's going to

41:19

happen and we've got to get

41:21

ahead of the curve and thinking

41:23

about that. And having that space

41:26

as founders and not being in,

41:28

like I said, the meat grinder

41:30

every day, gives you a chance

41:32

to really able to think longer

41:35

term. But that culture, I think,

41:37

of continuous improvement in long-term thinking,

41:39

it's understood but not appreciated. You've

41:41

referred to a co-founder twice with

41:43

Steve. and Dan Herr and Emily

41:46

at Glenstone. And I know you

41:48

have this predisposition to seek out

41:50

co-founder teams, not always, but often

41:52

that you see value in that.

41:55

Maybe you can just talk a

41:57

little bit about your experience building

41:59

alongside another, another individual. Maybe we

42:01

could start just with Steve on

42:04

the Danherr front. Well, Steve and

42:06

I have been partners now since

42:08

1980, and obviously Dan Herr was

42:10

founded in 1984. We've had a

42:13

pretty good run. Interestingly. We've never

42:15

had any debates of consequence about

42:17

money. The debates have always been

42:19

about what's the right long-term strategy

42:22

for the business. And I think

42:24

having respect for one another's opinions

42:26

along the way, I mean, listen,

42:28

he can complete my sentences today

42:31

and I can complete his sentences

42:33

today and our roles have evolved

42:35

a little bit differently from the

42:37

early days to one where we're

42:40

really... In the early days, he

42:42

was working on strategy, big picture,

42:44

I was working on the operating

42:46

prowess of the businesses. Today, we're

42:49

both aligned in thinking about long-term

42:51

strategy, how do we want to

42:53

allocate our capital, what's the right

42:55

CEO succession that needs to take

42:58

place in the business itself, and

43:00

how do we make sure we

43:02

proliferate our culture and our business

43:04

system in perpetuity? That's what we

43:07

deal with. day in and day

43:09

out. And while Steve and I

43:11

live in very different parts of

43:13

the country today, there's not a

43:16

day that goes by where we

43:18

probably don't talk five times a

43:20

day and we're not together. We

43:22

just have that alignment on what

43:25

we want to do and where

43:27

we want to go. And it

43:29

really all starts with what's the

43:31

next 10-year journey going to look

43:34

like and how do we participate

43:36

in a way to help our

43:38

teams really accomplish that. Maybe we

43:40

could just take a couple minutes

43:43

to tell the dinner vignettes from

43:45

1.0, 2.0, 3.0, and 4.0. However,

43:47

you think... is most appropriate to

43:49

share. Well Ground Zero started with

43:52

Steve and I coming off of

43:54

a fishing trip in Montana together

43:56

constructing what we thought we wanted

43:58

to accomplish with our lives in

44:01

the business world. And we had

44:03

this behag before Jim Collins, you

44:05

know, created the concept of behag.

44:07

We didn't realize it was a

44:10

behag back then, but what it

44:12

basically was, was, God, wouldn't it

44:14

be great? If we could create

44:16

a business in our lifetime that

44:19

was $250 million in sales doing

44:21

10% operating profit margin. Oh, this

44:23

would be unbelievable. And we shook

44:25

our heads and we shook hands

44:28

with one another and we said,

44:30

let's start this journey. And lo

44:32

and behold, we didn't know any

44:34

better. I mean, we lived in

44:37

a period of time where leveraging

44:39

assets... They were called bootstraps back

44:41

then. They weren't called PE buyouts

44:43

or high-yield bond financings, but you

44:46

could borrow massive amounts of money.

44:48

And our first deal came in

44:50

1981 when we bought a little

44:52

vinyl-citing manufacturing company called Master Shield

44:55

for $6 million. We knew a

44:57

little something about this. We did

44:59

a little due diligence because I

45:01

came out of my dad's building

45:04

supply business for a couple years

45:06

and one of the products that

45:08

I was selling as a manager

45:10

of the Baltimore facility was vinyl

45:13

siding. And I knew that this

45:15

was a superior product of steel

45:17

and wood and aluminum because it

45:19

didn't chip. You didn't have to

45:22

repain it. Vinal sightings become this

45:24

standard de facto. citing that people

45:26

use to this day, but it

45:28

was the hot and upcoming new

45:31

product found this little company, had

45:33

a parent company in bankruptcy, and

45:35

they needed to sell it. So

45:37

we went down and we looked

45:40

at the facility and met Nick

45:42

Martin, the guy running the business,

45:44

and a great guy still alive

45:46

to this day in his mid-90s,

45:49

and we said we're here to...

45:51

buy your company. He said, you're

45:53

here to what? We're here to

45:55

buy your company. Well, where are

45:58

you two young punks going to

46:00

get the money from to buy

46:02

this? He said, we're going to

46:04

borrow it. He said, how are

46:07

you going to do that? And

46:09

he said, well, we're going to

46:11

borrow 80% against the receivables and

46:13

we're going to borrow 50% against

46:16

the inventory. And if somebody gives

46:18

us an appraisal, we'll be able

46:20

to get 30% against that. And

46:22

when you do the math, there's

46:25

five of the six million, Nick.

46:27

And he said, well, where are

46:29

you going to get the million

46:31

of equity that you need for

46:34

this business? We said, we're going

46:36

to borrow it. He said, how

46:38

are you going to do that?

46:40

We said, we're not quite sure

46:43

we'll get back to you on

46:45

that one. To make a long

46:47

story short, a banker in Maryland

46:49

gave us a million dollar loan.

46:52

And to this day, the only

46:54

way I think we got that

46:56

loan was my dad probably secretly

46:58

guaranteed the loan behind the scenes.

47:01

He went to his grave never

47:03

saying whether he did or he

47:05

didn't, but we borrowed 100% of

47:07

the purchase price and it was

47:10

a business that was doing 9

47:12

million in revenue at the time,

47:14

600,000 in operating profit, and three

47:16

years later was doing 40 million

47:19

in revenue and 6 million in

47:21

operating profit, and we were launched.

47:23

This was the incubation of... more

47:25

deals to come. We bought the

47:28

Mohawk Rubber Company in 1983 for

47:30

$90 million, 88 million of which

47:32

was borrowed from General Electric Credit

47:34

Corporation, $2 million of equity, which

47:37

came from the cash flows that

47:39

Master Shield was producing. And we

47:41

had the chance to ultimately take

47:43

Mohawk and Master Shield and merge

47:46

them into this defunct real estate

47:48

investment trust called DMG. and changed

47:50

the name to Danahur. And so

47:52

Danahur was born with the merger

47:55

of these assets in September of

47:57

1984 and Ground Zero got started.

47:59

The idea was we're just going

48:01

to start buying more companies

48:03

and we bought a bunch of industrial

48:06

manufacturing assets mostly in the tools

48:08

business. Think sockets, wrenches, ratchets. We

48:10

produced 80% of the product for

48:13

the craftsman line as it for

48:15

instance back in its day. We're

48:17

making a million sockets a day

48:19

back in the 80s for craftsman

48:22

and others. And at this point,

48:24

what's the division of labor between

48:26

you and Steve? Steve's thinking about

48:28

the high level and the strategy

48:31

and how we continue to architect

48:33

the business and I'm in

48:35

there on the manufacturing floor

48:37

working with folks on how

48:39

we make the businesses more

48:41

more efficient. That's what was

48:43

going on. And I think, like

48:46

I said earlier in our conversation,

48:48

we realized we could do it, but

48:50

it wasn't what we were best

48:52

suited to do. And so we went on

48:54

a run for the better part of

48:57

seven years running Dan Ahert

48:59

before George came in in

49:01

1990. And really, the George Arab

49:04

1.0 was all about

49:06

professionalizing the business, winning share

49:08

in the tool business. I mean,

49:11

George took our share of non-powered

49:13

hand tools from 20% to 40%

49:15

over the course of the decade

49:17

that he was in charge of

49:20

the business. He also worked

49:22

us into motors and

49:24

controls and other interesting manufacturing

49:26

products, and we started

49:28

to diversify a little bit

49:31

with George. And so 1.0 was

49:33

really about building these businesses in

49:35

a way where we got real

49:37

operating prowess associated with the

49:39

business, we rolled out the

49:41

business system, we diversified a

49:44

bit, but stayed very much

49:46

with our industrial roots. And

49:48

when George retired, 2001 and

49:50

turned the reins over to Larry.

49:52

The business was about $3

49:54

billion in revenue at the time

49:56

and we had created something that

49:59

was pretty interesting and then

50:01

the call pair began. The

50:03

idea was to continue to

50:05

buy businesses that we thought

50:07

were really good businesses with

50:09

good brands in the industrial

50:11

arena and expand our product

50:13

offering significantly, all of which

50:15

happened under Larry. The central

50:17

thing that continued more than

50:19

anything though was the business

50:21

system and the DNA and

50:23

the culture and you'll hear

50:25

that continuously between each of

50:27

the executives that went on

50:29

to run the businesses themselves,

50:31

but we also dipped our

50:33

toe under Larry's leadership into

50:35

the health care space. And

50:37

we bought a business in

50:39

2003 called Radiometer, which is

50:41

blood gas analyzing instrumentation for

50:43

people in the ER or

50:45

the ICU at hospitals. And

50:47

this is critical testing that

50:49

will give the doctors a

50:51

very quick readout on what's

50:53

happening in your bloodstream. So

50:56

if you've come in with

50:58

the potential for a heart

51:00

attack, we can quickly tell

51:02

you, was it a heart

51:04

attack? What was the severity?

51:06

Or do you just have

51:08

indigestion and you're really not

51:10

experiencing a heart attack? Once

51:12

you get that quick readout,

51:14

you can do much more

51:16

testing that goes down to

51:18

the central lab, but these

51:20

are critical instruments that make

51:22

decisions. quickly for a doctor

51:24

to diagnose what's going on.

51:26

And we learned the quality

51:28

of what the secular trends

51:30

are with a health care

51:32

business. And this is where

51:34

secular trend thinking started to

51:36

develop for us and what

51:38

are better businesses to own,

51:40

less cyclicality, things that you

51:42

don't have to tear apart

51:44

when you go into a

51:46

recession because your revenues have

51:48

shrunk 10 percent, which is

51:50

what happens for the most

51:52

part in the industrial world

51:54

still to this day. So

51:56

here was a business that

51:58

continued to grow. We could

52:00

bring the business system to

52:02

work and... Gosh, when you're

52:05

in a recession, you're still

52:07

organically growing. We learned something

52:09

from that. That led us

52:11

into Beckman Coulter towards the

52:13

end of 2009-2010 type of

52:15

time frame. And so the

52:17

birth of our interest in

52:19

health care really started to

52:21

form. So Larry's era took

52:23

the business from 3 billion

52:25

to 14 billion. We horizontally

52:27

diversified extensively. But it was

52:29

towards the end of Larry's

52:31

tenure with Dana Herr in

52:33

2014 that I think we

52:35

all became aware at the

52:37

board level that we were

52:39

too complex. And we learned

52:41

that we were starting to

52:43

lose a little bit of

52:45

our capabilities. How do you

52:47

do 50 strategic plans, 50

52:49

operating reviews, and go deep

52:51

on these businesses and really

52:53

understand them? when you've got

52:55

global competition that's come in.

52:57

So the idea and the

52:59

pivot that we made with

53:01

3.0 and Tom Joyce is

53:03

the leader was the start

53:05

to re-simplify the business and

53:07

gain greater clarity and focus.

53:09

And under Tom's leadership, we

53:11

divested by the way of

53:14

a spinoff all of our

53:16

original industrial businesses, the heavy

53:18

duty industrial apparatus. It was

53:20

part of... Danher and out

53:22

the door went about 25%

53:24

of revenue, but 60% of

53:26

the complexity of the number

53:28

of opcoes that we had.

53:30

And we were able to

53:32

change the face of what

53:34

Ford have does. That's the

53:36

name of the business that

53:38

was created as a result

53:40

of the spinoff and simplified

53:42

Daner her greatly to become

53:44

much more health care specific,

53:46

especially in life science and

53:48

diagnosticsics. applications as a whole

53:50

and start to spend our

53:52

capital wisely at focusing deeply

53:54

on those verticals. So Tom

53:56

really did a remarkable job

53:58

under 3.0 of changing the

54:00

ins and the outs, give

54:02

you a for instance on

54:04

that, out went forward with

54:06

all the industrial businesses, by

54:08

the way, done in a

54:10

very tax efficient way, and

54:12

in a way that gave

54:14

Ford of a balance sheet,

54:16

investment grade, to continue to

54:18

reorganize itself for the long

54:20

term as well, out the

54:23

door by way of spin-off

54:25

as well, when in Vista,

54:27

which was our dental business.

54:29

Dental was very different than

54:31

life science and diagnostics. And

54:33

inbound under Tom came Cepheid,

54:35

the number one molecular diagnostics

54:37

testing business in the world,

54:39

IDT, which is oligos, number

54:41

one in the world at

54:43

oligos manufacturing, and Citiva. First,

54:45

go back. Paul, which was

54:47

an $11 billion transaction in

54:49

filtration of biologics, and then

54:51

Cytiva. So I think the

54:53

number was something along the

54:55

line of Tom did $43

54:57

billion worth of acquisitions that

54:59

helped us become the leader

55:01

in the biologics manufacturing space.

55:03

If you were to look

55:05

at our workflow today, we

55:07

complete 80, 85% of the

55:09

workflow that's necessary for biologics

55:11

manufacturing with our product portfolio

55:13

today, or our closest competitor

55:15

maybe has 40 to 50

55:17

percent of that workflow covered.

55:19

So the strategic thinking and

55:21

the focus that went in

55:23

under Tom's leadership was something.

55:25

And I like to say

55:27

that Tom embodied what is

55:29

through and through as a

55:31

level five leader. Jim Collins

55:34

defines level five as someone

55:36

who is prepared to make

55:38

all the difficult decisions. has

55:40

great strategic acumen, and then

55:42

when those decisions are... gives

55:44

everybody else the credit. This

55:46

is what Tom did. And

55:48

Tom also realized that he

55:50

wasn't the right guy to

55:52

implement 4.0, which was how

55:54

do we go deep in

55:56

life science and diagnostics and

55:58

really create a strategic vision

56:00

that incorporates early stage investing

56:02

and understanding what's happening in

56:04

life science and diagnostics and

56:06

in that early stage world,

56:08

which is going to tell

56:10

us what the gold standard

56:12

of business is going to

56:14

be in the next 10

56:16

to 15 years, and start

56:18

to incorporate all of that

56:20

thinking into the strategy of

56:22

the business. He knew, as

56:24

did we, that Reiner Blair

56:26

was the best person to

56:28

architect 4.0, and Tom left

56:30

the business earlier than he

56:32

probably would have wanted to,

56:34

but he didn't want to

56:36

take the chance. that we

56:38

run the clock out on

56:40

Reiner and Reiner might decide

56:43

to take a job somewhere

56:45

else. So he put the

56:47

enterprise ahead of himself, which

56:49

was an incredible thing. I'm

56:51

grateful to Tom to this

56:53

day for making that level

56:55

five leadership choice for the

56:57

best of Danahur, rather than

56:59

what would have been ideal

57:01

for himself. I was just

57:03

thinking about the level of

57:05

dynamism through that story, and

57:07

we've touched on Colin several

57:09

times now, but... hearing that

57:11

from start to finish reminds

57:13

me of the advice you've

57:15

given us and that we've

57:17

heard to give to other

57:19

founders one of Collins's frameworks

57:21

about the value of experimentation

57:23

and the value of shooting

57:25

bullets when you don't have

57:27

all the answers yet as

57:29

a form of in some

57:31

ways self-discovery and then as

57:33

a clearer picture emerges bringing

57:35

out the canons and focusing

57:37

more and more on those

57:39

key priorities as a company

57:41

gets bigger more people involved

57:43

how do you create that

57:45

sense of co- ownership and

57:47

that sense of principle orientation

57:49

for all the people. that

57:52

are ultimately integral to building

57:54

Danahur or taking Danahur, stewarding

57:56

Danahur to that next level

57:58

from a 1.0 to a

58:00

2.0 to a 3.0. It

58:02

all starts with talent acquisition

58:04

or talent development. We have

58:06

a process inside Danahur where

58:08

we would like 75% of

58:10

our hires to come from

58:12

within, self-promotion from within the

58:14

enterprise. These are people that

58:16

understand our DNA, understand our

58:18

culture, and we want to

58:20

reward them in their careers

58:22

for doing great work. So

58:24

what's the best way to

58:26

do that? Here's the next

58:28

stage in your career. We

58:30

mentor, we develop, and we

58:32

work with people to try

58:34

to help them improve their

58:36

livelihood through career development. However,

58:38

we need to go to

58:40

the outside for 25% because

58:42

you need that. outside thought

58:44

process. We for a minute

58:46

don't believe we know everything

58:48

within. Once you become 100%

58:50

inward thinking, the beginning of

58:52

the end will start to

58:54

take place. We need that

58:56

outside thought process, fresh thinking.

58:58

I mean, Reiner Blair, our

59:01

CEO, came to us from

59:03

a chemicals business. This is

59:05

a guy with great learning

59:07

agility, and he's probably as

59:09

good as they come. in

59:11

the life science and diagnostic

59:13

space today, particularly with a

59:15

strength in life science. So

59:17

as we recruit from the

59:19

outside, we're looking for that

59:21

learning agility, we're looking for

59:23

people who have a problem-solving

59:25

mentality. We hire very specifically

59:27

along the lines of what

59:29

our DNA and our culture

59:31

are because we need that

59:33

alignment. We need team building

59:35

people. We can't have somebody

59:37

who comes in, who rules

59:39

in an authoritarian way, that

59:41

just says my way or

59:43

the highway, you're out if

59:45

you don't like it. That

59:47

just doesn't work in the

59:49

world that we live in

59:51

today. We need to do

59:53

a lot of our high...

59:55

for folks that share our

59:57

principles and values and vision.

59:59

That's the way we go

1:00:01

about it. Transformational thinking won't

1:00:03

exist unless we do it

1:00:05

that way. When you reflect

1:00:07

back on the level of

1:00:10

acquisition activity, obviously not every

1:00:12

acquisition is going to work

1:00:14

out perfectly, but can you

1:00:16

generalize now looking back what

1:00:18

makes a successful acquisition and

1:00:20

maybe what you'd want to

1:00:22

avoid in the future through

1:00:24

learnings over the decades? Ananahur

1:00:26

or ESAB, it's all about

1:00:28

acquisitions that are led first

1:00:30

by strategy and they have

1:00:32

to be strategically aligned with

1:00:34

what we want to do

1:00:36

with the business and what

1:00:38

do I mean by that.

1:00:40

Everything's about strengthening the core.

1:00:42

I talk about workflows all

1:00:44

the time as one of

1:00:46

the great secular trends today.

1:00:48

How do you increase your

1:00:50

workflow? How do you become

1:00:52

more important to the customer?

1:00:54

so that the customer wants

1:00:56

to buy your product because

1:00:58

you can, one, create a

1:01:00

more seamless better outcome for

1:01:02

them, do it at a

1:01:04

price point that's more affordable

1:01:06

than your competitors because more

1:01:08

integrated workflow give you greater

1:01:10

flexibility with your customers. And

1:01:12

so it all goes back

1:01:14

to strategy first and foremost,

1:01:16

and then you need an

1:01:19

integration process. And we've learned

1:01:21

over the years, the difference

1:01:23

between okay. integration and superior

1:01:25

integration. And okay integration usually

1:01:27

ends poorly. You need to

1:01:29

quickly pivot to help those

1:01:31

that are being integrated into

1:01:33

the business, become familiar with

1:01:35

the culture. So what our

1:01:37

leaders do right away is

1:01:39

they go teach a concept

1:01:41

known as policy deployment, which

1:01:43

is how we run a

1:01:45

business at Danher. It's really

1:01:47

done off of a couple

1:01:49

sheets of paper, and it

1:01:51

embeds. what you need to

1:01:53

do this year to basically

1:01:55

be on the journey to

1:01:57

make your longer term planned.

1:01:59

a very simple process that

1:02:01

takes the complexity out of

1:02:03

all this crazy strategic thinking that goes

1:02:05

on. What are the vital few things

1:02:08

that we need to do right now to

1:02:10

preserve and protect the business for the

1:02:12

next 12 months? And what are the

1:02:14

vital few things that we need to

1:02:16

be doing now? The turbocharged the business

1:02:18

for years to come. We don't want to

1:02:21

work on anything else. Our leaders will

1:02:23

go out and teach policy deployment

1:02:25

right away, and we'll also learn what

1:02:27

those businesses need right off the back.

1:02:29

By way of for instance, Dana Herr

1:02:31

acquired a business a few years ago

1:02:33

called Out Devron, the gold

1:02:36

standard in plasmid manufacturing in

1:02:38

the world today. And we all

1:02:40

know that everything in drug development

1:02:42

in cell and gene therapy starts

1:02:44

with plasmids and they had a

1:02:46

capacity area. We have a

1:02:49

concept in our toolbox that's part

1:02:51

of the business system known as

1:02:53

smet, single minute exchange of

1:02:55

dice. And what smet is an

1:02:57

enabler for you to do. is

1:03:00

ring out incremental capacity without

1:03:02

putting capital dollars in.

1:03:04

In the Plasmid business, if you

1:03:06

want to put capital

1:03:08

in, not only is it a lot

1:03:10

to build capacity, but it

1:03:12

takes a long time. It could take

1:03:15

you a couple years to add

1:03:17

capacity. What Smed allows you

1:03:19

to do is figure out how

1:03:21

to more efficiently change your tooling

1:03:24

over, do different things that

1:03:26

shrinks. the time to change

1:03:28

from one therapy to

1:03:30

another. And as a result,

1:03:32

we run out 20 or

1:03:34

30% capacity for no dollars

1:03:36

invested to help these guys

1:03:39

service their customers better

1:03:41

and more efficiently

1:03:43

because during COVID, lead

1:03:45

times on plasmids went

1:03:47

from what was the

1:03:49

equivalent of six months to

1:03:52

call it 18 months. It was

1:03:54

very, very difficult.

1:03:56

somebody who's making a new

1:03:58

drug in an early business and

1:04:00

you say to them you gotta

1:04:03

wait 18 months to get samples

1:04:05

and a plasmid, you know, really

1:04:07

going? It's not very appealing to

1:04:09

the customer. Now, the whole industry

1:04:11

was that way. Can we create

1:04:14

competitive advantage by shrinking our lead

1:04:16

times? I don't know the exact

1:04:18

time frame now, but it's probably

1:04:20

we're down to three or four

1:04:22

months lead time now from what

1:04:25

was 12 to 18 months, and

1:04:27

it's a real competitive advantage versus

1:04:29

our set of... other competitors out

1:04:31

there today to be able to

1:04:33

say to a young company trying

1:04:36

to do this, we can get

1:04:38

you your product a lot faster.

1:04:40

For instance, Mitch, earlier you mentioned

1:04:42

the role of intellectual agility in

1:04:44

leadership and we touched on level

1:04:47

five leadership. Just curious, when you're

1:04:49

out looking for founders, operators to

1:04:51

back, are there any other traits

1:04:53

of leadership that are top of

1:04:55

mind that you like to seek?

1:04:58

So number one. For me, it

1:05:00

all starts with, does the business

1:05:02

have a platform to do something

1:05:04

special over the course of time?

1:05:06

If we understand that that's the

1:05:09

case, then the first thing I

1:05:11

want to do is I want

1:05:13

to meet the CEO slash founder

1:05:15

running the business and I want

1:05:17

to really size him or her

1:05:20

up. And the thing I'm really

1:05:22

looking for is number one, can

1:05:24

they give us a 20 to

1:05:26

30 year run? Do they have

1:05:28

the learning agility? to pivot when

1:05:31

the business needs to pivot, and

1:05:33

do they have the passion to

1:05:35

want to create something great? If

1:05:37

I see that in an individual,

1:05:39

then I know that I can

1:05:42

work with that individual to help

1:05:44

them strategically with the business, to

1:05:46

help them figure out how to

1:05:48

scale the business as they grow,

1:05:50

to help them with organizational design,

1:05:53

to help them with... Simple concepts

1:05:55

like funnel management, channel management, policy

1:05:57

deployment, single-minute exchange of dies, all

1:05:59

the things that... I've had the

1:06:01

good fortune to learn over the

1:06:04

years that will help these businesses

1:06:06

grow in scale with the course

1:06:08

of time. But it really all

1:06:10

starts with what have we got

1:06:12

in that leader and do they

1:06:15

have that DNA that we're looking

1:06:17

for, learning agility and duration of

1:06:19

time and desire and passion to

1:06:21

be great. If those are there,

1:06:23

we've got something to work with.

1:06:25

What about on the business characteristics

1:06:28

front? Is there a short list

1:06:30

of criteria that you think every

1:06:32

business needs to master in order

1:06:34

to have a good chance of

1:06:36

being great? Well, one of the

1:06:39

great secular themes that we like

1:06:41

is recurring revenues. I forget the

1:06:43

exact percentage of Danahur that's recurring

1:06:45

revenue today, but it's CERCA 70

1:06:47

or 80% where you work with

1:06:50

a drug company. You supply a

1:06:52

lot of the ingredients to the

1:06:54

cake or the drug itself and

1:06:56

you've got an annuity stream for

1:06:58

15 years once you get specked

1:07:01

in to be the supplier of

1:07:03

your products with the customer. We

1:07:05

just love that and it gives

1:07:07

you the chance and the opportunity

1:07:09

to be thinking about lots of

1:07:12

other things as you've got that

1:07:14

steady state business coming in. The

1:07:16

same would apply to software. the

1:07:18

recurring revenue themes of software, software

1:07:20

businesses today. So I look at

1:07:23

recurring revenues as a really great

1:07:25

theme for everything we want to

1:07:27

do, investing in our private side

1:07:29

of the equation, and I think

1:07:31

that's a learning that came from

1:07:34

Dan Aher, and I think that's

1:07:36

why you see so many people

1:07:38

getting involved in software or everything

1:07:40

digital today because of the recurring

1:07:42

nature of the business. Where did

1:07:45

the impetus for philanthropy? come from

1:07:47

for you. We're sitting here at

1:07:49

Glenstone, beautiful physical manifestation of what's

1:07:51

possible with a multi-decade view on

1:07:53

philanthropy and giving back to society.

1:07:56

Just curious what where that original

1:07:58

inkling came from? Well, I can

1:08:00

specifically tell you where that came

1:08:02

from. It all started in 1998

1:08:04

when I went on an adventurous

1:08:07

fishing trip to Russia. We flew

1:08:09

into a town called Murmansk, famously

1:08:11

known because it's where the Russian

1:08:13

Navy fleet was based. So it

1:08:15

was a military town of about

1:08:18

400,000 people. Back in those days.

1:08:20

They didn't even have computer technology

1:08:22

in Russia. We were computerized, of

1:08:24

course, but when we got to

1:08:26

the airport, they couldn't run your

1:08:29

passport through a check, so they

1:08:31

just kept your passport until you

1:08:33

wanted to come back and leave

1:08:35

the country. So they took our

1:08:37

passports. We flew in one of

1:08:40

these Russian-era helicopters to this fishing

1:08:42

camp with myself and three other

1:08:44

fellows that were good friends. And

1:08:46

if you know anything about great

1:08:48

Atlantic salmon fishing, when it's hot,

1:08:51

the fishing's not very good. And

1:08:53

we hit one of these hot

1:08:55

streaks. And I tell you, we

1:08:57

fished for four days of the

1:08:59

seven and didn't have a nibble.

1:09:02

We looked at each other and

1:09:04

we said, let's get out of

1:09:06

here. Let's go back and explore

1:09:08

Murmansk. We'll learn a little bit

1:09:10

about the people, the town, we've

1:09:13

never really experienced Russian culture. It'll

1:09:15

be really interesting. Great idea, everybody

1:09:17

says. So we charted a little

1:09:19

bubble helicopter to come and take

1:09:21

us out early. And we had

1:09:24

about an hour and a half

1:09:26

helicopter ride, but this helicopter didn't

1:09:28

have the ability to go the

1:09:30

full distance. So it had to

1:09:32

stop and refuel. We stopped in

1:09:35

this little village that was sustaining

1:09:37

itself on hurting reindeer and catching

1:09:39

salmon. And we sat down in

1:09:41

the helicopter and this Russian dude

1:09:43

comes with a big hose over

1:09:46

his shoulder. to refuel and he

1:09:48

puts fuel piece into the tank

1:09:50

and starts filling and we're getting

1:09:52

out of the helicopter and as

1:09:54

we're getting out of the helicopter,

1:09:57

the fuel nozzle comes loose and

1:09:59

starts spitting fuel into the rotor

1:10:01

plates and the helicopter ignites and

1:10:03

ultimately melts to the ground. And

1:10:05

the fuel was spit on one

1:10:08

of my great friends, Joe Robert,

1:10:10

who was standing maybe three feet

1:10:12

from me, but the wind was

1:10:14

blowing. away from him when the

1:10:16

fuel hit him. And that's the

1:10:18

only thing that saved him because

1:10:21

the wind was blowing towards me.

1:10:23

I didn't get douse with fuel,

1:10:25

but I dove into a pit

1:10:27

and ran away on all fours.

1:10:29

And ultimately, what happened was the

1:10:32

helicopter burned to the ground. The

1:10:34

guy doing the refueling passed away

1:10:36

as part of this because he

1:10:38

was doused with fuel and he

1:10:40

had a difficult ending. And the

1:10:43

four of us tried to... figure

1:10:45

out how we were going to

1:10:47

get out of this little village.

1:10:49

So we asked, do you have

1:10:51

cell phone? No, it's 1998. Nothing

1:10:54

to really speak up. Do you

1:10:56

have a satellite phone? We don't

1:10:58

have a satellite phone. There's obviously

1:11:00

no wiring, so no hard lines.

1:11:02

So how do we get a

1:11:05

message out? Well, we have a

1:11:07

World War II vintage radio. We

1:11:09

went up, couldn't get the radio

1:11:11

to work. But they got a

1:11:13

Morse code message out. This is

1:11:16

1998. Emergency, emergency, send a helicopter.

1:11:18

About 12 hours later, another helicopter

1:11:20

came in and took us out.

1:11:22

We drank very heavily that night.

1:11:24

I left Russia in a pair

1:11:27

of gin shorts, a torn t-shirt,

1:11:29

and the sandals I was wearing

1:11:31

melted in the spot I ran

1:11:33

out of them, and all our

1:11:35

belongings were gone. We went back

1:11:38

to the border and remember they

1:11:40

kept our passports, which was a

1:11:42

lucky thing. So we had a

1:11:44

plane that took us back out,

1:11:46

left Russia, I got home, and

1:11:49

my dad said, so would you

1:11:51

learn from this? I said, what

1:11:53

do you mean? He said. Well,

1:11:55

do you want to be the

1:11:57

richest guy in the cemetery? I

1:12:00

said, no, not interested in that.

1:12:02

And that's when the philanthropic side

1:12:04

of Mitch was born. What am

1:12:06

I going to do with all

1:12:08

the good fortune that's been bestowed

1:12:11

upon me? And I started thinking

1:12:13

about what were the things I

1:12:15

loved and what was important to

1:12:17

me and I love the arts.

1:12:19

And so the idea of building

1:12:22

a museum started to perculate. in

1:12:24

my head at that point in

1:12:26

time and really started to take

1:12:28

root in the early 2000s. And

1:12:30

of course I met Emily and

1:12:33

we talked about the story of

1:12:35

how Glenn Stone was born, but

1:12:37

it all started right there. And

1:12:39

with my dad also being a

1:12:41

champion of the underdog, arts education

1:12:44

became important. And there's no bad

1:12:46

charitable cause, but you have to

1:12:48

pick some things that you want

1:12:50

to go deep. within and we

1:12:52

try to bring the same operating

1:12:55

prowess to how we give money

1:12:57

away as we do to how

1:12:59

we build businesses. It's hard work.

1:13:01

You've got to roll up your

1:13:03

sleeves and not all non-profits are

1:13:06

made equal. You want to make

1:13:08

sure the dollars are spent wisely

1:13:10

and that they give great return

1:13:12

to those that it's spent on

1:13:14

so we've spent a lot of

1:13:17

time. My brothers and I trying

1:13:19

to figure out how we want

1:13:21

to give money away an efficient,

1:13:23

impactful way. That was how it

1:13:25

was all born in this stage

1:13:28

of the game. You know, I'm

1:13:30

investing for the benefit of mankind

1:13:32

on a long-term basis because we've

1:13:34

taken the giving pledge. Emily and

1:13:36

I've signed the giving pledge. 98%

1:13:39

of our wealth will go for

1:13:41

the benefit of mankind. Totally remarkable

1:13:43

with Danahur as a company through

1:13:45

the various phases of its evolution.

1:13:47

But what's doubly unique and fascinating

1:13:50

is that you've invested the majority

1:13:52

of your net worth. and kept

1:13:54

it alongside in Danahur that whole

1:13:56

time. It's a super rare thing.

1:13:58

as we look out at the

1:14:01

investing world and the world of

1:14:03

company founders, most everybody by year

1:14:05

5, 10, 15 would have

1:14:07

diversified or divested those assets

1:14:09

or looked for other things to

1:14:11

do, you're 40 years in and

1:14:13

still the vast majority isn't Danahur.

1:14:16

Rick and I were looking at

1:14:18

the track record of Danahur and

1:14:20

it's extraordinary. I think Apple might

1:14:22

be the only stock just by

1:14:24

a tiny fraction. that's outperformed Danahur

1:14:27

in the United States, the last

1:14:29

40 years, something north of 21%

1:14:31

a year, which based on Rick's

1:14:33

extremely detailed Excel sheet, something like

1:14:35

an 1800x, 180,000% return. And through

1:14:38

everything we're talking about, Danahur's

1:14:40

only getting going in many ways.

1:14:42

As you've started to think about

1:14:44

the next couple decades ahead, and

1:14:47

this is where maybe we've come

1:14:49

in, very fortunately, and into the

1:14:51

picture of the last few years.

1:14:53

We've had a lot of conversations

1:14:55

around you're investing more broadly, and

1:14:57

you've had a lot of experience

1:15:00

whether it's on the boards of

1:15:02

foundations and various endowments over time.

1:15:04

You've seen that LP perspective. You've

1:15:06

invested personally in a few different

1:15:09

companies and funds, and that is

1:15:11

expanding more recently. I love for you

1:15:13

just to step back and reflect on what

1:15:15

that's like to be so concentrated in

1:15:17

one asset. And then what's going on

1:15:20

right now in this transition? to

1:15:22

you looking for the next generation

1:15:24

of founders out there? Well, that's a

1:15:26

loaded question. There's a lot there.

1:15:28

But let's start with Dan Aher.

1:15:30

Everybody told me you're

1:15:32

too concentrated. You need to

1:15:35

diversify. Thank God I didn't listen

1:15:37

to any of these schmows that

1:15:39

were encouraging that. And if you

1:15:41

think who was encouraging it, it

1:15:43

was investment advisors, people who know no

1:15:46

differently, who look at this with

1:15:48

a traditional lens, and it was

1:15:50

just wrong. I mean, what better way

1:15:52

to stay concentrated than to invest

1:15:54

in yourself and what your beliefs

1:15:57

and your convictions are on a

1:15:59

long term? basis. So we didn't

1:16:01

diversify and obviously that served us

1:16:04

very very well. During my lifetime,

1:16:06

Danahir will always be a very

1:16:08

concentrated position because I don't know

1:16:11

where to put that magnitude of

1:16:13

dollars otherwise today. What am I

1:16:16

going to do? Sell it, pay

1:16:18

the tax and put it in

1:16:20

index funds? I mean, what fun

1:16:23

is that? My net worth will

1:16:25

be a lot less. We'd rather

1:16:27

give it to the foundation and

1:16:30

let them start the diversification journey

1:16:32

over the long time. Mitch, I

1:16:35

imagine that being a part of

1:16:37

building something like Danner in an

1:16:39

intimate way for several decades could

1:16:42

seem quite different from making new

1:16:44

investments and younger companies that you

1:16:46

haven't yet been involved with yet.

1:16:49

As you've spread your wings as

1:16:51

an investor, what are the problems

1:16:54

and I guess the opportunities to?

1:16:56

in the investing world, the investing

1:16:58

ecosystem, that you've identified that are

1:17:01

suboptimal when it comes to company

1:17:03

building and when it comes to

1:17:06

ultimately long-term compounding. So we have

1:17:08

to go back in time a

1:17:10

little bit to say, what was

1:17:13

a great invention that took place

1:17:15

in the investing world and what

1:17:17

has happened to that invention today?

1:17:20

And I think that a guy

1:17:22

by the name of David Swenson,

1:17:25

who is a hall of fame,

1:17:27

investor from Yale invented the asset

1:17:29

allocation methodology some 30 plus years

1:17:32

ago where many people went to

1:17:34

private equity and venture and real

1:17:36

estate and oil and gas and

1:17:39

lots of different things hedge funds

1:17:41

and it was a brilliant strategy

1:17:44

and it was the new thing

1:17:46

on the street and people did

1:17:48

extremely well. pivoting away from the

1:17:51

traditional US equity 60% bond 40%

1:17:53

strategy. And as that evolved over

1:17:55

the ensuing decades, it started to

1:17:58

feel like it was becoming broken

1:18:00

to me. What do I mean

1:18:03

by that? I think that short-termism

1:18:05

became alive and well as PE

1:18:07

and venture were three to five-year

1:18:10

type of players and hedge funds

1:18:12

were marked to market on an

1:18:15

hourly basis. And the fee structures

1:18:17

that were associated with these were,

1:18:19

you know, the traditional two and

1:18:22

20 percent, which... take a lot

1:18:24

of the benefits of compounding away

1:18:26

from the investor because of the

1:18:29

high fee structure that was associated

1:18:31

with it. So I think the

1:18:34

whole asset allocation methodology became co-opted

1:18:36

by short-termism and fees and became

1:18:38

a very broken process. And I

1:18:41

started asking myself the question, what

1:18:43

has to change to make this

1:18:45

a real opportunity? And it's when...

1:18:48

I guess three summers ago, you

1:18:50

guys helped me architect a paper

1:18:53

that I wrote to myself and

1:18:55

for the benefit of my foundation

1:18:57

called reimagining the blue-pin for the

1:19:00

long-term investing model. And it all

1:19:02

started with the thesis of how

1:19:04

successful Sequoia was over the years.

1:19:07

And God knows they were extremely

1:19:09

successful. That three in front of

1:19:12

their 30% type of number in

1:19:14

front of their... compounding over a

1:19:16

very, very long period of time,

1:19:19

many decades. And I said, why

1:19:21

can't we do that? What's the

1:19:23

architecture necessary to accomplish something like

1:19:26

that? Those are pretty outstanding returns.

1:19:28

If they can do it, why

1:19:31

can't we? And we started this

1:19:33

imagination journey. And it basically went

1:19:35

along the lines of, we want

1:19:38

to find passionate and dedicated founders

1:19:40

who can give you a long,

1:19:43

duration runway, think 20 to 30

1:19:45

years, where you invest in businesses

1:19:47

that have the chance to... create

1:19:50

a 50 to 100 times outcome

1:19:52

over those 20 to 30 years

1:19:54

and stay the course and private

1:19:57

is better than public. Doesn't mean

1:19:59

they won't go public one day.

1:20:02

The greatest thing about a private

1:20:04

business is you're never worried about

1:20:06

the short term. You're not marked

1:20:09

to market on a daily basis.

1:20:11

You're not on the 90 day

1:20:13

clock of having to report to.

1:20:16

investors, and you don't have to

1:20:18

worry about sitting on your hands

1:20:21

and doing nothing when you own

1:20:23

a public security. That's hard to

1:20:25

do because you're watching the dynamics

1:20:28

of the market every day, and

1:20:30

certainly companies run into problematic times

1:20:32

in their history and their journeys,

1:20:35

and that's the worst time to

1:20:37

sell. But yet most people do.

1:20:40

Oh, it's a problem. They're going

1:20:42

to be stuck for the next

1:20:44

two years. They forget about the

1:20:47

next ten or... 15 years of

1:20:49

good things that are going to

1:20:51

happen as they work through. I

1:20:54

mean, Danahur went through this incredible

1:20:56

journey of COVID, that turbocharged our

1:20:59

business, massive growth over a two-year

1:21:01

period of time, and the last

1:21:03

18 to 24 months, we gave

1:21:06

a little bit of it back,

1:21:08

because we went in from a

1:21:11

pandemic to an endemic state, and

1:21:13

so a little growth went away.

1:21:15

But did anything change on the

1:21:18

long-term secular trends of Danaher being

1:21:20

a high single-digit grower? Aspiring to

1:21:22

become a double-digit grower? Absolutely not.

1:21:25

Yet the market treated us like

1:21:27

we were the plague. And can

1:21:30

you imagine all the people that

1:21:32

sold and paid the tax, and

1:21:34

they're going to miss all the

1:21:37

goodbies that are starting to come

1:21:39

now? So being private is a

1:21:41

real benefit. If you don't need

1:21:44

access to big-time capital dollars, the

1:21:46

public markets are a beneficiary of

1:21:49

being able to give you big-time

1:21:51

capital dollars if you need it.

1:21:53

So that's the real pro of

1:21:56

being a publicly traded company, but

1:21:58

left to my... own devices, I'd

1:22:00

love to see these businesses stay

1:22:03

private for as long as possible

1:22:05

because you just make higher quality

1:22:08

decisions in that type of framework.

1:22:10

So finding these young entrepreneurs who

1:22:12

can give you duration and you

1:22:15

can put capital to work and

1:22:17

you can help them scale and

1:22:19

make high quality decisions day in

1:22:22

and day out. whether it's like

1:22:24

I said before, organizational design, strategic

1:22:27

planning, mecco map building, I could

1:22:29

give you a list of 20

1:22:31

or 30 different things that we

1:22:34

can help these companies with. And

1:22:36

I get invigorated by working with

1:22:39

young entrepreneurs who want to be

1:22:41

great. And I guess I'm just

1:22:43

a business builder rather than a

1:22:46

business seller. And if we can

1:22:48

find those shots on goal that

1:22:50

give us a percent recreating something

1:22:53

special. I think the returns will

1:22:55

take care of themselves over time

1:22:58

and we will recreate all the

1:23:00

success that Sequoia was able to

1:23:02

create over the course of time.

1:23:05

We keep coming back to this

1:23:07

concept of a time horizon arbitrage

1:23:09

and it reminds me of a

1:23:12

story from a few years ago

1:23:14

that was extremely formative for Paul

1:23:17

and I, when we were having

1:23:19

a conversation around what's appropriate disposition

1:23:21

from a time horizon standpoint with

1:23:24

the investments that one makes. And

1:23:26

we have as a value that

1:23:28

our time horizon is eternity. And

1:23:31

at one point you said, boys,

1:23:33

see what you're talking about with

1:23:36

the eternal time horizon. But you

1:23:38

Catholic eyes and your eternal concept,

1:23:40

can I just encourage you to

1:23:43

think about one's approach to time

1:23:45

and investing with an unlimited basis

1:23:48

as opposed to an eternal basis?

1:23:50

Because the reality is. that most

1:23:52

things don't last forever. And there

1:23:55

is a sense that the power

1:23:57

in every investment is the optionality

1:23:59

to have an extended time rise

1:24:02

and when an extended time rise

1:24:04

and is merited, when it's the

1:24:07

best thing for the company, when

1:24:09

there's more to build, when there's

1:24:11

more to do. And so there's

1:24:14

the early work of sourcing and

1:24:16

we've already talked a lot about

1:24:18

just how you think about underwriting

1:24:21

businesses, apply the time horizon advantage

1:24:23

to that. But I think the

1:24:26

other really critical piece that we've...

1:24:28

been beneficiaries of and that we've

1:24:30

learned from just observing you is

1:24:33

this value ad orientation that you

1:24:35

bring to every person or project

1:24:37

or company that you commit yourself

1:24:40

toward. And that is a very

1:24:42

very unique concept, at least in

1:24:45

its practice in the investing world.

1:24:47

Maybe say a little bit about

1:24:49

the ways in which you come

1:24:52

alongside a founder and the orientation

1:24:54

you bring as a source of

1:24:56

support, as a helper to them

1:24:59

and whatever they're building. We can

1:25:01

talk about some examples of that,

1:25:04

but I say this with great

1:25:06

humility. I've seen a lot over

1:25:08

the last 40 years. Why in

1:25:11

the world would I not take

1:25:13

advantage of everything I've learned and

1:25:16

seen and pass on those judgments

1:25:18

and that experience to others? That's

1:25:20

a competitive advantage. that we just

1:25:23

have to take advantage of. I

1:25:25

haven't seen it all, but I've

1:25:27

seen a lot. And we can

1:25:30

help these young founders in profound

1:25:32

ways. It's just as important to

1:25:35

avoid making the mistakes and learning

1:25:37

from others as it is to

1:25:39

make high quality decisions. Everybody's going

1:25:42

to make mistakes, but boy, we

1:25:44

want to avoid the big ones,

1:25:46

and we can help these companies

1:25:49

along the way not make these

1:25:51

mistakes. The whole goal is to

1:25:54

get an option on duration. If

1:25:56

you can go for 20 to

1:25:58

30 years, the compounding benefits, I

1:26:01

mean just look at Danner. heard

1:26:03

today. If we're 1,800 times return,

1:26:05

if we double the stock price,

1:26:08

that means we're 3,600 times return.

1:26:10

The compounding at this stage is

1:26:13

crazy. And you want to get

1:26:15

to these reasonable shots on goal.

1:26:17

Now, stop is going to happen.

1:26:20

Death, divorce, partners not getting along.

1:26:22

The business running up against the

1:26:24

death star that none of us

1:26:27

could anticipate. Stuff is going to

1:26:29

happen. But if we can get

1:26:32

a handful of these duration models

1:26:34

of 20 to 30 years, it's

1:26:36

all going to take care of

1:26:39

itself in the overall returns for

1:26:41

the bigger picture. It just takes

1:26:44

a couple to change the dynamic

1:26:46

for great outcomes to happen. So

1:26:48

that's the way that I'm looking

1:26:51

at it and thinking about it.

1:26:53

But let's take an example like

1:26:55

Arcadia. Our listeners will know Arcadia

1:26:58

well already as we had Daniel

1:27:00

and Paul in class a couple

1:27:03

months ago, so they've got a

1:27:05

good foundation for their story. What

1:27:07

we saw on Daniel and Paul

1:27:10

were the things that I talked

1:27:12

about earlier, learning agility, deep domain

1:27:14

expertise in vertical market software, young,

1:27:17

20 to 30 year type of

1:27:19

duration capability, a lot of the

1:27:22

wonderful things, and I and others

1:27:24

have had this thesis that one

1:27:26

of the great company's constellation software

1:27:29

could be reinvented and we could

1:27:31

build a better, more durable constellation

1:27:33

for the long term based on

1:27:36

some themes. Taking nothing away from

1:27:38

constellation, one of the great compounding

1:27:41

stories of all time, but how

1:27:43

do you build a better, more

1:27:45

durable constellation over the next? 20

1:27:48

to 30 years? The answer is

1:27:50

you pay a little bit more.

1:27:52

You buy growthy VMS business. that

1:27:55

are mission critical and you do

1:27:57

it around platforms? In other words,

1:28:00

can we create an aviation platform?

1:28:02

Can we create a small FinTech

1:28:04

platform? Can we create a platform

1:28:07

around the rail industry? Can we

1:28:09

create a platform around agriculture? How

1:28:12

do we go put a group

1:28:14

of businesses together that can generate

1:28:16

synergies from one another within a

1:28:19

platform so that not only are

1:28:21

you buying these things that... what

1:28:23

do we call it, three times

1:28:26

ARR, five times E, but maybe

1:28:28

you pay a turn more if

1:28:31

they're really growthy 20% type of

1:28:33

businesses. But if you can put

1:28:35

them into a platform and you

1:28:38

create a hundred, two hundred million

1:28:40

dollar platform out of these businesses

1:28:42

over the next decade and you've

1:28:45

done that. 10 or 12 different

1:28:47

times and you've got organic growth

1:28:50

working for you in a meaningful

1:28:52

way versus Constellation who doesn't really

1:28:54

grow organically. They just do it

1:28:57

through M&A and they have a

1:28:59

cookie cutter approach on their margins.

1:29:01

But if you take the longer

1:29:04

view and you can get organic

1:29:06

growth and you have high gross

1:29:09

margins to start over a 10

1:29:11

or 20 year journey, wow. You've

1:29:13

created a turbocharged version of Constellation.

1:29:16

create enormous value. And what Paul

1:29:18

and Daniel understood with the help

1:29:21

of the board and the help

1:29:23

of our long-term thinking and our

1:29:25

strategic thinking is how to pivot

1:29:28

from the traditional constellation model to

1:29:30

what I'll call the new and

1:29:32

approved version of what we can

1:29:35

create that constellation has done so

1:29:37

well over the years. And that's

1:29:40

something that I think is pretty

1:29:42

special. for these guys. So we're

1:29:44

helping them with policy deployment, we're

1:29:47

helping them with funnel management, uncertain

1:29:49

of their businesses, we're helping them

1:29:51

understand how to get synergies from

1:29:54

within, we're pushing them to pay

1:29:56

a little bit more for a

1:29:59

highly strategic. asset that makes the

1:30:01

whole of that platform better than

1:30:03

the individual pieces, which is

1:30:05

really important because you wouldn't

1:30:08

make that acquisition purely based

1:30:10

on financial metrics, but if

1:30:12

it's going to make the

1:30:14

whole better for the long

1:30:16

term, damn straight pay that extra

1:30:18

few bucks to get it done. I

1:30:21

think for me, if I were to

1:30:23

zero in on a single superpower of

1:30:25

yours, it's bringing this seasoned operator

1:30:27

knowledge base. to various situations and

1:30:29

then knowing how to adjust priorities

1:30:31

based on, say, the economic environment

1:30:33

or based on the size of

1:30:35

the company or based on the

1:30:37

industry or the capabilities of the

1:30:39

team and being able to speak

1:30:41

into these different situations in a

1:30:43

way that is extremely value-add. And

1:30:45

I think it's been a lot

1:30:47

of fun to see how you

1:30:49

are able to shape your support based

1:30:51

on all of those environmental conditions

1:30:54

and how they're coming together in

1:30:57

a single situation. That's 40

1:30:59

years of experience talking where

1:31:01

you've seen a lot. And just

1:31:03

to pass those judgments on to

1:31:05

others is what I consider the

1:31:08

real opportunity that I can contribute

1:31:10

to helping these founders build

1:31:12

their businesses over the course of

1:31:14

time. We had to help Paul

1:31:17

and Daniel unlearn get rid of

1:31:19

the muscle memory that they

1:31:21

had of certain practices of

1:31:23

constellation. But once again, Mark

1:31:26

Leonard at Constellation has built

1:31:28

a phenomenal business, one of

1:31:30

the great compounding stories

1:31:32

of all times. But it doesn't

1:31:35

mean we can't build a better

1:31:37

version of that for the long term.

1:31:39

And we have a clean sheet of

1:31:41

paper. What can we do that's better

1:31:43

than what Mark has done over the

1:31:46

course of time? He's gotten to the

1:31:48

point where he's large. And so

1:31:50

to turn the battleship or the

1:31:52

aircraft carrier is hard. It's really

1:31:54

hard for him, you know, at this stage of

1:31:56

the game, and he's looking at reinventing right now.

1:31:58

I see some of the... the things that

1:32:00

he's doing and he's trying some

1:32:03

interesting things. We'll see what happens,

1:32:05

but Paul and Daniel are a

1:32:07

little PT boat right now that

1:32:09

can turn on the dime and

1:32:11

they are doing it. It's wonderful

1:32:13

to see. We're doing this with

1:32:15

a few other folks. We're working

1:32:18

with Yon and his team at

1:32:20

Chapters on the operating prowess and

1:32:22

strategic thinking and policy deployment and

1:32:24

lots of different things that are

1:32:26

helpful to driving the business. And

1:32:28

he's made enormous progress in a

1:32:31

very short period of time, but

1:32:33

he has enormous progress to continue

1:32:35

to make in the journey as

1:32:37

he gets things going. He's gonna

1:32:39

have to bring a different type

1:32:41

of operating efficiency to these businesses

1:32:43

than what Constellation does if he

1:32:46

really wants to separate over the

1:32:48

course of time. But he's young

1:32:50

in his journey. He's only a

1:32:52

couple years in doing what he's

1:32:54

doing right now. And so it'll

1:32:56

be fun to watch the next

1:32:58

10 years what happens with his

1:33:01

business. Outside of your family. I

1:33:03