In this episode of LeverUp®, we sat with John Caple, the Founding Managing Partner of Hidden Harbor. With over twenty years of private equity investment and operational experience, John shares his journey from his early days at Bain & Company, where he advised Fortune 500 companies and led private equity due diligence, to his pivotal role at H.I.G. Capital and Hidden Harbor
Now at Hidden Harbor, John chairs the firm’s Investment Committee and leads the strategic direction of the firm, focusing on driving complex business turnarounds and achieving top-tier investment returns.
Whether you’re a seasoned professional in private equity or an entrepreneur looking for guidance, this episode offers actionable strategies for success.
To connect with John Caple, visit Hidden Harbor Capital at https://hh-cp.com/ or reach out via his LinkedIn profile at https://www.linkedin.com/in/john-caple-969345/.
—
Listen to the podcast here
Unlocking Private Equity Success: John Caple’s Path From Bain To Hidden Harbor
I am sitting down with John Caple. Welcome to the show. First thing, I’d like to know a little bit about your story. How did you get to where you’re at, and how did you get to where you founded Hidden Harbor?
Working At Bain & Company
Post-business school, I worked at Bain & Company as a consultant for six years. I was a typical business school kid who didn’t really know what he wanted to do, and that sounded like consulting. Frankly, Bain was maybe the best job I ever had. It was the hardest, for sure, but maybe the best. I learned more in my first two weeks of training at Bain. It was this drinking from a fire hose. It was this incredibly practical way of how you think about a business strategically and where it needs to go. It was not in a theoretical Porter’s Five Forces or whatever but in the very, “You do this and then you do this,” kind of way.
I spent six years there. I loved it. I can’t tell you how much I learned. That’s the thing that has done more to propel my career than anything else. I really enjoyed my time there but I was probably never temperamentally well-adjusted to be a consultant, which was fine in the old Bain days and probably not as fine in the new Bain days.
I got a job at H.I.G. Capital down in Miami. I did a ton of work at Bain with private equity, everywhere from lower middle market firms up to a bunch of the mega funds that you’ve heard of. I wanted to get into private equity. I ended up getting introduced to the H.I.G. Capital folks by one of my Bain colleagues who knew some folks down there. A little-known fact, the original H.I.G. Ggys were all former Bain & Company people. Not all because some came from Blackstone, but the other 3 or 4 senior guys had all worked at Bain & Company, including Tony Tamer who’s a great guy.
I was a very weird applicant because I’d had six years post-business school. I’d been an investment banker prior to business school so I had a little bit of that background but I didn’t know any private equity. You’re bringing in this pretty experienced person who has never negotiated an NDA. I had a mixed skillset where from a strategy of whether I wanted to own the business perspective, I was way down the path. From how you do an LBO deal, I knew nothing.
It was a great experience. It was very humbling at the beginning. I get in there and they assign me to this brand-new kid out of HBS who I worked for. He’d been in private equity and knew how to do an NDA, so I sat there and said, “I got to learn this. I don’t know anything about it. Let’s be honest about that.” It was a great experience. I spent eighteen months learning how to do an LBO. Eighteen months later, I’m driving my own deals. I was there for about six years. When I joined H.I.G., we were running a $300 million fund.
They’re already $40 billion-ish, right?
Yeah. When I joined, maybe there were 30 investment professionals or something like that. By the time I left, there were 200. We were managing $10 billion. It blew up when I was there. In that process, I was buried three levels below and got an opportunity to go to a place called Comvest Partners up in West Palm Beach. They had brought in a new partner, Pete Kight.
Pete had run a business called CheckFree. Do you know how you do that online bill pay with Bank of America? Pete invented that. He was working for Arnold Schwarzenegger out in California, running one of his gyms. Back then, Arnold had a couple of gyms. Their problem was they couldn’t get people to pay for their gym memberships because people would pay by check and send in a check every month.
Pete had this idea, which now seems blindingly obvious but then was really great, of, “Let’s get their credit card numbers.” It’s so obvious now, but then, it was this blinding insight. They did that and it was great. Pete said, “This gym business stinks but this credit card business is good.” He started by building software for people to run their gyms and to do the payment processing. That eventually becomes CheckFree, which he sells. He took it public and eventually sold it for $4 billion to Fiserv. He had joined Comvest. I liked the guy. What I liked the most was that he was like, “Private equity is a business. We’re going to run this like a business.” I was like, “That’s refreshing,” because that’s not the way private equity is ever run.
You’re Bain. Deal guys do deals. How do you optimize a business?
That’s right. He ended up leaving a couple of years later for a variety of reasons we don’t need to go into. Comvest kept going on. We had a lot of success at the beginning. They wanted to move up in the market and pay bigger prices for better companies. I’m a value guy through and through. I can’t imagine paying ten times for a company. The whole concept gives me the heebies. On the other hand, I buy businesses without CEOs all the time. That’s who I am. They were going in a direction that didn’t make a lot of sense to me.
My partner, David Block, and I started together at Bain & Company. We’d been talking about doing something on our own and we said, “Let’s go do this.” In hindsight, it is one of the most delusional things I ever did. I had no idea about the risks I was taking, and I did it. I ended up raising that first fund, which was enormously painful, and had a bunch of success. We’ve raised two additional funds. It has been a lot of fun. That’s my history and background.
I have so much to unpack there. You’re at Bain. You said it was probably the best job you ever had. What I also heard you say was, “I couldn’t have made it there long-term.” Is that because you didn’t want to be a partner and pivot over to more of a sales or BD role? You liked driving the execution. You liked the variability in the work. McKinsey’s one of the best jobs I’ve ever had but three years was enough for me.
It’s interesting. Bain went through an enormous transformation over the years. If you step back, the original Bill Bain thing was, “We’re going to work for one company in the industry and we’re going to kill everyone else.” That’s who we are. No business card kind of thing. “We’re in here to win and to help these companies win.” I’m sure back in the day, you saw the Bain stock price chart. It was like, “Here are our clients, and here is everyone else.” That’s what Bain was founded on, which is great. Eventually, they say, “There’s this private equity thing out there. We should do private equity too. We’re really good at this. Why not invest as well?” That’s where Bain Capital happens.
In the early days of Bain Capital, it was all one thing. There’s no Bain Capital in Bain. You’re on a client and then you’re on a deal. Eventually, it separates. In the original ones, all the Bain partners could invest in Bain Capital free of fees and carry. Eventually, they say, “Why are we letting these Bain guys do this?” That’s when Bain says, “Screw you, then. We’re going to create the whole private equity diligence product.” Nobody had ever thought of that before.
Bain creates that. They used to just do that for Bain Capital. How are you going to do that for all your competitors if they can’t invest in you free of fees and carry? The short answer to all of this though is all of the original Bain partners made all their money in private equity, not in being a consultant. Bain Capital is enormously successful. When they started to do the private equity product, what people don’t know is we would charge $250 or $300 for the diligence and a $1 million co-invest rate.
I didn’t know this.
They made enormous money on that $1 million. We were really smart at what the good deals were. We were dispassionate and we saw everything. The success of those investments was unbelievable. What does that mean for Bain as a company? It means you don’t have to make money as a consultant. You do what’s interesting.
A client would say, “We want you to do X. We’re going to have you and McKinsey and you’re going to pitch against each other.” Half the time, we would come in and say, “X is stupid. You should do Y.” Some clients ate that up and loved it, and some were like, “Screw you. We want you to do this.” It was this whole approach to the world of what we called True North back in the day. It was, “We’re going to tell you what you should hear, whether you want to hear it or not.”
Then, the dot-com thing happens. I don’t know if you remember this, but Bain did this accelerator with TPGand Kleiner Perkins. They’ve all put money into it. They were like, “We’re going to do this accelerator in the dot-com.” I don’t know if they bageled the $50 million, but close. All of a sudden, Bain steps back and says, “Time out. We got to make money as a consulting firm.”
How do you make money as a consulting firm? McKinsey’s world-class at this. You sell large flagship accounts where you work for years with multiple case teams. If you’re going to do that, you can’t work on their most important issue. You have to work on all the nonsense. It’s like, “I want you to do an org design and all this kind of stuff.” It turns out McKenzie figured that out years ago. Bain figured it out way later.
I was really good at telling them what I think. You know me a little bit. That’s my brand. Working with private equity, I was good at it too because I told them what I thought and that worked well. It was this concept of selling these long-term flagship things. That means you need a different kind of person to do that. I liked working with private equity clients, so I said, “Wouldn’t I rather go do this myself?” I’d been looking for a couple of years for a private equity opportunity and found one down at H.I.G. That’s how I ended up there.
Bain was an extraordinary place. I learned how to think. I learned how to manage people. I learned so much, but it’s a tough job. I don’t know what McKinsey was like, but once you become a manager at Bain, it’s all your fault. No matter what happens, the partner is never at fault. You’re at fault. You sit in the middle of this and there is all this incoming stuff, but that’s how you learn. You learn a tremendous amount.
Investment Banking Vs. Consulting
The engagement manager or case team leader, that skillset, to me, is the most valuable experience anyone can get. I get this question all the time on Twitter, “Should I do investment banking or do consulting?” What’s your take on that for a new grad out of college?
MBB is the best job you can get by a factor of a lot. Consulting outside of MBB can be a lot of different things, so it isn’t necessarily better than going and getting an investment banking job. At that point, you have to figure it out. I still think that these kids who are getting jobs at Bain out of college, that’s the best job you can get by far. It’s so good.
It’s an AC at Bain. The McKinsey analyst, that pool of people is so distinctively sharp. They’re wired a little differently because they’re willing to get on a plane and fly around right out of college. I had a lot of success with me who’s a little more senior where I ran a P&L and a junior analyst that grinded out all the content. It was a pretty formidable weapon. You go to H.I.G., which I’m not going to say is a startup but it was a lower middle market.
It was a $300 million fund.
From Comvest To Hidden Harbor
What made you decide that you tapped out and said, “I’m going to go over to Comvest.” Was it a promotion? Was it the culture? What drove that decision?
It was a little bit of a promotion. They were going to make me a partner. At H.I.G., I was buried 3 or 4 levels down. It was a chance to be part of building something and being in the room as part of the executive leadership team driving a firm. That was a lot more interesting to me than cranking away at H.I.G., banging out deals. I had some ideas on how we can do things better. If you look at a big place like H.I.G., who am I to tell Sami and Tony how to do things better? Rightfully so. Also, there were a million other more senior people than me. It was an opportunity to build something and be part of building something.
How long were you at Comvest again?
Six years.
You did 6 years at H.I.G. and 6 years at Comvest. You’re twelve years in and you’re a partner. You decided to go out on your own. Were you running away from something or running towards something?
A little bit of both. Comvest wanted to start paying up for things. Going back to my Bane thing, my ability not to say what I think is almost zero. I thought that was stupid. I was like, “What are we doing? We’ve had a ton of success in the last fund by doing this. Let’s keep doing it,” but I got overruled. It is what it is. I’d always thought there was a better way to do private equity.
The way private equity works in 90% of shops is that a partner does a deal. It’s their deal and they drive it their way. That never made any sense to me. I’m like, “Shouldn’t we have a standardized way we do this? Why does every partner have a different management incentive plan? Shouldn’t we figure it out? Shouldn’t we have almost a checklist of how we’re going to do things?”
I tried to get Comvest to do that and I never made any progress whereas my partner David, who is an operator, was like, “That’s the way we’re going to do it. How the heck else would you?” That was something that got me really excited. I thought we could be more successful doing it that way. I thought we could be more successful running a private equity firm like a business. It’s a couple of those key insights that I said, “We can do this better.” That ended up being what Hidden Harbor is.
That’s interesting. I had a lot of challenges. I was trying to get everybody on the same health plan in the United States. There was the consternation around harmonizing that at a $100 billion asset manager. I put a flag in the ground and said, “I can get this done,” and I epically failed. It was like a $30 million or $40 million portfolio-wide EBITDA. I anted up and was like, “No problem. I can get this done.” I made no progress on that. I’m not going to say I embarrassed myself but it was embarrassing.
It was a good idea and you tried, but that’s not the way most private equity firms are set up. They’re set up where the partner runs their deal. It’s very hard to harmonize across. The only way you can do that is if you start with that idea of, “That’s the way we’re going to do it.” We have our values on our website. Come check them out. One of our values is this one-team idea. The way it works at Hidden Harbor is when we vote yes on a deal, we all vote yes and we all own the deal. If it succeeds, we all succeed. If it fails, we all fail. Someone is generally the point person on any given deal. We always have a second, but then ideas are always welcome.
The way monthly portfolio review works in a lot of private equity is everyone goes through the deals and we all take potshots at each other’s deals as we try to play the credit blame game. Ours is so different. We’re problem-solving in these things like, “What’s going on here? Why are we struggling? What can we do differently?” If someone has an idea, it’s like, “That’s great. Why don’t you join the board and drive that? Good idea?”
That’s amazing. I’ve never seen that before.
Usually, it’s like, “We’re struggling. Would someone want to help?” You’re like, “You got that one.” It creates a very different dynamic where we’re not playing credit blame and we’re trying to win together. It has been really good.
We're not playing credit blame. We're trying to win together. Share on XInvestment Committee
I could take this in so many different directions. I heard you say everybody has to sign up for a deal. Has an associate ever killed a deal before for you guys or has somebody junior pointed something out to you and pivoted the firm? It could be challenging when you’re a junior to give constructive feedback. I might be asking the wrong question.
When I say everyone, everyone on the IC. I know Berkshire Partners has this whole idea of everyone in the firm. If an associate working on a deal thought it was the wrong deal, that would cause all of us a whole ton of pause. On the other hand, a 25-year-old associate may not have the context that a bunch of partners that have been doing this for 20 years do of, “How do you think about that?” It’s really important to listen to everyone on your team. We’re 48 people. We’re not sending around the IC to all 48 people for all of them to approve of it.
How many people are on the IC? 4, 5, or 6?
Six.
Sensibly, it’s 3 or 4 deal professionals and 1 or 2 operating professionals.
It’s our six partners. We have six partners. My partner David runs the portfolio and the other five of us all do deals.
I got it. Can you give me a story from the investment committee? Everybody talks about the investment committee on X and what that is like. Did you guys ever have a heated discussion or any consternation or was it pretty civil?
It’s always civil. It has never been, in the history of the firm, heated. We try to do a lot of listening. We try to do a lot of agreeing with each other. Oftentimes, we all believe more or less the same set of facts but people are putting slightly different importance on different facts. Spending fifteen minutes writing down, “We all agree on all this stuff.” Waiting makes it much easier to come to conclusions. You have to spend time practicing listening and agreeing with people.
Usually, it’s like, “There is customer concentration. That’s a negative. We all agree it’s negative. We all also agree that there are these three things that make it somewhat less bad but still a negative. Let’s agree on the facts, and then we can talk about what all those facts mean.” That process of agreeing on the facts often helps us get to a conclusion. We do the same in our portfolio companies. If we can all come to a common understanding of the facts, usually, the answer falls out of that.” I continue to believe that’s the case. That’s good old Bain.
The process of agreeing on the facts often helps us reach a conclusion. Share on XThe Dip
Get everything down on paper, structure it out, and then link heads. I don’t know if you read the book by Seth Godin, The Dip. He talks about how it’s not really the moment before failure. It’s the moment before success, but it feels like all is lost. Did you have that moment? Did you have a moment when you said, “This was a mistake.” Tell me about that journey because the path to the first fund is tough.
We were having a partner meeting. One of the things about me is I am pretty relentlessly positive. A couple of my partners were saying that’s what got us through those first two years. It’s like, “Caple seemed so sure that he was going to get this done,” even when I shouldn’t have been. Like a firm needs a relentlessly positive person, we need some neurotic, negative people too so we don’t do bad deals. One of the good firms has a mix of different things. Good firms have partners that understand who they are. It’s like, “It’s okay for me to be relentlessly positive as long as we all agree that John’s relentlessly positive and someone’s got to be relentlessly negative.” We need that balance. That is important.
It, at times, looked pretty bleak. I never thought of it that way though. I was going to get it done and it was going to happen. It’s almost like you don’t think. You do it. You keep getting on that plane every Monday night, traveling to three cities and pitching to nine investors. You keep doing it. You go back the 3rd time and the 4th time.
The other thing about private equity fundraising is the way it works, there are only two scenarios. Either you are rushing towards a final close and LPs have to make a decision and you’re oversubscribed, in which case the leverage is all on the GP side, or you don’t have a final close scheduled yet. You’re hoping to get people in an early round. There’s very little incentive for an LP to come in before the final close. Why not create an option value and wait?
The way this is going to tend to work when you’re fundraising is you’ll have an awful lot of folks that are hanging around the rim. Eventually, what you need to do when you’re short of your goal, which in our case, we were maybe at half of our goal, you got to call it. It’s like, “We’re holding the final close. Are you in or are you out?” We ended up beating our goal. You had to do that to get it done. Otherwise, it’s never going to get done.
You already had a couple of checks written or committed capital, right?
Yeah. We had four deals done. So we had a big early investor who had faith in us. They’re still an investor of ours. I will forever be in debt to these guys who believed in us. I appreciate it and would do anything for them. They could only be half the fund size, so then we went and raised some high net-worth money. That combined for enough to do our first deal, which helped us get a little bit more money which was enough money to do our second deal. That then got a fair amount more money which helped us do our 3rd and 4th, which helped us get to a final close.
When you’re raising that first fund, I call it two guys in a pitch book. You have a pitch book. You could talk about what you did at your prior firms, but it’s all like, “This is what we’re going to do.” When you have a first deal, you can say, “This is what we did and we’re going to do more of this.” They have something to really dig into.
Also, we put 10 deals in our 1st fund and they could do real diligence on the first four of them. The feedback we got from our investors was, “When we looked at those four IC decks, they were mega fund quality IC decks. They were really well done. They answered all the questions you’d think to ask and gave us an awful lot of confidence in you guys.” Those IC decks were probably the product that helped get Fund 1 raised.
You closed Fund 3. It’s Fund 3, right?
Yeah.
It was $800 million. The previous one before that was $400 million. Am I remembering that correctly?
It was $465 million.
What has to change about your investment strategy, your team, or your culture to deploy Fund 3 and get the same amount of returns?
We have two different deal styles that we do. The 1st and what we do most is $5 million to $10 million founder-owned businesses where the founder wants to retire. We have a bookkeeper running the books. It’s run on QuickBooks. The founder does what I call managing by walking around. I don’t mean to say that in a bad way because it works really well for the $5 million single-location business.
That’s what we’re going to buy but we’re going to buy it in a good sector. We’re going to buy it in HVAC, fire and life safety, restoration, and landscaping. Name your hip, hot sector in private equity and we’re going to go in, augment the management team, bring in all new systems, put in a whole set of processes, go do a bunch of add-on acquisitions, grow it to $25 million or $30 million, and sell it to your favorite buy-and-build middle market guy.
We’re going to do that pretty repeatedly. The brilliance of that is it’s endlessly repeatable because there are so many $5 million to $10 million founder-owned businesses and the number of private equity firms that are set up to do what we do is very few. It’s going to go in and do that heavy lift. We do it repeatedly. We have a great team set to do it.
The second style of deal we’re going to do is the bigger deals. They’re mostly corporate carve-outs. There’ll be some other stuff but a lot of them are going to be corporate carve-outs. $10 million-plus of EBITDA. The biggest 1 was $116 million of EBITDA. We’re going to occasionally do those deals when we find value. When you raise $800,000, that means you have to do $80 million equity checks to do that. You’re talking at least $20 million of EBITDA. Once you get north of $20 million of EBITDA, it’s very hard to find deals and value.
It is super competitive. Bankers got the book.
Exactly. We’ll find things in that space occasionally that we like and we’ll do. In the last fund, there were two. There are about to be three. Two of them were corporate carve-outs. One of them was a lender-owned business. That’s what we’ll tend to do for the bigger ones. As you fast forward to Fund 3, what does that mean? We’re going to continue to bang out $5 million to $10 million founder-owned businesses. Maybe at times, we’ll see $10 million to $15 million too. We’ll continue to bang out those founder-owned businesses that look like that. Some of them are a little more sophisticated.
It’s a spread, right?
That’s right. I’m trying to give you the sense. We’ll then continue to occasionally do the bigger stuff. What that probably means is I need to do more deals in this next fund. Maybe I’ll find more big ones and I’ll be able to do it that way, but it probably means that as opposed to doing 10 deals in fund 2, I’ll do 12 to 14 deals in fund 3.
What does that mean? It means I need a bigger team. It means I need a bigger operating team. It means I need to build out my systems infrastructure and process or my people and process. That’s what we’re doing. We’ve been doing that for a long time. We have 48 people, so we have a big team that can do a lot of deals. We’re set up to do that number of deals. That’s the plan. We’re going to continuously execute.
I have one last question on this portfolio. Is it 70% founder-led and 30% carve-out type of bigger deals or is it 50/50, or it doesn’t matter and that’s your style?
It doesn’t matter. Whatever the good deals are. What I know is we’ll continue to bang out the founder-owned ones because there are a lot of those and you can find them. How many of the bigger ones you do, which tend to be corporate carve-outs, is a question mark. We’ll find some bigger ones that aren’t corporate carve-outs but are lender-owned or something else.
What Makes A Good CEO
When I was perusing your website, I noticed you have a head of talent. I’ve never seen a shop of your size have a head of talent. With 50 people, it’s not a thing.
We have three people but keep going.
Is that for PortCo or for the firm?
Yes, but primarily PortCo.
Clearly, talent is very important to you. What makes a great Hidden Harbor CEO? What does the culture look like? What do they do differently than other CEOs? How do you know they’re going to win? I’m sorry. I realize it’s a compound question but talk about talent.
That’s good. Our motto is building teams focused on execution. That’s what good CEOs do. They build their team starting with the executive leadership team, but good CEOs are constantly in the field and on the shop floor talking to their people. They’re helping everyone understand the vision of where they’re going and getting feedback on what the bottlenecks are, what the issues are, and how the executive team can support the people that are delivering value for the customers and clients.
Good CEOs build teams focused on execution. Share on XThey’re relentlessly communicating backward and forwards and getting feedback. Great CEOs do that. They’re not in their office. If it’s a manufacturing business, they start every day by walking the floor and saying hi to everyone. That’s what a great CEO does. They build a great team and then they’re focused on executing day-to-day.
I hate the word accountability. I hate it because there’s something judgy about accountability. I want a great CEO that’s a coach. They’re not holding you accountable to your objectives. They’re helping you achieve your objectives. That’s what great CEOs do. They help their team achieve their objectives, and when they’re not, they figure out what the right answer is. Sometimes, that’s going to have to be changing people, and that’s unfortunate but really necessary.
When someone is not achieving their objectives, it’s not fun for that person. If you think that by firing them you’re doing them a favor, you’re not because they know they’re failing and they’re miserable. 90% of people could be successful in the right role. Keeping someone in a role that they can’t be successful in is cruel. That’s the important way to think about it.
It’s also the case that when their colleagues see somebody not achieving their objectives, it’s very demotivating. I am a big believer in right butts in the right seats, but a lot of it also is helping these people achieve their objectives. That’s what good CEOs do. They build a team, coach that team, make sure we’re going where we need to go, and ask questions. That’s what a really good CEO does.
Nurturing Talents
I looked at your operating model and talent is very focused. It’s backed up by what you’re investing in at your firm. What about the associate analyst side? What makes the culture of a Hidden Harbor analyst or somebody who’ll get promoted to associate or senior associate and eventually be a vice president? Do you like that model? Do you like them to go to business school or do you want to nurture them from the beginning? That’s a big question I get a lot.
I hate the word culture. Let’s start there. We all know what it means but I tell everyone, “How do you manage a culture? What the heck is that? You want to have a good culture. I don’t even know what that means. I’m confused. How do you do that?” I talk about values. When David and I were starting Hidden Harbor, the first thing we did was write down our values. There are eight of them. They’re on our website. You can go check it out. We talk about them all the time. This is how we’re going to treat each other and how we’re going to treat the outside world. We really believe in them.
The question is, how do you know you’re living them? The answer is we do quarterly employee surveys. We ask our employees, “Are we living up to our values?” They say, “Always,” or, “Usually.” We don’t get all always but we get a lot of, “Always,” and some, “Usually.” Every once in a while, we get a, “Rarely.” We have a set of values. We know we’re living them.
I’m of the belief that in hiring, if presented with a set of values and, “This is how you should act,” act that way. Part of it is the kind of people that we get here at Hidden Harbor. There’s some of that. It’s like, “Bring people in and say, “This is the way we’re going to act.” 90% of people will simply act that way and say, “This is refreshing. This is a good way to act.” We find that that works really well.
In terms of associate analyst hiring, we have done it in a bunch of different ways. We’ve hired some typical two-year investment banking people and they’ve done extraordinarily well. We’ve hired some folks from consulting who have done extraordinarily well. We’ve hired some junior people straight out of undergrad. That has worked a little. It’s a bit mixed but it worked. We’ve hired some people directly from business school with no private equity experience and that has worked well. We have a variety of people we’ve hired.
We don’t force anyone to go to business school. One of my partners went to business school part-time while he was working here. He wanted to do it and we were supportive. That was great. He had to miss some work time and we got it. We said, “Understood. This is something you want to do.” He’s one of my partners, so that worked out.
Business school’s great. I’m a big fan for a couple of reasons. The biggest reason is the one that most people are surprised by. One, you learn something. While you’re doing it, you don’t realize what you’re learning. It’s going in and hearing about 200 business situations. You learn a lot from that almost by osmosis. All of a sudden, you have this toolkit you can pull from as you’re going to then wade out into a world that’s different from what you’d build by working two more years in investment banking, consulting, or private equity. I do believe you learned something.
The biggest reason I tell people to go to business school is because it’s fun. You have the rest of your life to work. Life is not an IRR. Go have fun. It’s a blast. You’re surrounded by great people who are really smart and are interested in a lot of the same things you’re interested in. It’s not super stressful. Particularly if you come from banking, consulting, or one of these things, you’re not going to fail. It’s great. It’s fun. It’s the last time in your life you’re going to be able to take two years off and have fun. It’s good for your career. I’m a big fan even if you can never justify it on an IRR basis. Life’s not an IRR. I have lots of folks here at Hidden Harbor who don’t want to go to business school, and that’s fine.
Go to business school because it's fun and good for your career. Share on XIt’s interesting. I haven’t said life is not an IRR but I’ve said to guys, “If you want to take your retirement before and you go back to work again, it won’t cost-justify but it’ll justify from an experience perspective.” I have a couple of more questions. Can you tell me about an investing mistake you’ve made either at H.I.G., Comvest, or Hidden Harbor?
Investing Mistake
The one zero we have here at Hidden Harbor was a business we bought. It was a facility services apartment management business. It got run over in COVID. We all remember the eviction moratorium. All of a sudden, people aren’t paying their rent. We were managing the apartments but it made the business very difficult.
We ended up bageling it. EBITDA dropped by about half. We could have thrown $10 million more at this and probably saved it. We looked ourselves in the eye and said, “We have to be willing to admit a mistake and not use our investors’ money to try to pay for it over.” We helped the lenders sell it to a local family office and took the bagel. It was the best decision we ever made. It was the right thing to do. The path back there was very long and hard. We did the right thing.
One of the things we did that was really good coming out of that though is one of the advantages of having this approach where we all own the deal is that then we can be honest about what happened. We spent a lot of time looking at the mistakes we’d made, and we’d made a lot of them. We shared them with our investors like, “These are the mistakes we made,” which they were like, “What is this? No private equity firm has ever done this.”
100% not. Everybody else was thrown in $20 million as rescue financing on a capital call.
I know you talked about talent. One of them is we had made mistakes here with the CEO, CFO, and COO hire, all from the wrong people. In fact, when I look at early Fund 1, we made a lot of hiring mistakes. That deal caused us to say, “Time out. What are we doing here?” That caused us to hire Ann who’s our head of talent acquisition. We doubled down on a top-grading hiring process, which is the ghSMART process. We started to hire third-party assessors for all of our hires.
A few months ago, we hired our first head of talent assessment. We hired someone from ghSMART to work here full-time because it’s that important to hire the right people. That as an example has made us wildly better. Our Fund 2 teams are better as well as the late Fund 1 teams too where we started to implement some of this stuff. That was a bad deal for us but it has made us better. That’s what’s most important.
It’s easy to simply blame COVID, and at the end of the day, that’s really what it was. We also used the opportunity to say, “What could we have done better?” We had a couple of other things we could have done better. We learned from those too. It’s a learning experience. You have to be getting better. Our industry has changed enormously in the twenty years since I’ve been in it, and it will continue to change. Everything that we think differentiates us at Hidden Harbor, I’ve told my partners, “We’ll get competed away over the next twenty years. We’re going to have to figure new stuff out.” That’s what we do. What that means is you always have to be getting better and being self-critical about what’s working and not worth it.
Our industry has changed enormously. You always have to get better and be self-critical about what's working or not working. Share on XStarting A Career In Finance
These are my last two questions. Number one, what advice would you give to someone looking to start a career in private equity or finance more broadly?
Private equity and finance are probably two different things.
Fair enough.
The biggest piece of advice I would give people looking to get into private equity is when I was at Bain, I thought of private equity as one thing. I was like, “I want to get a job in private equity.” Private equity is still an apprenticeship business. You go somewhere and you learn it from them. There’s no book anywhere that teaches you how to do this. I got lucky. I went to H.I.G. and they’re really good at what they do. I learned from the best. That was luck. I got lucky. My number one piece of advice is that private equity isn’t all created equal. I tell people, “Before you take a private equity job, ask them for their returns.”
That seems very bold for somebody going in as an analyst or an associate.
If they’re not willing to show you their returns, then it’s probably not the right shot for you. The other thing is you can sometimes get the returns off of a series of public places and frequent housing. There are other ways to get it but that’s my biggest thing. There are lots of private equity firms out there that have mediocre returns and I’m not sure it’s going to be a good first learning experience for you. I thank Sami and Tony at H.I.G. who gave me a shot and taught me an enormous amount. As much as I credit Bain, the other one is H.I.G. That was great. Maybe it is bold to ask them for their returns but do it. All they can say is no.
Private equity is not created equal. Before taking a private equity job, ask them for their returns. Share on XThe motto of my submarine was, “Fortune favors the bold.” I remembered that. It’s been baked into my head since I was twenty. This is my last question, and I ask everybody this. What is the book that has made the biggest impact on your life?
My life or business?
Life or in business and career. Take it however you want to take it.
Book Recommendations
I have a whole bunch of book recommendations. For the biggest impact, that’s a different question. I have a bunch that I would say are my favorites. For the biggest impact, I don’t know.
We could go for your favorite. I’m starting to think it is Who though.
I tell people that the two best business books to read are Traction and Power Score. Power Score is the second version of Who. I tell people, “If you’re only going to read two business books, go read those two.” Traction is like the combined wisdom from a bunch of stuff, like The 4 Disciplines of Execution and everything else, but put in a very prescriptive way. ghSMART and the whole Who and Power Score process are extremely good. They’re really well done. My favorite book of all time remains Friday Night Lights. Have you ever read Friday Night Lights?
I have not read it yet. I’m going to have to put it on my list.
You’ve probably seen the movie or the TV show, right?
Yes.
This reporter from Philadelphia goes to Odessa, Texas, and spends a year at Permian High School. It’s this really fascinating story. All good art does this. It doesn’t tell you what to think about. It presents it. This is this town in the middle of nowhere Texas that has won five state Texas football victories at the highest level of Texas high school football. They never put a single player into the NFL. They had very few Division I recruits come out of there. It’s this town that is almost obsessed with high school football.
When you get to become a Permian High School football player for a year or two of your life, you get to be a rock star. You get to feel what that’s like where everyone looks at you with awe. These kids are then willing to do anything to win or to be a Permian football player. On one level, it’s this insanely beautiful thing. Even these 40-year-old guys go watch the tape of their state-final football game and know every play. That was the highlight of their life. These guys are going to go out and work in the oil patch but that’s going to be the highlight of their life.
On the other hand, it’s wildly disturbing. This is a town that is like, “Forget textbooks. We need to charter a jet to fly the high school football team to go play a game.” On one level, it’s wildly disturbing. On the other level, it’s wildly beautiful. It does, to me, tell some story about what people can accomplish if they all rally around a goal. That’s where I bring it back to business. This importance of setting a vision and rallying around a goal is really important in business. The book brings that to life for me the most because it was extraordinary. It’s one of the most interesting.
Since everyone has seen the TV show, they don’t go read the book. The book is fascinating. One of the kids is the valedictorian of his high school class. He’s the smartest kid in the school. He is the crushing tight end. He goes to Harvard. He shows up and is like, “This is not it. I don’t get the buzz. It’s not the Friday night lights. I love football, but what I loved was that insane intensity. It’s only there that you can get that.” I’m sure you get that at Georgia or wherever, but this was probably more intense than that. These kids were all sorts of interesting, different stories. That’s fascinating.
One of our guides, our deal captain, Ben, played at Princeton. I’m going to immediately go ask him after this if he liked playing at high school better or liked playing it at Princeton better. Florida football is not Texas football, but it’s close.
It isn’t Texas football. That’s the whole thing. How is Permian so good? It was because of the sheer level of intensity. You have this small town, and I forget how big it was but maybe 100,00 people, who are like, “This is it.” All the kids in the elementary school are looking up to these kids. All of the folks at the coffee shop are talking about this team. They’re going to show up on Friday night and it’s going to be intense. There’s no way Princeton can be that. I’m not sure anything could be that. I’m sure big-time Georgia and stuff like that.
It’s super fascinating. How do you bottle that and encapsulate it for one of the assets in your management teams that everybody’s there to win every day?
It’s that whole vision thing. They had a vision of where they wanted to go and they were willing to sacrifice for that vision. Whether that vision was healthy or not is a separate issue. Although for the 40-year-old guy who ends up working in the oil patch, he has that memory, which was cool. The other one I love is Season on the Brink if you haven’t read that.
I haven’t read that. It’s going on my list.
Bobby Knight is fascinating.
I’m more of a basketball guy because I’m from North Carolina. I was around when Dean Smith was the most winning coach and he got surpassed. Dean Smith is a national treasure for North Carolina. I could have a three-hour Rogan-style discussion with you, I swear to God. Where can anybody get in touch with you? I’m assuming on X. Where would you like them to go if you want to put anything out to the audience?
I’m on X if folks want to get in touch with me there. Our firm has a website and all that good stuff. People should feel free to reach out to me. I appreciate the time. It was a lot of fun.
Thanks a lot.
Important Links
- Hidden Harbor
- John Caple on LinkedIn
- John Caple on X
- Who
- Traction
- Power Score
- Friday Night Lights
- Season on the Brink
- The 4 Disciplines of Execution