Episode: 320 |
Kit Lisle:
PE Due Diligence:


Kit Lisle

PE Due Diligence

Show Notes

Kit Lisle is a Partner at Acclaro Growth Partners, a research-based strategy consulting firm that serves private equity firms and their portfolio companies.

Learn more about Acclaro Growth Partners at: https://acclaropartners.com/

One weekly email with bonus materials and summaries of each new episode:

Will Bachman 00:01
Hello and welcome to Unleashed the show that explores how to thrive as an independent professional Unleashed is produced by Umbrex, which connects you with the world’s top independent management consultants. I’m your host Will Bachman. And I’m here today with Kitt. Lyle, who is the founder of a clairo partners. kit will tell us more about what they do. It’s a research and consulting firm that works with a lot of private equity companies focused on the lower middle market. Kitt, welcome to the show. Thank you. Well appreciate it. Happy to be here. Okay, so Kitt. First, I’d like to understand, I heard the term a lot. But what is lower middle market? And, you know, what is the middle market, what’s the upper middle market helped me understand these these terms that they get tossed around? A

Kit Lisle 00:53
lot of times when people talk about business, what they’re really talking about is, you know, the enterprise level global companies, fortune 500 companies. And the reality is that that business mindset is very, very different than we think of the the middle market, you know, entrepreneur, small business owner. So more distinctly, the lower middle market is the mom and pop business, the small business owner will call it, you know, $2 million, $20 million $200 million in revenue. And so that that lower middle market mindset is really where we, where we focus. And one of the reasons that we exist, frankly, is that a lot of these businesses are competing in industries that are fairly difficult to wrap your head around and understand. In other words, they may not be competing in the automotive industry, per se, but rather, they make equipment that’s used in an assembly line that lifts batteries that are used in electric vehicles. So it’s a very specific sub sub segment. And there’s not a lot of data available about those really michy, obscure sub sub segment, businesses or industries. And so we help our clients understand those markets and the opportunities within those markets.

Will Bachman 02:21
Yeah, and I want to dig into how you do that. In terms of the sizes, so just to help me a little bit because like the lower middle market, what would the range of say, EBIT da and revenue be for a lower middle market company?

Kit Lisle 02:36
Yeah, I mean, there’s a lot of different perspectives on how to define that. But I would say, roughly speaking $2 million in EBITDA to about $20 million in EBIT, da. And that translates roughly, perhaps, to maybe $20 million in revenue to several 100 million dollars in revenue. But the lines are pretty gray.

Will Bachman 02:58
And then what would companies bigger than that be called? So is it just the plain middle market? Right, the middle market, and so what would accompany so if it’s like 20 million of EBIT, da to, you know, to 200 million of EBIT? Da, what would someone call that like just the middle market companies or

Kit Lisle 03:18
middle market or, you know, they’re becoming more fortune 1000, global 1000 businesses at the top end of that of that bracket? Okay. But the the importance, the important distinction, as far as we’re concerned, is that, you know, we’re, we’re providing insights to help these businesses grow. And the insights that were gleaning are not typically, you know, available. So for example, if if what you’re dealing with is a company that, I don’t know, I’m just looking out my window right now will and, and what I’m seeing is those, those rubber and, and wire devices that hold landscape trees in place, so that they grow straight? Well, there’s a company that manufactures those things, I don’t know what they’re called. I don’t know what that industry is called. But to somebody, there’s probably a handful of competitors in the United States that, that manufacture those components and other things that are used by landscaping companies. Right? So I’m just making this up. But the truth of the matter is, that’s an industry to those to those companies to those manufacturers. There’s no association for that industry. There’s no off the shelf publicly available data on that market, or on customer needs. There’s no public company that serves that market. So you can find data, you know, in a 10k. So where do those competitors learn about the growth of their market or the opportunities in their market or the needs of their customers? Chances are, they’re going to need to use a firm like ourselves, you know, research based growth strategy, consulting firm to help them with that. identify these opportunities and niches, and, frankly, concerns and threats as well.

Will Bachman 05:06
So are there. And I want to get to kind of how your firm goes about getting those sort of insights. One more question on just sort of understanding the space a bit. are they’re not in the private equity world are there, the two private equity firms typically focus on, you know, a certain range size of companies? So are there some PE firms that focus on, you know, larger deals and do some PE firms focus on this lower middle market where there’ll they’re mostly doing these deals with, you know, with a 15 million or $200 million transaction size on that smaller side?

Kit Lisle 05:47
Yes, absolutely. So first of all, let’s, let’s define a couple terms. So private equity to your listeners who are not familiar with the term, the most of us have heard about venture capital, when we kind of have a sense of what venture capital is, and we sort of know what mutual funds are. So they’re basically the same thing that the core difference is that the mutual fund that’s in your 401k portfolio, is a basket of publicly traded stocks that some experts have chosen to put into that basket, and they call it a fund. Well, a private equity fund is exactly the same thing. The only difference is that the companies they’re putting into their basket or into their fund are all privately held, to no one else can invest in them, just, you know, you, this private equity owner, has acquired the usually the entirety of that business. And I’ll venture capital just to distinguish that venture capital is the same thing as private equity. It’s a subset of private equity. And venture just refers to the stage that the company is at, it’s an early stage company, a startup. So most of the when we refer to the lower middle market, we’re referring to, again, those mature, standalone operating businesses that have been around long enough to be resilient, they’ve stood the test of time, maybe they’ve remained in the family for multiple generations. But they’re not huge global corporations. So I’m gonna pause there and see if all that made sense. Well,

Will Bachman 07:25
you know, that makes sense. So do PE firms tend to focus on, you know, do some focus on this lower middle market? And then are there some new are there some below this eyes, you know, below 2 million EBIT da or below 20 million in revenue? Are there PE firms that focus on, you know, companies that are even smaller? Yes, yeah. It’s a great question. What would you call that segment?

Kit Lisle 07:53
Well, there are family offices, which is a distinction that doesn’t necessarily have to be made. There are independent sponsors, and pledge funds that don’t necessarily have the capital in their pocket, so to speak, but they have commitments from wealthy individuals who say, Well, if you find us a company that we can invest in, then we will invest alongside you to acquire that that business in its entirety. And those guys are typically investing in businesses that are smaller than $2 million of EBIT da just because they don’t have you know, they’re not full of bank rolls of cash. And then smaller than that, of course, would be, you know, venture stage deals where, you know, a million dollar investment is a pretty big deal for a startup company. At the other end of the spectrum, of course, I think it was Carlyle Group. You’ve got Thomas H. Lee, you’ve got huge, huge private equity funds. And I believe it was Carlyle that bailed. Christ, or maybe it was Chrysler Corporation out of bankruptcy during the Great Recession. I’m maybe mixing things up here. But the point is, some private equity firms are large enough to acquire, you know, the largest, the largest public companies and bring them private, in distressed situations.

Will Bachman 09:13
Okay. So let’s get a little bit into what your firm does. So you talked about how you will help, you know, get insights on these niches where there’s really not much public information. There’s not even really an association, because the industries are very niche very small. Can you walk us through? Let’s just give me an example of, you know, either a sanitized version of one that you’ve that you’ve worked on and how you go about getting those kinds of insights.

Kit Lisle 09:48
Sure, that’s a great question. Well, I’m going to start I’m going to start by describing a situation that happened to me yesterday. So yesterday, we were talking to an independent company. This is a small business that’s not owned by a private equity fund. And that small business is in the tube manufacturing industry. So in this case, mini or micro tubes that are used in a variety of applications. And they wanted to understand how to enter an ancillary market, in other words, an end market that sort of next door to their own serve a different type of customer with their current products. And the question came up, it was pretty much the same question you just asked me the question was, so you’re going to talk to customers and competitors and suppliers and experts and channel partners that influence a purchase decision in that market. And you’re not going to tell them what we’re planning to do, you’re going to do this on a confidential basis. And you’re going to get them to tell you things like growth and unmet needs and frustrations. How in the world are you going to get them to? If you called me? I wouldn’t tell you that. So you’re just going to call these people out? And I said, Well, let me tell you a story. And hopefully, the story will paint a picture about how we do what we do. So I said many years ago, I had a very unusual car. It was a brand new car, but it was a weird, quirky little vehicle that people hadn’t really seen before. And I was at the gas station. And gentleman walked up to me and he said, Wow, is that the new x y z 123? And I said, Yeah, it is. And he quickly asked, How much did you pay for that? And of course, I was a little taken aback. And I paused. And I said, Well, you know, I don’t really feel comfortable talking about that. So you know, kind of chuckled walked away. Next week, I’m at the same gas station with the same car. Someone else walked up to me and said, Wow, is that the new x y, z 123? And I said, Yeah. And he said, Did you get the sport package? And I said, Well, yeah, I did. He goes, do you mind if I take a peek inside? And I said, Yeah, sure. He’s like, Can you show me how those headlights work after they’re really cool? And about the 20th question that he asked me, after we develop kind of a bond and a friendship and a, you know, a little bit of esprit de corps here. He said, Did you get a good deal? And that’s a very different way of asking essentially the same question. And to that person, because we develop this kinship and this, this shared common interest, I probably would have told him exactly what I would what I paid for the vehicle. But it was, it was the way he came about it, we had a conversation about something that we had a shared interest in, as opposed to just so the point here is, when we do the research that we do, we’re not interviewing people, we’re not serving people. We’re not, you know, market researchers with the clipboard on their arm. We’re just developing conversations. So the work that we’re doing is really filled with people who have I call them Mr. consultants, I call them Renaissance people. They’re filled with intellectual curiosity. And to the person on the other end of the phone, they kind of just appear to be just slightly annoyingly curious. I don’t know if that makes sense to you. I’ve met people like that before.

Will Bachman 13:24
No, absolutely. So it sounds like the one the primary sources then of insight for you would be doing interviews with experts in the industry, either, you know, potential customers, or competitors or suppliers to, to the, to the company that you’re looking at.

Kit Lisle 13:45
Yes, but I would push back on the word interview, if there really truly are conversations,

you know, we’re,

we’re sharing where we’re poking or prodding, where we’re questioning, we’re challenging. We’re interrupting. We’re, we’re bouncing our ideas off of them our hypotheses. It’s really a discussion more more than an interview. But yes, absolutely. All right.

Will Bachman 14:09
So how does your firm go about sourcing those discussions? You know, certainly, a lot of listeners of this show will be familiar with firms like GLG and alpha sites. I’ve done an episode on how to source interviews using LinkedIn of reaching out to people directly. What’s the typical approach that your firm uses to you know, to get those discussions to happen?

Kit Lisle 14:36
Yeah, there’s there’s really three layers. I’d say the first layer is to the extent that our client is able to share their current customers, their prospective customers and their last accounts. That’s really truly the best place to start is in their CRM database. The and then they they’ve been in the business For certainly longer than we’ve been in the industry, in many cases where we’re invited into this little mini micro to market, you know, two days ago, and we know absolutely nothing about the dynamics of that market, we get smart very quickly. But they know that that bill has been in the industry for 30 years. And that bill has worked for three different competitors. And Bill used to be chairman and chief executive officer of the association. And that, therefore this study would really not be we would not be doing this study justice without talking to bill. So we rely on our clients for those kinds of recommendations, suggestions, contacts, etc. Number two is exactly what you said, there’s plenty of industry expert networks like GLG, that you, you either pay for in advance and have a subscription or you pay as you go. So we avail ourselves of those. And then the third is, interestingly enough, let’s say hypothetically, we’re on the telephone talking to that, that fictitious character, Bill. And Bill’s great loves the sound of his own voice, lots of opinions, lots of perspectives, some of them a bit dated, but nevertheless, we love talking to bill. And Bill’s engaged, and we say at the end of the conversation, hey, Bill, thanks so much. And you’ve been on the phone with us for 35 minutes here. And we learned a lot and felt like this was a really productive conversation. Is there anybody else in the industry that you would recommend that we speak with? And chances are, Bill will would be happy to provide us with a couple names? So we do we call that wheeling, we will go from one source to the next source?

Will Bachman 16:35
And do you typically, you know, source a lot of the interviews yourself by identifying people either via LinkedIn or people that attended a conference or something like that? Tell us how do you approach those folks to offer them compensation? Or how do you get people on the phone?

Kit Lisle 16:55
Great, great question. So we do avail ourselves of LinkedIn, and databases, such as, as the industry expert networks, and then we subscribe to another database that puts contacts together from things like conferences, as he described, when we’re reaching out to those people, cold or blind, it’s really up to us to figure out a compelling, interesting way to make the conversation worthwhile for that person on the other end of the phone, you know, our perspective, from the beginning, we’ve been doing this for 20 years at UCLA partners. And our perspective is that if we’re compensating them for their time, it’s sort of biases them in a way now we we have done that in some industries and certain aspects of healthcare, for example, you almost have to but for the most part, we’re able to figure out a way to either share insights or bounce ideas off of people, provide them with some fodder or some ammunition to chew on, such that they feel like they’re learning something as well. And it’s a worthwhile use of their time. And as we said, it’s not it’s not a survey, it’s not an interview, it’s more or less a conversation that people find engaging, and that they can jump in and challenge and poke and prod themselves.

Will Bachman 18:16
You mentioned that you you use a database that helps aggregate information from conferences and so forth. Is that a resource that you’re you’re comfortable sharing on the show here?

Kit Lisle 18:28
Sure, the one that comes to mind is zoom info zoom. And it’s not it’s not cheap. But we found that they’ve, they’ve been very helpful for us in situations where we need to identify contacts.

Will Bachman 18:41
Okay, cool. Where were you? You can type it type in a name? And how do you use that? Would you just, you’ve already identified a name and you’re just getting the contact info? Or does it actually help? You know, you can type in some keywords, and I’ll give you some people in that industry.

Kit Lisle 18:59
The ladder, you can probably also type in the name of that company, and then it’ll find contacts that it’s identified. You could I think you can even say, I need someone senior level marketing at this company. And I think it can, you know, dig through its sources and see if it’s got anybody.

Will Bachman 19:18
Great. Let’s step back a little bit. And let’s talk about your kind of a typical assignment for your firm and the timeline. In the whole kind of process end to end and what your deliverable looks like. You know, typically, what I understand and what I’ve done, and I’ve done a few due diligence type projects myself is they’re typically 234 week efforts. What’s sort of your process and what the deliverable looks like?

Kit Lisle 19:54
Sure. I’m going to I’m going to walk you through several different scenarios or situations. We’ll we’ll start with that fictitious little micro tube business. So in that case, the study was all about entering a new market. So the the need that the client had was, we don’t have enough information about that market over there on the other side of the fence where we think the grass is greener. So confirm or refute our hypotheses about that new market. So we would call that value enhancement or research to support that company, that research or that value. Value enhancement work is often fairly basic, fairly simplistic. Okay, so tell us about that market it does it warrant entry, is it as attractive as we think it is, we have to define what attractive means we have to develop some hypotheses. And we have to, you know, answer some key questions to help them make a decision about entry. Another example of that type of work could be the voice of the customer research, or maybe something simple, like Net Promoter Score metric. So in many cases, these relatively small businesses have never done a customer satisfaction survey on their customers. And so setting that program up is pretty simple. It’s easy, it’s recurring. We do that all the time we do we can do competitive intelligence, maybe there’s a competitor, that they’re not really sure what they’re up to how they’re able to win business more effectively than they are at a higher price point, you know, what are we doing poorly? And what are they doing so well, so we can, you know, these small businesses aren’t aware that you can actually figure that sort of thing out, and we do. So that’s just research. The second scenario is strategy. So we can work with these companies to develop a five year growth plan that’s living breathing, that has a dashboard that has metrics and measurements and tactics that are tied to, you know, compensation and job descriptions so that they actually happen, as opposed to being shelved documents. But we also just facilitate today off sites, I did a zoom conference call that lasted three and a half hours, that was a substitute for, you know, it’s your traditional two day off site meeting, which sounded like it was going to be a dismal failure, but it actually worked extremely well. I was surprised, and happy. And third, you mentioned diligence. So we, you know, when you’re acquiring a business, the acquire traditionally does many different forms of diligence. they investigate the the legal aspects of the company, the accounting, operations, you know, even things like insurance, sometimes environmental, the work that we do is business due diligence, commercial due diligence, market, due diligence, those terms are used interchangeably, but it’s really about the exterior of the company. And when I say exterior, sometimes it helps to think of, you know, the, the diligence process as being a kind of a proxy for when you when you’re buying a new house, and you have a higher end, you hire a home inspector, to help you make a decision about whether that’s a good good house to buy. So they’re they’re looking at the systems, the H back and the roof, and the electric and so forth. Well, we’re not looking at the inside of the house, we’re looking at the outside. So the outside in this case means customer relationships, competitive dynamics, market opportunities, and threats and trends. So we study that exterior. The answer to your question about timing, is that those diligence studies You’re right, they’re very quick. They can be two weeks, four weeks, is it a little bit more common? For a fairly basic research assignment for the company itself, like new market entry, four to six weeks is pretty common. For a strategy assignment, developing this growth strategy over over time with management can take months. And the two other aspects of work that we haven’t talked about yet, are, let’s say you you were considering focusing a bit, maybe maybe you would say, we are interested in investing in and taking advantage of the aging baby boomer population and their health, wellness and fitness. And so you might say that’s a theme that we’re excited about and we want to invest in. Now. Where are those companies? Where are those industries? Where are those segments? And so we would do the sorting and screening and filtering and prioritizing, which is the keyword to help focus and investor. And then lastly is sell side market studies. So it’s the inverse of a buy side commercial or market diligence study. It’s simply this. It’s basically the same thing. It’s just conducted by the seller instead of by the buyer. And I could go into more detail about that if you’d like.

Will Bachman 24:57
No one thing that I’ve observed A bit over my time in the industry is that but you have a much deeper experience here is that private equity firms are often you’re willing to spend the money on a due diligence effort, because they can kind of charge that against the deal. Whereas in some cases, it seems like they’re more reluctant to spend the money on that earlier stage research of helping me scan this whole industry and understand the, you know, some potential targets, and what are the themes here? Because those kind of projects get charged to their actual, you know, to the PE firm itself, versus being charged against one of their portfolio companies. So it’s like different incentives in economics there. But could you either validate or challenge that perspective? Do you see that they’re just the sort of way that their incentives are set up, affect the kind of work that P firms are willing to fund?

Kit Lisle 26:03
You’re absolutely correct. 100%. And I will say that what we have working in our favor, in those situations, there’s really two things. One is that those assignments are relatively simple, basic, inexpensive, so, you know, on a, on a monthly fee kind of basis, they’re not going to break the bank for the private equity fund. Secondly, is the over the last decade, in private equity, there’s been a shift or migration towards focus. So 1015 years ago, it was very common for a private equity group to say, we are industry agnostic, we will invest in absolutely anything except real estate, restaurant, retail, or, you know, we’re not life sciences, biotech medical device, guys, but we’ll invest in anything else today. That would be very unusual to have an investor say no, we’re industry agnostic. It’s much more common today for someone to say we’re focused. And what we focused on is services. And they think that’s wonderful. You know, they think, you know, we’re we’re really laser focused on the word services. Well, when you break that down, industrial Services has something like 404 digit SIC code segments. And then Business Services has more than 504 digit SIC code. You know, service, healthcare services has several 100. So that word services sounds like it’s really focused, because it’s one word. But in reality, if you’re dealing with narrowing that funnel from over 1000 different segments, down to 25, or 50, that you could legitimately hand out to a bank or a broker and intermediary, a finder, you’re business development team and say, These 25 are absolutely in our, our sweet spot. They’re in the bull’s eye, we’re locked and loaded, we’re ready to go after these 25. If you find anything here, bring them to us, we’re going to do that deal. That can be very compelling. And so private equity funds today realize that it makes sense to do that. And their limited partners, their investors have come to expect that they’re able to articulate that degree of specificity of where they’re focused, not not only where it’s attractive, but where are they best served, to focus, given their experience and so forth.

Will Bachman 28:44
See, see your firm does several different types of projects, as you’ve discussed. I’m curious, to what degree Have you worked on? standardized standardizing the process coming up with a standard deliverable? Kind of a standard set of slides a standardized work plan, so that you don’t have to use brainpower every time you do a due diligence project, but you can kind of whip out Okay, here’s the four week work plan. Here’s what we should be doing on day three. And here’s what the slides should look like. I found doing these myself that it requires a ton of creativity and thought to come up with that. And given that you’ve been doing this for 20 years. I’m wondering if you’ve invested in building that as sort of a repeatable process so it can be done a bit more efficiently. Could you could you talk a bit about that?

Kit Lisle 29:35
That’s a great question. Well, I’m glad you asked that we’ve learned years and years ago that this work, particularly commercial due diligence work, that’s often done in a in a crazy window of of pressure, time, pressure, urgency in terms of you know, making sure we get it right. Our clients are nervous there, folks. They’re type A, they’re very, very intelligent people, they poke and prod and challenge. So we’re working under some very extreme unusual business circumstances. And you’re right, it makes all the sense in the world to develop templates and formats, such that you just kind of plug in. But the reality of this is that this is a combination of art and science. And the science is having the template having a format that makes life easy and efficient. But the art is recognizing that every single transaction is different. Every client is different. The decisions that are being made around you know, size or growth are different. So the language, the nuance, the descriptions, they’re all a little bit different from project to project. So it’s, it’s a balance, I would say, between, you know, the the art of being creative, and flowery and thoughtful. And we talked about being actionable, making sure that we’re offering ideas, options, recommendations to our clients to help them grow the business after the acquisition, and also being very technical and scientific and Matter of fact, and technical and template ish. So it’s a it’s a, it’s a delicate balance.

Will Bachman 31:24
Now, I understand that your firm has about 30, full time over 30 folks, either full time or contractors, you know, supporting you at any one time doing the work. Could you talk a bit about how you’ve kind of grown up grown your book of business over time with with private equity firms? Is it relatively small number of firms that you’re doing a ton of work with? Or is it? Have you grown by the kind of cold calling or outreach? Or is it more to diffusion, where one person will goes from one firm to another? How have you kind of built your business over time? And what what’s been your kind of marketing approach?

Kit Lisle 32:09
Yeah, I would say, We are a very, very small, but extraordinarily good service provider in this huge world of mergers and acquisitions and private equity. So in our world, Bain Consulting is the gold standard. And Bain is enormous, extremely highly respected, and very, very expensive. We’re very, very small, very focused, very good. We don’t spend any money on marketing. We don’t do any cold calling Oui, oui, oui, we’ve benefited from, I’d say two very simple factors. Factor number one is the efficiency of business development and marketing. In the world of private equity is amazing for one reason, and that is the Association for corporate growth the ACG, so middle market companies that are looking to grow or looking to be acquired our members, portfolio companies have private equity groups, our members, private equity groups, our members, and then the service providers and investment banks that surround these transactions are also members. And that these ACG events, and I’ve been a member since 2004. And I’ve gone to dozens and dozens of their conferences all over the country. There’s a very unique aspect of the way these things are set up the private equity groups themselves. In other words, our clients are in a football field sized room and Conference Center, standing behind tables, waiting for people like me to come up and talk to them. Now, admittedly, they’re really waiting for an investment banker or intermediary to come to them and say, I think I have an acquisition that you might be interested in here. It’s an interesting little company for sale. But they’re happy to talk to me. And that’s very, very unusual. It’s incredibly efficient way to go about marketing yourself and promoting yourself to these private equity clients. The second reason that we’ve been successful and have grown the business is that we’ve just done a phenomenally Good job. So that means that we get referrals. That means when one individual leaves one bond that goes to another fund, they bring us with them. And then our clients themselves have grown over time and certainly do more deals today than they did 20 years ago. But we’re lean, lean and mean and focused on on really doing a fantastic job of, of high quality work and a high degree of customer intimacy.

Will Bachman 34:45
How do you just kind of remain top of mind? Does your firm work to generate thought leadership or do you reach Do you have like a CRM system where you’re reaching out to past clients with with phone calls are with emails. So how do you just re keep reminding people that you exist? So that when they have a need that they that they give you a ring?

Kit Lisle 35:10
Yeah, that’s a good another good question. Well, you know, the the concept of being relevant. And being, you know, having something of intellectual value to share is very important in the world of professional services surrounding private equity. So that you can’t really call these people up and say, Hey, I just wanted to make sure we were on on your radar screen, think of us or, hey, it’s been a while, haven’t, haven’t talked to you a long time wanted to circle back and see what’s new. That’s sort of wasting these people’s time. They’re, they’re very sophisticated. So one of the things that we try to do is, as you said, it’s providing intellectual property, or providing something of value. That’s a gift that’s an offering to our clients. And I’ll give you a simple example. During COVID-19, we’ve obviously not had as much work in the four months since COVID-19. Started as we did prior to that, and we’ve put our consultants to work, we did a pretty exhaustive study and happy to make it available to any listener who wants it. We call it project prescient, and it’s all about the the changes that have happened in five discrete industries, that were the result of habits being changed by individual people within those industries. And it’s a fascinating sort of, almost like sociological assessment of change. And so we found it very interesting, intellectually interesting. We share it with our clients. And they wrote back and told us how much they appreciated it, they found it interesting as well. And that’s a really good example of just staying Top of Mind in a way that’s not pushy, or, you know, in other words, we’re providing value when we’re reaching out.

Will Bachman 37:00
That makes sense. Okay. Tell me a little bit about you. So you have a you’ve really built a firm, that’s beyond what a lot of listeners of this show I’ve done, you know, as most listeners or independent consultants, you’ve been building a firm. What? Tell me a little bit about how you’ve thought about creating career paths for your firm employees? Do you bring folks in that are already experienced? Or do you hire people that are fresh out of school and train them up in your methodology, what’s been your approach to cultivating and recruiting and growing the talent of your firm?

Kit Lisle 37:43
We believe very strongly in avoiding at all costs, hiring young people fresh out of school, we believe very strongly in hiring or in collaborating with experienced talented experts that know what they like to do know what they’re good at, know what they want to be a part of. And I think we’ve done a very, very good job of building some cohesiveness across, you know, a network of, you know, as you said, some employees and some 1099, some 1099, that work with us, exclusively, and on a regular basis, and some might only work with us on a, on a project per year,

excuse me.

Kit Lisle 38:31
Um, so I’d say one of the things that we’re, we’ve been strong at is knowing what, what the characteristics are of a consultant who’s going to fit within our organization, and knowing the skills that we’re looking for. And then somehow finding them or learning of them or being introduced to them. And a lot of that actually come to think of it has just been, you know, hey, you should talk to this person. They’re a friend of mine, and they’re good, and I recommend them. And that that carries a lot of weight. But when we’ve been proactive as well, yes, the answer to your question is, we’ve always been successful when we’ve gone after people that are much more senior than they are competitors would be comfortable with. Most as you know, most consulting firm models are to have a, you know, a pyramid like structure where you have a lot of 20 somethings at the bottom, and we just don’t think that makes any sense at all.

Will Bachman 39:24
Do you tend to bring in folks that are former consultants or do you bring in folks that are, you know, sort of alumni of private equity firms or or experienced industry people? What’s your typical model?

Kit Lisle 39:38
There is no typical, I would say we recruit for and look for people with a lot of intellectual curiosity, a lot of, you know, social EQ, the ability to work as part of a team Well, you know, just basically being curious investigative journalists As types of consultants, so we have hired someone, we do have somebody on our staff who’s a private equity professional before they were with us. We’ve hired somebody from, you know, an ex McKinsey consultant. We’ve hired people from other top tier consulting firms Parthenon and aliquet. come to mind. But we’ve also hired people that have spent their entire careers in marketing and marketing research. We’ve we’ve hired industry experts, people that were brought into a project because they knew an awful lot about you know, how healthcare reimbursements worked. And then we realized, wow, this person is fantastic. I wonder if she would be willing to work on a industrial project, let’s ask her. And she was and therefore she migrated from being an expert in healthcare to being somebody that we work with very regularly now.

Will Bachman 40:53
How have you seen the space of let’s look just in particular, at the commercial due diligence type work? How have you seen that evolving over the last 20 years? So, you know, in terms of have providers, like you had to get more specialized? Or, you know, have you felt that you’ve had to kind of up your game as more competitors enter and compete for that are new tools coming in? So what how have you seen that space evolving, particularly in the past, you say, four or five years?

Kit Lisle 41:29
So, commercial due diligence, there’s two pretty significant changes that I’ve observed. One is that 1520 years ago, we’d have to explain to our clients, really what this was, like, why does it make sense to conduct this type of work? And how do you do it? And how do you not get caught? And why does it make sense for us to do it, and not your junior analysts to do it at the last minute, and so that, that used to be what what we had to spend a lot of time and effort doing was explaining what we’re doing and why it makes sense to outsource it. The second big change that’s happened just in the last few years is we used to get away with saying, We are industry agnostic, it really doesn’t matter what industry, you’re investing in the process is exactly the same. It could be Life Sciences, it could be industrial widgets, it could be energy, it really doesn’t matter, because the methodology of the research is the same. And we could get away with that. But today, no, they, we we’ve needed to at least explain the industries with where we have deep experience, maybe not expertise, but at least experience. And so we list those on our website, and then our collateral material. But, you know, frankly, if somebody came to us and and said, Hey, you know, we’ve got this anodized aluminum wedge wire, you’ve been wastewater treatment. Can you guys do a study in that space? The answer, of course, would be yes. But you have to be a little bit more focused and proactive in the outreach about saying what industries you have experienced deep, deep, deep knowledge and experience in?

Will Bachman 43:13
What do you think about the prospect of artificial intelligence? Do you? Have you started using AI tools? Or do you see that on the near horizon? No, not, you know, ai probably can’t do the whole project. But more and more, you know, so many of the things of, you know, maybe identifying experts, or scanning and scraping and making sense of news articles talk about AI a little bit.

Kit Lisle 43:41
Yeah, this is a really exciting topic. And it makes it makes us very excited, and enthusiastic and optimistic. So far, not a whole lot of impact, but it’s coming. It’s definitely coming. You mentioned web scraping. So the ability to just say, hey, bot, you know, anything that mentions, you know, market size and frisbees. I’m, I would love to know what it says. And by the way, if you don’t mind, can you do the analysis and tell us what you think the total market size is in the United States for frisbees that’s coming, and the ability to kind of hang your hat on that and say, they’ve done a better job at that than we could do with a bunch of phone calls, is not too far away. We met with a company that did some really really cool stuff with reviews and I’ll explain so imagine that you’re you’re buying a new pair of shoes, and you buy that new pair of shoes on Amazon or whatever. And you go ahead and you put a review in for how well you like the shoes and you might describe that, you know, you like the way they feel. They arrived really quickly. And the colors Fantastic. Well, this company can do Take that review, and, and separate out things that you’ve said automatically. So it’s going to bifurcate out your review into different purchase decision factors that you’ve used. So you’re not even thinking this way. But it knows how you’re thinking. And it’s saying, You valued color and style and appearance and speed of delivery. And it did well on those factors. And it can even read between the lines and ascribe scores. In other words, a one through five scale of how strongly you felt about it in some cases. And then when you have hundreds of 1000s of reviews, then it’s able to scan all of that data and provide ratings on individual products, not let alone individual companies. But wait, there’s more, they can go further than that. And they can provide reviews on doctors, for example, or individual practitioners or service providers. So those sorts of things are not that far off. And it’s we’re now at the point that, that it would be irresponsible to not pay attention to them, experiment with them, use them, take advantage of them, but it would also be irresponsible to hang your hat on them and say, Oh, yeah, we’re just gonna let you know. We’re gonna let the AI take over. We’re not we’re not there yet.

Will Bachman 46:26
Fantastic. So kit for any listeners that wanted to follow up and learn more about your firm. Do you want to share any websites or links or where should people go?

Kit Lisle 46:41
Sure. Thanks. Uh, clairo partners calm and a clairo is ACC l A. Our Eau Claire Oh, partners calm. A Clara is a Latin word it means to make clear or bright in the mind, which is a good good word for a consulting firm. Of course. My email is kit k i t at a clairo partners calm. And yeah, so I’d love to hear from any listener that has any interest in in collaborating. Fantastic. Well,

Will Bachman 47:12
Kitt, thank you so much for joining. Thanks, we’ll appreciate the opportunity, best wishes to you.

Related Episodes


Integrating AI into a 100-year-old Media Business

Salah Zalatimo


Author of Second Act, on The Secrets of Late Bloomers

Henry Oliver


Third Party Risk Management and Cyber Security

Craig Callé


Co-founder of Retraction Watch

Ivan Oransky