Hey, Steve, thank you so much for inviting me. I'm flattered and thrilled to be here.
Well, it is it is our pleasure to have you. And we have a lot to dive into today, especially given your experience as an entrepreneur, a CEO, an investor, and now an educator. But before we dive into all of that, AJ, maybe just to set some context for our listeners, can you please provide us with a brief background and overview of your career and what led you to Yale where you are today?
Sure. So I guess the beginning of my entrepreneurial arc was a company called Archive Swan, which I actually started, I did not buy it. But I get lumped into the search fund ish world because I did it right after my MBA in a very, sort of search fundish type of industry with some search fund type of investors. But first business was Archive One, grew that over a close to 20 year period, lots of organic growth, lots of acquisitions, and just a ton of fun. After exiting that business took a little time off, got involved with some investment activity and Board activity, wound up being the CEO of a company called one sourcewater. Similar economic characteristics as Archive One's, similarish type of model. Part of that business, little bit more growth, a little bit more acquisitions, exited that business and wound up as the educator at the Yale School of Management, which is absolutely wonderful. So I feel incredibly lucky because I feel like I've had two professional callings in my life, to be an entrepreneur and to be an educator. And both have been absolutely fantastic in different ways. And at different moments of my journey.
One of the many reasons why I was very excited to talk to you, AJ is because of not just the depth, but also the breadth of your experience, having been an entrepreneur and CEO, investor, and educator, as mentioned. And that's actually how I want to structure our discussion today, we're going to spend the first 20 minutes or so reflecting on your time as a CEO and operator, we'll transition to some of the reflections garnered from your time as an investor. And then we'll conclude with some more personal questions, including some related to your current role as an educator. But starting with your time as a CEO, I'd be curious to learn, you know, what are some of the things that you enjoyed most about being a CEO? And just as importantly, what are some of the things that you enjoy least about being a CEO?
Sure, that's a lopsided answer, because I enjoy enjoyed far more things being a CEO than things I didn't enjoy about being a CEO. So being a CEO was just a ton of fun for me, I loved it. I felt like I was playing three dimensional chess every day. And some days, you had too many pieces. Some days, you didn't have enough pieces, but it was just a blast. I love the intellectual challenge, the opportunity to be creative. It was just a total thrill. So but put some real meat on that. I probably partially started out on my entrepreneurial journey with a desire to achieve some financial independence. And being an entrepreneur is is a decent way to think about doing that. And I guess what I discovered along the way, is that being an entrepreneur and a CEO is far less about financial independence or wealth accumulation than some other things.
So when our business started to sort of grow, mature, professionalized way, what I discovered was that I absolutely just loved the building the architecting, the leading components of being an entrepreneur. But the very best part of being an entrepreneur was seeing a culture coalesce, and seeing people grow and develop in the company, and realizing and I see this in a humble way, that the business was just so much more, more big and substantial than me. Even though I sort of nurtured and birthed the business. It grew into something that far outshine me or my individual capabilities. So the real joy and fulfillment is in the day to day wins and activities, seeing amazing things happen every day, without me. Yeah, that was just such a thrill watching people develop, develop, seeing the former customer service person develop into a customer center leader or regional manager, and also watching the team members make life decisions.
So buying homes getting married and having babies, partially, not exclusively, but partially because they felt that their employment was stable enough that they can make those big decisions. So really felt that we were helping and, and growing people, it was also great. So feeling like we were proficient at customer service and operational excellence. And so define the standard. That was great. So yeah, those elements really gave me joy and fulfillment, it was not the exit. So that's like a whole nother topic of conversation. But many entrepreneurs go into the game, thinking about the exit, that that that was not a part of my journey that was super enjoyable. It was the day to day components. So what I like least, you know, firing people is just horrible. So no one should ever relished firing people. So I don't think I was particularly good at firing people. But as a CEO, you certainly do some of that.
Something else I didn't love is, is maybe with investors, there's always this recurring conversation about the exit. And measuring everything and IRR and you know, I get that component. But I really enjoyed the conversations about building a fantastic business much more so about when we were gonna leave the business or what the business was worth. So sometimes I use the analogy. You know, it's great fun to talk about how to grow the pie. It's not as much fun to talk about how you're going to slice up the pie.
That makes a lot of sense, in doing research for our discussions today, AJ, I came across a comment that you made when answering a question related to any regrets that you might have had, stemming from your time running archives one and one of the regrets that you mentioned was not moving quickly or aggressively enough, early enough. Now, as you mentioned, you were the founder of this business. You didn't buy it from a predecessor. But I'm curious how that regrets that you articulated of not moving fast enough early enough, how generalizable do you think this lesson ought to be for new operators who have recently ascended to the CEOC? And how do you reconcile it with the generally accepted wisdom that new CEOs ought to tread reasonably lightly in the early days and effectively try to make as few binding decisions as possible, while still trying to wrap their arms around the company in the industry?
Well, Steve, I agree with everything you just said. So I wish we moved quicker and more aggressively after, so put that all caps bold, AFTER we fully established the foundation, all the systems and processes that that made us a great company, so So I wish we moved faster. I ran archives one for close to two decades. So I wish we moved faster. Somewhere after a decade. It wasn't, I wish we move faster. At the top of the first inning, I wish we move faster, somewhere in the third or fourth or fifth inning. Once we felt like wow, we have a pretty good company here. We have a lot of systems and processes working. This is a humming machine. We have a foundation that feels really solid, we have the right strategy. We have the right team, we have the right execution model, we have the right customer selection model. We understand acquisitions, we have the right capital structure to finance all that. So once all those pieces of the puzzle were in place, I wish we dialed it up a little bit more. But I am not prescribing a go fast go early strategy. I'm prescribing a hey, once you feel like the machine is humming and the foundation is deep and thick and really solid. Maybe you should consider going a little bit faster.
I see. So you know clearly you took a lot of time to build the infrastructure necessary to scale the company and one of the ways that you scaled Archives One is through inorganic growth. And in fact, I've read all of the pieces that you've written about programmatic acquisition strategies. And you were quite an acquisitive CEO. If I'm not mistaken. You purchased 38 other businesses while running Archives One, that's quite a number. And I'm curious as you reflect on your success as an acquisitive CEO, how do you reconcile that success growing inorganically to the extent that you did with the empirical observation that on average, more acquisitions actually destroy equity value than create it? So you know, clearly there are some things that you seemingly did right that the average acquirer seemingly does wrong. I'm wondering how you think about that.
So yeah, there's a lot to unpack there. So I teach a course at Yale on programmatic acquisitions. And it's something I've written about thank you for being a reader. I've thought a lot about and practiced as the CEO, and now talk a little bit about as educator. So yeah, I'll give you a little bit of a download here. So I think acquisitions are really, really hard and should be approached with great trepidation and respect and humility. In some ways, I wish acquisitions weren't called acquisitions. I wish they were called integrations. Because that's what acquisitions are really about. They're about everything you do after the close, not before the close. Acquisitions can be awesome. If you love integrating payroll systems, invoices, presentation solutions, really registering vehicles, getting customers to mail checks to a new lockbox or getting customers to remit to a new electronic service payment solution.
Acquisitions are about getting team members in new uniforms and adopting new health care plans. So acquisitions are hard, it's mostly about what happens after the close. And this is boring stuff that can be very, very valuable. So we thought about acquisitions. And I'm not saying my way was the right way, just work for us. But we thought about acquisitions at stitching together, the acquired company at the most cellular and granular level imaginable. So we completely homogenized the target company into the base system, with one general ledger, one AP, one AR one payroll, one set of core operating procedures, we thought we had a best practice. And any targeted company got rolled into that series of best practices. Now, Steve, we learned something on every single acquisition. So I would never say we had everything figured out. That's not true.
But once we learned something, we populated that URI or solution into all of our field operations, we had one way of doing everything. So that was our view on integration. So I'm a cautious fan of programmatic acquisitions, in the right industry, at the right time. So not every industry is set up for programmatic acquisitions. And not every company is in the right moment of their evolution to consider this strategy. So industries with extraordinarily sticky customers might be better targets for programmatic acquisitions. Industries, where customer switching costs are low, might not be a good pond to think about this type of strategy. But for the company be ready, there needs to be a super solid foundation and a core group of systems and processes that allows you to think about doing programmatic and serial acquisitions.
So the other sort of toggle I think a lot about is pace. That if you looked at a histogram of our 38 acquisitions, it's incredibly an impressive, it was 0000 for a whole bunch of years, then one and then zero, and then one, and then two, and then two, and then three. But our our piece of acquisitions was not binary. It was a really slow build to the point We got proficient enough to do call it seven acquisitions in a single year. But that that was built up over an extraordinarily long period of time. So 38 acquisitions might sound like a lot, but I'm not sure it ever felt like a lot. So, once you think about the pace, and I think another toggle to explore is the size of the targeted company, and I'm a fan of lots of small to medium party companies. We never did sort of a bet the balance sheet transformational big acquisition, we did lots of Bite Size acquisitions, which were sort of in our sweet spot for valuation and also risk.
But they were smallish. And I'm not not necessarily a fan of making a super big bat. Furthermore, we had a very defined view of what the right type of target looked like for us. And I think about acquisition targets in three buckets, you could do rehabs. So you could buy companies or that are super cheap, but need a lot of work. And they are fundamentally broken companies, you can buy companies that are fixer uppers. So companies that need a little love and care at a mildly attractive valuation. But you could look smart with that acquisition target in call it, three to 12 months. And then you can buy pristine assets, which are perfect, but you pay accordingly. So we were all about fixer uppers, we didn't do rehabs, we just avoid those. And we didn't buy proceed companies. We couldn't add value. So we sort of knew where we played in this ecosystem, and with fixer uppers, we could relatively quickly accrete margin and, and create value with the target.
We also thought about the acquisition program in three buckets after the close, we thought about stabilization. So just control cash, make sure you're fulfilling the customer promise, executing on operations. So that was chapter one, chapter two was integration, that's when we stitched together the target into the base business. And then finally, optimization. So we thought about those and sort of like 30 days, probably the integration was up to a year, preferably six months, and optimization was up to two years. So we had a real plan and evolution about what we were going to do with the business after we closed, we never celebrated the close, that was not an accomplishment. We celebrated the integration and optimization. So finally, there's actually evidence, Steve, that small deals work better. And companies that approach this acquisition strategy, doing it perpetually, in a serial fashion, develop proficiency and have higher returns than companies that don't.
I think that's like a McKinsey report or something. But I'm happy to share that with you. It's that reading is on my syllabus in the course. Ultimately, when you do an acquisition, it should feel like a non event. So if you're running a business winning a new customer, you obviously want to celebrate every new customer win. But that shouldn't feel like a stress the system bent, no differently than if you're engaged in programmatic acquisitions. When you close a deal and embark on this stabilization, integration optimization journey, it should feel like a non event, you should have the appropriate resources, systems, processes to approach this in a way that it's just a core competency. You do it every year, you do it every quarter. And it's just one of your skills that you're capable of doing. So I don't know if I answered that or hopefully I didn't give you too much information. But that's how we got out.
That's fascinating. I mean, we could probably spend an entire episode talking about this and only this. Maybe we'll save that for round two if your game but you know what, I want to stay on this theme of growth both organically and inorganically, given the growth that you are able to generate at Archives One. Presumably I'm probably safe and assuming that you made a lot of hires, which I suspect implies that you, if you're anything like me also made several hiring mistakes. So as you reflect back on your several decades as a CEO and entrepreneur making hiring decisions, I'm curious, are there any generalizable lessons that you can tease out from the hiring mistakes that I suspect that you made?
I have made lots of mistakes, not only in hiring, in many things. So if you want to talk about mistakes, that could be a long list. I think the first thing to think about when there's a bad hire is, I think enlightened CEOs and entrepreneurs look in the mirror. First, it's easy to blame the hire. But I think the first thing a CEO needs to do is reflect what they did wrong. So more than likely, if a hire didn't work out, it was at least partially the CEOs fault, or something that happened in the company that didn't facilitate the new hire being a success. So I think CEOs need to ask where they fail in recruiting. So were they rushing the interview process? Did they not have a clear picture of the target person they were seeking? Who else interviewed or was part of that hiring process? What went right or wrong with the onboarding and training process? Did the hire have the right tools, and the right resources and direction to succeed and thrive? Or was the hire setup to fail?
So it's obvious that when you hire new people, you need to get them on board and coach them and give them the right tools and information to do their jobs well. I think, especially when we were a smaller company, we didn't fully understand that we hire people and sort of throw them into the turmoil and the either either succeeded or failed, and they failed, we blame them. And that probably wasn't the right approach. So I think when thinking about hiring, I think there's a real system in process of, of trying to embark on that, and do a to set the higher up for success. So I was not in a technical business, anyone could have learned the two businesses that I was involved in. So we focused on hiring for fit and values, people that could be culturally aligned with what our organization was about. We felt like we could teach all the other technical parts of the organization are the job, we did not necessarily focus on hiring people from within the industry.
I think, many times if you if you restrain your hiring candidates from within the industry, you get people with preconceived notions about what the business is or how the business should be conducted. And if you hire people outside, at a minimum, they might be a blank piece of paper and maximum, they might have new creative and innovative ideas from other industries and ponds which might help you. So I think we failed if we didn't have a clear picture of what the position was like a really really crisply articulated and defined job description and scope of responsibilities for the target hire. So that was probably on us. We probably also missed on not having a more holistic bilateral, bilateral approach to hires, and really understanding what what new team members wanted out of the relationship, in addition to what we wanted out of the relationship.
So we were high octane trying to grow, build excellence, all these exciting things, but not every hire is on that on that same train. And not fully understanding what someone wanted out of the position or role could could result in a mismatch. Finally, my friend and academic colleague, Dave Dodson, who teaches at Stanford, he's written a bunch of great stuff on hiring, people selection and also firing. And those have been helpful resources to me and I would encourage anyone thinking about hiring, or separation issues to take a look at what Dave has written.
So, moving on AJ, to maybe more personal side of entrepreneurship or leadership. This is something that I think is important for us to talk about. So many CEOs, including, and especially myself, struggle with something that I often refer to as contingent happiness, this idea where CEOs find that their overall sense of happiness and fulfillment is tied to the commercial success of their companies. And this was certainly my experience. I've said in the past that, you know, when I was a CEO, I was about as happy as my company was successful. So I'm curious, can you share with us to what extent did you wrestle with something similar as a CEO? And now that you have some distance from your time leading those two businesses? I mean, how do you think about this? Is this kind of an inescapable reality of entrepreneurship? And should be interpreted as such? Or is it something that can be overcome through deliberate tools and tactics and strategies? How do you think about that?
Yeah, I was probably guilty of what you're describing. Thinking that my success as an entrepreneur, or CEO, was my self definition. And, you know, obviously, I was younger, I was trying to build something and maybe prove something, but with time and distance and perspective I think it was completely unhealthy, and irrational. Being a CEO is just one part of who you are. And over to finding yourself in that role is probably not healthy. So we all have multiple dimensions of who we are, where we're possibly spouses, possibly parents, friends, community members, spiritual beings, but by defining yourself exclusively vocationally, or in this role as a CEO, is, is probably excessive and not wise, I get why people do it. It can be completely intoxicating, and alluring, and you have pressures every day. And it's adrenaline inducing. I mean, it's a rush. But I have three kids. They never cared about my business success, or my performance as a CEO. They just cared about me as a dad.
Was I was I going to show up at the soccer game? Was I coaching the soccer game? Will I play Chutes and Ladders with them without falling asleep? Would I talk about anything other than business? So I think we're all susceptible to commingling our personal and professional beings to come up with sort of a personal happiness level. But it's in retrospect, I would say it's really healthy to figure out how you could compartmentalize and separate the professional from the personal. You could be a great CEO, and a horrible parent and a horrible spouse, I wouldn't choose that. And you can be a fantastic CEO and a horrible dad like those are not good outcomes. I would much rather be a poor or mediocre CEO, and a great spouse and dad and friend. I mean, the people you care most about in the world love you for who you are your character, not your job title or job performance. And using your success or lack of success as a CEO as your exclusive scorecard is probably an overly narrow definition of what happiness should be or could be. I hope that wasn't too philosophical and touchy feely.
No, not at all. I mean, it to a certain extent that it is the nature of the question. And again, this question alone could probably occupy an episode on its own but being mindful of how one sees themselves outside of the context of their vocation, which is one of many facets of who they are as a person, I think is a great place to start.
Your kids just don't care about that. I mean, one thing my kids loved when I was running Archives One they would periodically come to my office and we had Tonka Toys, you know, the the construction type toys kids play with that home, but for real. We had big trucks and forklifts and all these things. So they like that part. But when you go home they want to talk about their day, they want your time that's undivided, and full attention. So thinking the world spins around your business, one is just not true. And two, you're possibly planting some seeds for some personal conflict with the people you hopefully care most about.
Now, you were gracious enough recently to include me on a case study that's now available on the nature of work life integration as a search fund CEO. And as part of that work, we discussed the importance of CEOs and entrepreneurs establishing their own personal core values. And in the past, I came across, I believe it was a podcast interview that you did, where you said that CEOs personal core values are often reflected in a way in their company's core values. So with respect to the core values that you either implemented or discovered or created as the CEO, Archives One and in One Sourcewater, I guess, kind of a two part question. The first would be, how did you go about that? What was the specific process that you followed to either create or discover those values? And also, how did you make How did you make them more than just a bunch of hollow platitudes that reside on posters on the office wall, which, unfortunately, is what most core values kind of turn into?
That's for sure. So one, I completely agree that corporate values cascade from personal values. You can't care about team members, or customer service as a corporation, if that's not truly part of the DNA of the CEO. So I really think that there's a high correlation between the CEOs personal values and the corporate values. Yeah, so I can tell you a little bit how we sort of built out our value system at Archives One, I'm not gonna say the way we did it is the right way, or the only way, just the way we did it. So I had this board member, Tom Byrd, who was an incredibly important, helpful, positive influence on my professional and personal journey. So he's still a mentor, to me, and I'm actually extraordinarily grateful for everything he's done for me. So he was this board member, we were growing, we had done a couple acquisitions, we were multilocation, at this point.
And he, based on listening, when I was talking about how I don't know everyone anymore, you know, you get to a point as a CEO, you don't know all the team members. And you sort of lose some of this connection and connective tissue in the organization. Bigger geographic scope. So Tom encouraged us to think about developing purpose, mission and values as one way to create cohesion in our growing organization. And we really worked with Tom to figure out how to do this because truthfully, I struggled. So at first, I was skeptical, a little bit about well, values like that such touchy feely type stuff. And I guess I was in a moment as a CEO of not either understanding the potency of that, or the importance of that. So Tom, sort of worked with me explained, it's me got me on the bus. And then we really used Jim Collins, the prolific author, former faculty member at Stanford, we used his framework of purpose, mission, values.
So we just sort of used his recipe and tried to build it out and follow it. So the approach we took was top down. I'm not saying this is right. But our executive team, so four or five people worked on developing purpose, mission and values. Over a few weeks, we interacted and collaborated with Tom on this, we went through multiple, multiple interactions in versions and so really doing some soul searching. It was not collaborative. So it wasn't some big bubbling up from the bottom trying to get consensus about purpose, mission and values. It was top down. We were not aspirational. So it was more a codification of what we were already so maybe there was a maybe it was 80% This is who we are and 20% of this is who we'd like to be. But it was really sort of a reflection of who we thought we already were, what values we cared about. Now, I'll just rattle them off super quickly. First and foremost, our values, had five values, we cared about quality customer service.
So in our organization, we thought everything spun around customers, they were the center, they were our son, and we just oriented around customers. So one value was all about customer service. Second value was acting with integrity. So Howard and conduct customer service and what type of company we're going to be. Third value was all about commitment to team members, and being loyal to team members, and engage in team members. Third value is acting profitably, we were I apologize, I think that was the fourth value. We operate profitably, we weren't shy about seeing one of the reasons we're in business, not the only, but one reason we're in business is to earn money and a return on the invested capital. And finally, our fifth value was we're open to new ideas and change. So we were a learning organization. And change was just part of who we were, we were going to grow, we were going to improve, we were gonna chase excellence.
And you had to have a mindset of tolerating change. So three of our values touch three constituents, customers, team members, shareholders, and two values were how we were going to conduct ourselves; integrity, open to change and new ideas. So that was really who we were. So we sort of codified these values, we wrote them, we thought about them. And then the in some ways, as hard as that was, that was the easy part because you write them down on a piece of paper. And most companies print them up and put them in the lunchroom. And that's it. But we were really committed to rolling out this purpose, mission value thing relentlessly. And we started to weave it into any and everything we did within the organization. So as part of hiring people, it was part of every team member review, it was part of every meeting, I led. So every single meeting, I lead, we would start with a review of our values. And sometimes the review would be, hey, let's talk about what we've done over the past 30 days, your past quarter, where we've really lived up to our values.
Let's share a couple examples of how we've excelled at living our values, or let's share an example where we failed to live up with our values. But every meeting I was involved in, that was part of it. We built training content around our values, which was exposed to every single team member. This was part of every executive retreat, all of our broader retreats. It was a huge part of the monthly team member communication I wrote. So I wrote a letter every month to all of our team members where we we reported out on high level financial results, some key operating statistics and KPIs extracts from our dashboard, but also our values. And in the Values section, that was a wonderful opportunity to provide shout outs to people who had displayed living our values within the past 30 days. So, you know, we would highlight someone that went above and beyond the call of duty with customer service. Or we would highlight a statistic indicating that our customer service is on target and consistent.
But ways to celebrate the fact that we've internalized our values, and we're living and breathing our values. We celebrated people who lived the values those people got raises and promotions. And equally hard. But important important was we fired people who violated values. And it's really, really hard to fire a high performer who violates your values. But you have to if the values sort of mean something as your organization grows, and you know, something's working as a CEO, when people talk about values without you being there. And that's really cool and really powerful. So, I think our values really became the underpinnings of our culture. And when you have a positive, strong culture as a growing organization, that's a secret weapon. So that means you're spending less money on hiring, or you're spending less money on separation, you have less middle management.
You have less controls, because there's this secret sauce, your culture that help governs the body of the organization as you grow geographically and in size. It also became really powerful. As we were doing acquisitions, when new people came in, there was a serve this very tangible system of values and culture that they were brought into. And they sort of got that signal quickly. When we were doing acquisitions, we also got to the point where, this was not initially, Steve, initially, we were scared about talking about our values, and we were scared that people were going to leave. But as we progressed through our through our acquisition journey, we got to the point where whatever executive was on the ground, the day of the closing, that executive, often was me, we talked about our values and say, Hey, this is who we are.
I got great news for you. If you can be excited about this, and get on our bus, you're going to excel and thrive and have a wonderful time here. If you can't get excited about our values, or they don't sync with you, it's not going to work, doesn't mean you're a bad person, doesn't mean I'm a bad person. But this is who we are, and we're not going to change. If you can't fit into this and feel good about this, it's probably not going to work out. In sending that message, it means we really care about this.
AJ, let's move to some of your lessons and reflections garnered through the lens of an investor. And where I want to specifically spend time is on the current market environment. So we're recording this in October 2022. And I want to ask you a few questions with respect to where we are or where we may be right now. And where I want to start is with respect to valuations, specifically, the valuations of small private businesses. I'm curious, what has been your experience with respect to private market valuations and their correlations are potentially their lack of correlations with the public market? And the reason why I'm asking this is because over the past, I don't know, six to nine months or so we've seen a large correction in public equity markets. But anecdotally, through my own experience, as a private market investor, I've noticed that private market valuations have remained somewhat sticky. So I'm curious, what is your experience taught you with respect to the kind of relative valuations between both public and private markets?
So great question. I think that small squirrely little companies that are sort of half a million of EBITDA to 3 million of EBITDA tend to trade at three to six times EBITDA over very long periods of time. So if you're in a hot industry that might creep up. Is there ever so slightly some correlation to public equity market values, maybe, at the margin. But small private companies that are sort of in that super low end of the middle market, I think tend to trade at three six times. There might be slight amplification or compression, but I don't think there's huge correlation to public markets. Obviously, private markets are illiquid, each deal is idiosyncratic. Yeah, the math is so simple. Sellers aren't going to sell below three or four times because they they intuitively do the math and say, hey, if I just hold on for a couple of years, I'll be in the same place.
And buyers won't typically pay above a certain number one, because they might not have too. And two, they're not going to get the necessary returns for investing in illiquid, poor information. Not a lack of transparency in the type of asset they're, they're buying. So I think so these valuations for small private assets are somewhat bounded, although I have no data to support this, but I don't think you see small private companies trade a double digit multiples, until the industry is super hot or the business isn't a million dollars of EBITDA any more, but it's it's either 5 million of EBITDA or 10 million of EBITDA. So it's not the first buy, it's the second buy, when you can get that multiple expansion.
You know, related to that question is actually one of the questions that I'm asked most frequently as we record this from prospective buyers of small and medium sized businesses. And to summarize, their question is effectively whether or not now is a good time to be in the market, looking to buy a small to medium sized business. So from a macroeconomic standpoint, I'm not gonna say anything profoundly unique or surprising here. But inflation has been high, relative to historical norms over the past six to nine months, interest rates are rising quite rapidly, the economy is slowing. There's obvious geopolitical dynamics in Europe that are very troubling to say the least. So buyers are asking, you know, how should we think about this current macro economic climate? And is this going to be a help or a hindrance to buying a quality business at a fair price? How would you respond to that question?
Wow, you really paint a bleak picture of the world? There's got to be good news somewhere. So I try not to prognosticate or predict the future because I am not so good at it. But yeah, I think things could get better, or things could get worse in the future. So how do I think about this? Yeah, I look to the past a little bit. So the world felt like it was going to end in the financial crisis of 2008. And it didn't. But in the darkest days of that crisis, I remember feeling like wow, if I go to the bank, and try and take out 100 bucks from the ATM machine, the bank might not give give me $100. And the bank I use is Bank of America is so I bet they literally felt like wow, the financial system might collapse. In the earliest days of COVID, it felt like the world was gonna end for different, more important reasons, health concerns. But I think if you view the world in a multi decade scenario, and with a long horizon, things tend to get better, even when they appear to be extraordinarily bleak.
But the riddle is, no one can tell you exactly when. So I agree with you. I think the world looks super scary right now. You know, there are some economic issues, there are some geopolitical issues in Europe, in the US, there's some political division and things in the US that are a little scary, looks like a good moment to be our neighbor, North of the border Steve, I'm a little jealous. But scary. And uncertainty is often an interesting time to purchase assets. If you are brave, you have patience, and you have capital. Now might be a good good time to buy assets, no guarantees. And if you do buy assets, you have to be prepared to be wrong short term. And you have to be prepared to wait for long periods of time to be rewarded. But when there is turmoil and chaos, that might be an interesting time to be a buyer. If you're brave, you have patience, and you have capital.
Yeah, from my perspective, I, of course, don't know if I'm correct in saying this, but I look at where we are today. And of course, if we continue to progress linearly from where we are today, we may eventually be in a position within the private markets where valuation expectations falls to a certain extent. And of course, again, I don't know if that will actually happen. But to the extent that they do, I wonder, will it coincide with a situation where the CEOs, often the original founders of the small and medium sized businesses, find themselves emotionally depleted and frankly, just professionally exhausted after enduring the past two and a half years and everything that the pandemic kind of thrust upon them?
So I wonder, will we be in a situation, you know, whether we're in it now, or maybe we'll be in x months, where on one hand, we have a very meaningful desire to sell given the personal and professional consequences of the past two and a half years. And on the other hand, a macroeconomic environment where the the bargaining power, if you will, shifts more to buyers than to sellers, which arguably has not been the case over the past five, eight years or so, at the risk of putting you on the spot, how would you respond to that possibility?
So I totally agree, I think, in the context in which we live, now, sellers are probably losing some confidence, and some emotional bandwidth, depending on their age and where they are in their lifecycle, and might be more inclined to accept more realistic valuations. And realize that their choices might be less robust than they thought, a year ago or two years ago. Furthermore, where were you know, I think there are two dimensions when you buy these small businesses are trying to sell any asset and one is liquidity, and the other is valuation. And in great markets, you focus on valuation, in strained markets, you focused on liquidity. Can you sell that all at a reasonable price?
And it feels like we're drifting more towards that. And with private assets, I mean, you probably see that with residential real estate or commercial real estate, but probably trickling down to small private businesses as well. But Steve, all that's predicated on do you have a long view of the world? Do you have patience? Are you brave? And do you have capital? Yes, because although I agree with you, things will get better. And this might be an opportune time, you don't know when you're going to be rewarded for that. It might be a year, it might be a decade.
That's right. That's right. AJ, as we look to conclude, here, I want to ask you a few questions that some listeners have requested that I asked you. So the first we're will utilize your current lens as an educator and naturally, you're surrounded currently by MBA students who are contemplating whether or not to take the entrepreneurial plunge immediately after graduation or not. And of course, this is a very personal decision for each individual. And it's impossible to give kind of blanket advice in light of that, but I'm curious for those who might be considering whether or not to take the entrepreneurial plunge. Maybe in their late 20s, early 30s, somewhere there abouts, you know, what are some questions that you think these people ought to be asking of themselves? Or what frameworks might they think through to, or utilize to think through that decision? And knowing what you know, now, if you were given the opportunity to make this decision yourself as a graduating MBA student in your 20s or 30s? How would you think through it?
Yeah, so I'm giving a lecture in a couple hours on this topic. So I'm wrapping up a course today. Yeah, we talked a little bit about this. So I think most MBA students graduate, so plus or minus 30 years old. And I think the question they should be asking themselves is, where they want to be when they're 40 years old, where they want life to look like at 40 years old. That's a reasonable amount of time to think about a decade, ask them to think about where they want to be at 60, 60 is too long. And talking about where you want being a year or two, just doesn't really have relevance, it's hard to move the needle in a year or two. But asking students what they want their existence to look like in a decade. I think it's fair. And if I talked to hundreds of MBA students all the time, and which is great fun. But if you ask MBA students what they want, or what they think they're going to want in a decade, it usually is some of these elements.
They want to build and lead an organization. They want to be a leader. That's why they came to an MBA program. They want the organization's reflect their vision and values. They want to craft something that reflects a culture and philosophy that they care about and believe in. They want flexibility in their schedule and travel. They want to be told when to travel by anybody. They want a path towards financial independence. They want to be creative. They want to learn, they want to be stimulated and challenged. They want to make a positive impact. They want to be entrepreneurs that's nearly universal. And they want it all now. So I always joke and tease MBA students that they're not unique. These are all things we either wanted when we were in their early 30s, or continue to want so. So I think the real question is how you get that?
If that's what you want, how do you get that? How you begin to plant the seeds today, to wind up where you want to be at 40? And if you want some of those things at 40, you can't start at 38, it's too late. You really have to begin to start thinking about playing the seeds today. So what are the best paths to achieve all that? Do you want to be an investment banker? Do you want to be an investor, you want to go to an consulting large corporation, you want to do a start up? Do you want to do search fund? No right answer. I think it's all about what gets you to where you want to be on the most attractive, risk adjusted and lifestyle adjusted path. I'm a huge fan of encouraging people to start younger, for two reasons. One, if you start something when you're 30, and you're successful, you get to compound that success, both financially and non financially, that much longer.
Second, if you start something when you're 30, and it fails, or goes sideways, I'd rather try to recover at 35 than 45. It's easier to pivot in your mid 30s than your mid 40s. Yeah, I can't help but be extraordinarily biased. But I think being a small company CEO is one of the greatest gigs imaginable for a recently graduated MBA student. So you get to lead an organization build something reflects your vision and values, you get a fully integrated with your life, as you see fit or choose. You have a lot of time flexibility. I think it's just a wonderful, wonderful opportunity to build a life, not just a career.
Yep, I would agree. And my own experience, in addition to contemplating all those variables was, you know, at the time, I had very little to lose, you know, factually. I had no spouse, no kids, no mortgage, heck, I didn't own anything. I think the only thing that I owned at the time was a big slug of student debt. So in a very matter of fact, way, I had quite literally nothing to lose. Whereas, you know, now, only 10 years later, I have all of those things. And the prospect of striking out on my own, I think is a lot scarier for me now than it was 10 years ago. So something else that that I considered at the time that I think might be useful for those who might be wrestling with the same decision.
Okay, Steve, we can make one more comment on that, Steve, of course, yeah, most post MBA students are going to work extraordinarily hard at whatever path they choose whether they become a consultant and investor, a banker and entrepreneur. So if we assume you're going to work pretty hard, post MBA, ask yourself a question. Who do you want to work hard for? Do you want to work hard for yourself or hard for someone else? And I'm all for working hard for a mission based organization, like Yale, or a government agency or a not for profit that is trying to accomplish some type of social impact. But you can't convince me that a big consulting firm or a big investment bank is a mission based organization that you should work really hard for. When you could also work very hard for yourself.
I totally agree without that. AJ, as we begin to conclude here, I want to in a way potentially humanize you, for those listening, I know that might sound like kind of a clunky choice of words, but I find that you know, when we look up to people, we look at their professional success. And in your case, you've had great professional success as an entrepreneur and investor and now an educator. So I suspect that it would be easy for anybody to look at you as somebody who has never really failed at nor struggled with anything of consequence in your life. So as a result of that.
I apologize for laughing at you Steve.
Your your laughter might be suggestive of your answer. But you know, in light of that, I'm curious, can you share with us a time in your professional life where you felt deeply insecure or uncertain or you felt like an imposter or you just otherwise struggled with something meaningful as we all tend to do.
Steve, it would be easier for me to try to find times when I didn't feel like I was struggling or an impostor, because I've constantly felt insecure every day. Filled with struggles and sort of impostor syndrome. Yeah, I don't know how you can feel like an imposter as a CEO. Or feel insecure. I mean, maybe I either lack confidence or have too much humility or humbleness. But as a CEO, I was literally making it up as I went, I had no qualifications or experience to be a CEO. So it was literally groping to try to figure out what this was every day. And in some ways, I feel the same as an educator. There's no perfect roadmap for CEO, investor or educator. So every step is uncertain, and terrifying. Yeah, you're just making it up, you read, you learn, you watch, you emulate, you model, off of other people. You mimic and hopefully find a rhythm and cadence that works for you. I think there are tons of better CEOs than I was.
And that's true as an educator as well. So I think as a CEO, I sort of felt like I was trying to earn the right to continue to lead the organization, but filled with fear all the time. And as as the organization grew, I felt like I was constantly challenged, to step up to a new level. So I have a friend that says leading a small businesses and hard leading and medium businesses and hard and leading a big business isn't hard. What's hard is crossing the bridges to evolve the organization. Every time we crossed a bridge, I was filled with fear, and insecurity. I've done tons of stupid things. As a CEO, investor and educator. I'm not sure that's an avoidable, I guess my only solution or answer is to focus as best you can on being the best you can be every single day and learning from your mistakes. And recognizing there are going to be setbacks and failures, big and small all the time, and not comparing yourself to other people.
You have to play your game, and be the best you can be for yourself. And so let that be your compass. So all that being said, Steve, I'm older now. And my scorecard today is much less about being a CEO. And I am really focused on being a good, a good husband, a good father and a good friend. And those are things I've tried to excel at. And it's much less professionally centric. I'd rather fail professionally than personally. But I try to tell my students all the time, don't deify entrepreneurs, they were sitting in your seat, literally. And the only difference between an entrepreneur and someone who is aspiring to be an entrepreneur, is that entrepreneurs took the first step. They took this step on a long, scary, nebulous journey. And that's it. No one is born to be an entrepreneur, no one gets invited to be an entrepreneur. There's no secret handshake, or invitation. You just decide you're going to do it. And then you probably will be filled with doubts and fears and impostor syndrome. I don't know how that's avoided.
Yeah, yeah, my experience would say the same thing. Finally, AJ, my observation is that most prolific writers tend to also be prolific readers. So as a prolific writer yourself, I'm curious. You're prolific in my eyes, and certainly in the eyes of most people listening to this, I suspect. I'm curious, are there a small handful of books that you would put on your own personal Mount Rushmore if you will, of books that you think every CEO of a small to medium sized business ought to read?
Yeah, for sure. I should have sort of a, a group, a handful of books that have been very influential to me, and encourage other aspiring CEOs to read them as well. So first and foremost, is Beyond Entrepreneurship by Jim Collins. So Jim Collins wrote this book before he became a guru. He wrote this book when he was a faculty member at Stanford and it is an awesome handbook playbook for how to build A small business must read. He came out with a new version recently, which is great also, but I would read the original and the new. I love Authentic Leadership by Bill George. So fundamentally, as an entrepreneur and CEO, we're all trying to be the best leader we can be. Bill George is a faculty member at Harvard, used to be the CEO of Medtronic, a great book, great way to think about leadership.
I love Toyota Way, or Execution by Larry Bossy, Toyota Way was written by Jeffrey Laker. And these are just fundamentally execution books, operations, books, and business, to me is all about fulfilling the service promise. And if you don't have some operations, and execution orientation, you're probably missing. My friend and mentor and former investor will Thorndyke read a great book called The Outsiders all about capital allocation. I like the book Delivering Happiness, written by Tony Shea, the late CEO of Zappos all about customer service and building culture. I think New Young CEOs should have a selling orientation, any book by Brian Tracy or Zig Ziglar is worth reading, if you want to learn how to sell and think about selling and most CEOs don't have that skill. And then finally, I would strongly encourage people read Clayton Christensen, late faculty member from Harvard, wrote a book called How will you measure your life?
So what what's your scorecard for this journey? But the these books represent various functional areas of business? And in aggregate, they're a sort of MBA in half a dozen books no one book, I think covers it all. But each one adds a really important dimension to inspiring CEOs philosophy and thought process and I think these are must reads and should be part of any small business CEOs library.
Yeah, so many gems in there. I particularly love the book by Clay Christensen Halle, Measure Your Life, it's one that I've read more than a few times now. AJ, thank you so much for being generous with your time I appreciate you allowing me to tag along on our case note which I thoroughly enjoyed doing and thank you for being gracious and generous with your time with myself and with our listeners today.
Steve, the pleasure is completely mine. So I'm flattered to be included in your podcast and very grateful. And if any of your listeners want to connect with me, check out my bio page at Yale School of Management, my email address is there. I love connecting with entrepreneurs and aspiring entrepreneurs and if I can be helpful, I'm thrilled to do so.
