Episode of My First Million with Sam Parr and Shaan Puri.
Transcript
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Kind: captions Language: en guys like a satoshi nakamoto of boring businesses so Shawn puts us on here as Billy of the week mark Leonard you wanna we sometimes do this billionaire of the week so the Billy of the week is mark Leonard constellation software so I had heard about this for a few people because they do something that you know we had Andrew Wilkinson on here and he buys internet businesses and sort of has this conglomerate of small internet business that he’s collected that are now you know let’s call it a hundred million dollars worth or maybe a little more a little less and that’s a fantastic success so this guy mark Leonard did that like he’s Andrews daddy you know like he his company’s worth thirty 1 billion dollars what they do is they buy software companies and they roll them up sort of and they’re they try to be a perpetual owner so they’re not like they’re not private equity where they’re doing a leveraged buyout and trying to flip you know kind of skin it and flip it or whatever they tried to just own the thing for a long period of time and had the cash flows and so what I like about this guy what I thought was cool was this guy’s like a Satoshi Nakamoto of boring businesses so he nobody knows about this guy you can’t find a photo of them wait what’s that reference the Bitcoin guy yeah you just don’t know a lot about I guess so so this guy you can’t find photos of them he doesn’t do public appearances he doesn’t really talk he writes his annual letter and you know but so I was reading like kind of the definitive thing about him because I wanted to learn and it’s like all we know is this guy’s born in 1956 maybe in South Africa maybe in England I was like what the we don’t even know where this guy’s from and you know he’s wrote on his bio he’s like he was a VC and but before that he said I was a banker evaluator a Mason a gravedigger a dog handler a bouncer a sapper and wind energy researcher I particularly enjoyed the bouncing but an early retirement was necessary so I loved it that I don’t know anything about this guy but what we came love and I think half those are like a joke but here’s their business so they buy in the early on they buy they bought businesses that were you know two to four million dollar acquisition target so very small acquisition which is which is on paper you would say that’s asinine my own yeah tough change you know okay you know a small ball but small balls turn into sort of big league returns and so you know this data is out of date now because when the article I was reading was like hey this guy has you know done really well they did last year they had 1.2 billion in sales 20% margins they’re doing 10 to 20 acquisitions a year and at that time the market camp was 5 billion I looked at it while I was reading the article it’s now 31 billion and so if you’re just invested my guys it they have a thirty 1 billion dollar valuation and only one point to and that was the old one when they were at five billion market cap now they’re at thirty 1 billion a market so you know if the ratio sort of held held the same it’d be whatever six seven billion in sales we can see we can see what it is now but I love that this guy’s mysterious I love dude it’s probably it’s only it’s three billion their sales were only three billion dollars a lot of money but that’s not a got a good little I wonder I wonder why it’s going on such the run up because you can see the stock chart it’s like you know it’s going up like crazy and then they can use that money for for acquisitions and this guy he writes these annual letters that are actually pretty interesting so like if you’re like me you I like to read Bezos his annual letter I like to read Warren Buffett’s annual letters this guy is a new one I’m adding to the sort of arsenal of annual letters and he has a lots of really interesting sort of views on business and none of which are like totally groundbreaking but he does something that I think most people fail to do which is the same thing Warren Buffett does which is take a very simple principle then everybody would nod their head and agree with and then like actually stick to it and do it for like 40 years and that’s like a winning formula most people you know nod their head and then go do some other and they get their lack of discipline and lack of focus and so I also like you know trying to read a little bit more about the company and you know they have sort of a focus on what they call vertical software so they’ll go for like within one vertical hour sorry they looked at this and hey some companies are horizontal like a slack every company can use slack as a messaging service and slack will be a multi-billion dollar company but what about all these vertical things that are like better software specifically tailored software for uh you know what if you’re a golf club you need to manage bookings T times memberships and whatever else every golf club you will pretty much use whatever the bests off they’ll pay for it every month reliably and they’ll never churn so they’ll buy like that clubhouse software they’ll buy healthcare software public transit software law software and that’s been their focus I don’t know if that’s a change over time but when I was reading about them they try to consolidate vertical market software which I thought was a pretty interesting approach what do you think of this guy I love it I’m reading about what you have here so I love doing these things and I love that but what he’s doing and I actually I’m gonna bring up a different point and I don’t want to address it yeah but I want to ask your opinion of it in a second but more so what I’m interested in is and I I don’t want to refer to like things I tweeted that sounds super lame but I was tweeting earlier about how I hired an operator so basically Adam Ryan works at the company and he kind of handles a lot of the operational stuff and I work sometimes down in the weeds sometimes higher vision stuff and it’s hard finding someone who’s competent to run a business and so if this if this guy if he might have I just say I many companies he has it could be like 200 right so I don’t know if they’re not or if they keep the existing management or if they replace them I’m not I’m not one percent sure what they do I’m sure there’s some some mix and blend there one thing I saw that was interesting was so they like Berkshire Hathaway the execs of the companies do not get share options as their compensation which basically you know incentivizes you just boost the share prices as you as much as you can which is often somewhat short-term so instead they take you know 75% of their after-tax bonus and they can buy shares on the open market and then those shares are held in escrow for four years so if the shares if the stock is overvalued because they are sort of temporarily pumping you know enthusiasm energy or doing buybacks or whatever they’re buying overvalued stock and so I don’t know if this is perfect because maybe the other thing happens where they actually you know when they’re about to buy they sort of you know bad news dips the state share price temporarily they could buy it on the discount so I’m not sure if any incentive system is perfect but I thought it was interesting that they’ve thought through how should we compensate everybody and and not sort of follow the traditional playbook so I want to dig in more I’ve only just scratched the surface of this guy I think there’s a lot to learn here but I wanted to bring it up because I think it’s very interesting and I like that he’s a sort of mysterious character I think that adds to it [Music]