Episode Transcript:  

  A lot of major money can be made when you can identify valuable companies early on, but that's much easier said than done. We're gonna dig into how to do that and more on today's episode of Ready to Scale. Let's get REady2Scale.

Hey guys, my name is Jeannette Friedrich. I'm the Director of Investor Relations here at Blue Lake Capital, and joining me today is Lee McCabe. Lee is the partner at Claymore Partners, which is a digital first growth advisory firm built for private equity. In addition to that, he's also an advisor at.

Primrose Equity Partners, which specializes in investments in growth oriented companies within the consumer and business service sectors. In addition to that, he's also an advisor at Saltaire Management as well as a board member at Window Nation, which is a residential remodeling company. Now, previously to doing all of this, he was an operating partner at.

A e. A investors, as well as the VP of North America at Alibaba Group, and previous to that, he was the global Head of vertical Strategy. Interestingly enough, at Meta, he has an MBA from the University of Warwick in Massachusetts in film, as well as a degree in television documentary from Sheffield Hallam University.

He's joining us today from New York. Welcome to the show. That's a heck of a resume. 

Thank you. Well, you just made me realize how much I've stacked my LinkedIn profile. May, maybe I should go back and simplify it. 

Well, it's very interesting and it made me extra excited to get to speak with you today. So I appreciate you coming on the show.

So, you know, I have to say, uh, with your educational background in film and television, how and when did you decide to pivot into the world of private markets? It. 

Well, look, it was a long journey. I, I, I started off in film and TV and then jumped into technology a long time ago during the internet boom.

'cause it seemed like a shoot idea. To join an internet startup, and that's really where most of my career was. I joined eBay early in the uk. I worked for Expedia, uh, running Asia Pacific, uh, meta or, or Facebook as it was called back then, uh, for several years working on a few global verticals. And then I ran, uh, Alibaba, north America.

And that really during that position really opened my eyes to private equity. And the grasp that private equity had across most businesses. 'cause one of my jobs at Alibaba was persuading all the major brands in the US to sell on the Chinese platforms like Tmall and more. I was meaning the PE firms behind them.

And like I said, I really opened my eyes to the grasp that P had, but also how not digital. Private equity was. Mm-hmm. And I saw massive opportunity, certainly for value creation to work in pe uh, and drive value through digital, which I've been doing all my career. 

Fascinating, fascinating. Uh, now I have to ask, how, how have you been able to identify essentially these winning companies that you either got involved with early on in your career, or I'm sure you know, later on, went on to acquire.

Yeah. Look, I, I think you look for a number of things. Mo most industries are, are not digitally advanced. Mm-hmm. Somewhat of the course, like D two C, you would expect those guys to be good at digital 'cause that's their bread and butter they sell online. But if you think about the other two major verticals, B2B.

There's really been untouched when it comes to digital. So I think there's a lot of low hanging fruit there. You have big, really big B2B companies who still depend heavily on sales. Mm-hmm. And it's really old fashioned sales team, still going to conferences, cold calling, uh, depending on stake dinners and client relationships, which I'm not saying is not important, but they're missing a, a big, uh, opportunity in digital because business buyers are the same as consumers now.

I'm sure you are the same as everyone else. Whenever I want a product, I go to Amazon or Google. That's where I go first. Well, B2B buys the same, whatever product they're looking for in distribution or manufacturing, they go to Google first. Mm-hmm. So there's a massive market out there, people looking for your product, and if you're not found on Google, you're missing out on a, a lot of business.

So I, I think B2B is a massive opportunity and also consumer services. So home services, but that could expand to any multi-location consumer service, also encapsulating med spas and hydration therapy and things like that. And that is a great space because it's resilient, uh, especially the economy. You know, if, if you have a roof that has a leak, you need to get it fixed.

Mm-hmm. If your hitch wrap breaks down, you need to get it fixed. So those are great industries, but also largely untouched by digital. Uh, so I, I think those are the most interesting spaces and that's where the opportunity is. You know, there's a lot of money ma, a lot of people making money in VC from startups.

But I think there's a new breed of investor now thinking about how I digitize old, boring businesses where there's still a lot of money in these businesses. They are resilient and there's a ton of low hanging fruit. 

Interesting. Now let's, let's kind of start and unpack this from the basics. So when you're talking about from a digital, uh, perspective or, you know, digital assets, what do you mean by digital?

Just so that our listeners can really grasp, you know, kind of the thoughts that you are you're having in your own mind. Well, 

well, let's think about consumer services. So you are typically, if you're in home services, you're selling windows or you're selling flooring, or you're selling hvac, or you're selling roofing.

But if you think about the core of that business, it's lead generation. Mm-hmm. And I think the smart CEOs in that business will tell you, I'm gonna sales a marketing business. I'm in a lead generation business. Now, yes, there's sales and ops, but the making of that business is if they say, look, if I can drive leads at volume efficiently.

ROI, positive I'm gonna have a great business. Mm-hmm. If I, if I do that, I can sell anything. I can sell roofs, I can sell flows, I can sell widgets. So it's really thinking about building that lead generation engine. And, I mean, here's how you do it. One, you think about the tech stack of the business. Mm-hmm.

And most companies, 95% don't have a working tech stack. You know, they'll have a CRM, they'll have ERP. The data that they're probably not connected as well as they should be. Mm-hmm. These are not collecting enough data as well as they should be. Mm-hmm. So you start by building out a strong foundation to make sure you are building a business built on data, which, if I was a CEO, that's the first thing I would want to do, you know, because it, it, it stops gut feel, it gives me all the metrics at hand.

I see daily metrics. It helps me run my business in a much more effective way. You build out the tech stack and that, that gets cheaper every week. Right? You can put a build, a pretty good tech stack off the shelf. Mm-hmm. Lots of products out there. You can integrate them. You want to tag and track everything.

You wanna know what every, where, every phone call has come from. You want to know where every web form has come from. So you fix the tech stack first. That should be the foundational thing you do. And then you look at the consumer facing assets you have, and typically in these businesses, the website. And they're right.

Look, I'm spending money to get people to come to my website. How can I convert 'em to a lead as fast as possible? So that's conversion rate optimization. So you're thinking about how do I get 'em to take an action as quickly as possible once they get to my website? Either make a telephone call or send me their details so I can call them.

Or you start fixing the website and then you start spending on the digital media. And typically most of these companies are founder led. They've been built and these guys have done a great job. They're built being built on TV and radio and traditional media and traditional assets. And that still works, but it shouldn't be 80% of your marketing budget.

Mm-hmm. It should be probably 30% top of funnel. 'cause you still need brand building in there. So you drop in all the digital, the five main digital. Channels, paid search, paid social, C-R-M-C-R-O-S-E-O, and you start spending. But the thing is, that's the easiest part of this. If you've built a tech stack where you can measure everything going on, the digital marketing is just math.

'cause you can measure what you've spent to get every lead, and you should be able to go beyond cost per lead to gross profit per lead to net profit per lead. And if you can see that every day. You can figure out how to grow that business pretty quickly. And the other good news is in these markets, your competition's probably not doing this.

So Australia ahead of the competition pretty quickly. 

Fascinating, fascinating. A fun fact that you know many of the listeners may not even be aware of is that I actually oversee all of our marketing here at Blue Lake as well as investor relations. So you're certainly speaking my language now. I'm curious to hear your thoughts on what I definitely consider to be very, I.

Um, potentially disruptive, which is of course, you know, the emergence of of AI and LLMs and, you know, increasingly Google, I believe, will begin to lose, you know, uh, continue to lose ground as the number one default search engine as many consumers begin to turn to ai, be it chat, GBT. Or Gemini or perplexity, whatever it may be.

And I think that the new wave of the future is really being able to be optimized, um, you know, from a digital standpoint to be scrubbed by LLM and recommended by LLM. And so this is a big game changer and a big shift, uh, I would say the biggest that we've seen from a marketing perspective since really, uh, the, the boom of the, you know, dot com era.

Um, so I'm curious to know what is your opinion about that? 

Well look, I think it's a big shift for the consumer. I'm not sure it's a big shift for businesses right now. I think the fact is, everyone's guessing around this right now. Nobody knows Google and Open Air don't really know. They're building this as, and I've worked with big tech companies.

You kind of build it as you go along and you see what happens and you reiterate on that and at some point you come to a monetization model. And I think that's when it really kicks in when Google figures out how to monetize this. And they tell advertisers, okay, here's how you appear in ai. When, when open edge is the same and they tell you here's how you're gonna appear in ai, then I think it becomes very clear until then.

Sure. It's taking share now. And I, I use open AI probably more than chat GBT probably more than Google. Mm-hmm. Right now. And what I am hearing is, you know, this is just SEO. 

Mm-hmm. 

So companies should continue doing SEO, which. There's an industry built on gaming the system, right? It's incredible. It's an industry built on making your company look more important than it is by backlinks and architecture and content.

And hopefully Google looks at that and says, yes, these guys are more important, the competition and will rank you higher in organic search. But I think the fundamentals of that, and Google released something last week. To validate this, they said, look, it's, it's basically the same thing. If you focus on the fundamentals of SEO and you have a good site that's fast, and your content is great, and your content is relevant, and your consumer reviews are good, then more often than not, you would probably appear in AI search.

So I, I think it's, you know, everyone was talking about SEO's gonna dramatically change. I don't think it is, I still think it's gonna be about having great content and great reviews that these LM LMS look at and go, yes, this company's legit. Uh, this is the company I should surface, uh, in consideration to what the, the query was.

Yeah. Very interesting. Um, it, and you are very, uh, correct. We don't, nobody knows, right. We will see how it all plays out and, and we'll adapt as we do. So, so a along those lines too, I am curious to hear of your experiences, uh, and you know, kind of the insights that you've developed from them, uh, throughout, you know, your really interesting and, and very impressive career.

Uh, my first question for you is, you know, once a company has. Essentially established their capital stack, as you've you've said, and really place that at the fundamental core of how they're going to operate their business. Yeah. Beyond that, where do you typically see the greatest opportunities for businesses to actually improve, or, you know, as you like to talk about, uh, you know, kind of a value add strategy within a business.

Uh, what are those, what are those most common areas that you tend to see? 

Overlooked. I've looked at a lot of sims over time, and there's one commonality in Sims where a company that's got this right and there's a, there's a few pillars and it's usually one page in a sim and the first one will say the tech stack.

We've developed a tech stack and this business is completely run on data. And we've put in a BI infrastructure on top of that. And typically you're feeding everything in a big query. You put a visualization tool on top of that, like Looker or Tableau, and you're giving the CEOA complete insight to that business.

And again, there are not many companies can say that, but that should be foundational. You fix the tech stack and you say, I've got a business run on data. Then you say, and I've got a team that knows how to do this. Usually that looks like you start off when PE buys a company, they typically haven't got a team in place.

It probably starts off with vendors and you say, look, I'm working with a couple of great agencies to begin with, but over time, during that whole period, slowly you want to transition away from the vendors and hire in house. So the second column should say, we've got a very, very experienced in-house team who no data, who no performance marketing, and look, it shows no results.

Then the third one, which is back to the, the media spend, uh, should be the easiest. 'cause if they built, if they've got a great team, this is a company built on data, they should be able to say, look, here's our media spend, our ROAS has been whatever's appropriate in that industry, six for the past year, and we can hold the raw asset this level, which is very profitable for the business.

And look, we carry on scaling it and we're across multiple channels. So typically, you know, when PE buys a company, they're only on a couple of channels. They're either on traditional or in home services. They may be on PPL or aggregators. The good companies spread that risk and their omnichannel marketing.

So they will have a test and learn mentality. And really you'd wanna see, well you, you would wanna see that there were across 10 different channels. They know how to balance that media spend. They know how to balance that media mix. They know digital attribution very well, and you'd wanna see the across a lot, tv, radio, CTV, uh, paid search, paid social, direct mail.

You'd wanna see call center activity in that. You'd wanna see the, the full range. So I think that's what a good company looks like, uh, in these industries. 

Interesting. Yeah, I definitely can agree. Now, it's no secret that there is, you know, trillions of dollars sitting on the sideline. And given that, you know, now you're working in private equity, I'm curious to know, um, you know, how are you advising your clients, uh, what are they interested in deploying that capital into, even though valuations still, you know, re remain relatively high?

Yeah. Um, the reality is, is everybody needs to get off the sidelines at some point. And so where is the appetite for, uh, private equity right now? 

Well, look, I, I think private equity has to change and needs to change because what's made p successful over the past 20 years has really been financial engineering and on the old levers.

Pricing and procurement, and that's been great. And that was really great in the time of low interest rates, that was great in the time of much lower competition in PE 10, 15 years ago. But what's worked in the past 20 years is not gonna work in the next 20 years. In pe you have to be now a lot more focused on value creation, and I think that's a big change for a lot of firms because the culture is.

It's really, we buy a company, it's hands off and we'll help them and see them grow. But now I think you're gonna see a, a, a change where they realize they're gonna have to be a lot more hands-on in value creation and helping these companies from day one, build out the tech stacks, uh, hire the right people, build out the media plans and grow, and really do that from day one rather than, you know, buy a company and sit there for six to 12 months and cross their fingers that the CEO's gonna get it.

Uh, and figure things out. I think you'll see more and more firms come in with a playbook and some of the big tech firms do this like Vista and Toma Bravo, where, where they'll say, look, we're, we're coming in and trust us. We know what we're doing. This is gonna add value, and this is our playbook from day one, and we're gonna help you build a company, build on data.

They're in the minority. And I think you'll see a lot more PE firms do that. And I think the sweet spots are consumer services, uh, is a great one. I, I think if you get firms that come in, come in and say, look, we're going to get into these consumer service industries or home service industries, we're gonna help them from day one, build out everything they need.

I think that leads to way faster value creation. Uh, I think in a lot of these companies, you could probably get a three x, uh, return in three years, not wait around five to seven years. I think if you start this day one, you, there's a lot of opportunity out there to do this faster. 

Very interesting. And then what about the balance between, and of course this is an age old discussion, uh, amongst I'm sure the C-suite for, you know, decades upon decades, but the balance between trying to balance, uh, scaling versus performance and being able to maintain performance along with skill.

How do you, how do you advise people, um, in to do that, which of course is very challenging. 

I think most of these companies don't have a business built on data. That's when it becomes a challenge. If you build a company built on data, I think it becomes much easier to figure out that balance, and it gives you a much bigger competitive advantage.

Having that business built on data. So I, I think you can scale while maintaining performance. And I've seen that done over and over again in companies that have first of all took that first step in saying, yes, I wanna be a, a business run on data, which is incredulous to me. 'cause a lot still don't. They go the step two or step three, it's like back to your AI question.

AI is just noise right now. And of course you've got everybody, all the big consultants, boutique firms, a thousand starters pitching you the future of ai. And AI can do everything and I'm sure it will, but it, it is not there yet. 

Mm-hmm. 

So, and really it's a distraction for a lot of companies. And a bunch of companies ask me about ai and first one I say, well, look guys, you haven't even got a CRM or you've got a CRM.

Nobody's using it. AI is not a magic wand. AI works with data, so you have gotta have some data in your business to begin with. Mm-hmm. Focus on the foundation first. Build a solid foundation built on data that will open a lot more opportunity for you. But don't get distracted with AI yet. Just focus on building a solid.

Architecture. 

And what about, what about your advice when it comes to data overload? Right, so it's, you know, yes, we are capable of capturing so much data, but the art of interpreting it and being able to respond to it. Correctly is really, you know, very challenging and somewhat of a science. And maybe some would even say a little bit of luck, uh, because data can be open to interpretation in so many different ways.

So how do you advise, you know, companies that you acquire and your clients on, how to ensure that you're focusing on the right data points and how to determine which data points are really just noise. 

I think it's down to the architecture of your BI and building out those systems. Because you're right companies, there are some companies who sit, sit on a lot of data, but zero insight.

Mm-hmm. 'cause they've overwhelmed themselves with data. But I think if you build out your bi correctly, then you'll discover there's probably 10 data points, 10 KPIs that drive 80% of my business. Mm-hmm. That's all I'm gonna focus on. And it's also pushing past the noise. Uh, and pushing, pushing past the noise that vendors might give you.

So, for example, uh, digital agencies and I, I, that's another challenge industry, I think 95% of digital agencies are terrible, and here's why. Because they don't really take accountability down to revenue. 

Mm-hmm. 

And they will give you a 200 page deck with vanity metrics. And on the P side, I've had countless meetings and they'll turn up with 10 people on a Zoom and you've got no idea what they do.

And they'll have this long pack telling me about engagement and impressions and clicks. And at the end of the day, I say, guys, I, I don't care. I care about revenue at the end of the day, how much money have you made my business? 

Mm-hmm. 

That's a little challenge that industry, 'cause they hire marketers and really they're business builders.

Companies don't hire an agency for fun to learn about clicks and engagement. They hire an, they hire an agency to make more money. 

Yes, exactly. Mm-hmm. That agency 

should tell them very clearly. They should say, there are a hundred metrics I could talk about. Forget them. They're meaningless. At the end of the day, you give me a million dollars to spend this year on marketing, and at the end of the year I'm gonna return 8 million.

That's really all you need to know. 

Fantastic. Very true. I could not agree more actually. All right. Well, Lee, this has been very insightful and I certainly appreciate you sharing wisdom with us and your perspectives. Uh, I may even have to have you back on the show a year or two years from now, so we can see, uh, if our predictions for AI have how they have played out, it'll be interesting.

But before we let you go, I would like to ask you what we call the lightning round questions, which are just five questions that I ask all of the guests that come on the show. So are you ready? 

Go for it. 

All right, so when you're not, you know, eviscerating agencies and getting to analyze the operations of multiple companies, what do you actually do for fun?

Uh, I try to play golf very badly. 

Yes, I think that we all do that. Uhhuh. All right. And what about something interesting? Is there something interesting about you that most people don't know? 

Uh. I dunno if it's interesting. I, I love movies. Uh, I have a master's in, in filmmaking. Mm-hmm. Which hasn't, which hasn't been a lot of use in my career so far.

Yes. Very interesting indeed. Alright, well what about as far as a podcast or a book that, what would you recommend listeners check out if they want to, you know, understand how to create value in their businesses more, or maybe how to structure their tech stack better, or improve their operations or even improve their own leadership?

Uh, well look in terms of text, the thing is in tech. Look, anyone who's published a technology book, it's probably outdated a week. Yeah, 

very true. 

A week after it was published. So technology books is known. I can really recommend. 

What about podcast? 

Uh, I like pivot, uh, and I like all in I Yes. Uhhuh podcast.

I listen to the most in terms of books. Look, I, I, I, I read a lot of books. They're mainly biographies. Uh, at the moment I'm reading, uh, the Predator's Ball, which anyone in private equity should read about Milken. 'cause that was really the birth of private equity. Uh, I'm halfway through that and think it's a great book.

And Barbarians at the Gate is a, is just a great book about private equity. 

Fascinating. I'll have to check that out. All right. And then a bit of a serious question, but important nonetheless. You know, we, yes, we all wanna make money. We wanna have some great returns, but at the end of the day, the point of all of this is that we wanna be able to live extraordinary lives.

You wanna be able to build extraordinary lives. Yeah. Uh, what is your advice to someone that's focused on doing that? 

Look, I, I would say take your time. Uh, take actions every day. I think for me, I kind of have a, a, a long-term vision and hope I get there faster. The important thing for me is that vision will probably take different trajectories on the way.

You can never plan. Like people have five year plans and I could never do that because opportunities come from places, challenges come from places. So I kind of stumble forward every day. Mm-hmm. The important thing is I'm going forward, I'm stumbling, and I'm taking little actions every day. That could be conversations I'm having or new people I'm meeting.

Uh, it could be things I'm doing with my business every day, but I, I, I would say make sure you're doing that. Do a couple little things every day that compounds by end of the year, you've done a lot and you look back and say, gee, I've made a big difference this year. So I would say that would be my advice.

Very good. Very good. And then last but not leastly, if people would like to get in touch with you, how can they find you? 

Sure. Look, you can find me on LinkedIn. I'm very visible on there. 

All right, perfect. We'll be sure to include, uh, that information in those details in the show notes. So Lee, thank you very much for coming on the show.

It was fun, it was insightful, and uh, I look forward to doing it again. 

Thanks, Janette. Great talking to you. 

And for those of you that invested your time with us today, thank you. Make sure to leave us some comments. Let us know what else you'd like us to dig into next. And in the meantime, be bold, be extraordinary, and keep moving forward.

Ready to Scale is brought to you by Blue Lake Capital, where we hunt down the best multi-family investment opportunities that we can find and invite investors to join in with us. We target class B value, add multi-family properties across the Sunbelt. Our CEO Ellie Perlman, invest a substantial amount of capital into every deal.

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