Graham Weaver - Building Alpine - [Invest Like the Best, EP.425]

My guest today is Graham Weaver. Graham is the founder of Alpine Investors, a large private equity firm targeting an interesting market inefficiency. Alpine focuses on the thousands of $20 million or so revenue businesses whose baby boomer owners want to retire but lack succession plans.

Alpine buys companies and installs 28-year-old military veterans and top MBA graduates as CEOs, leveraging 25 years of intellectual property on how young executives can successfully run established businesses. Alpine's CEO training program is now the most applied-for job at Harvard, Stanford, and Kellogg Business School. In this conversation, we discuss the past, present, and future of their unique approach.

I think the place to begin would be to just understand what you are trying to build and why.

1. Alpine's Three North Stars

Great question. We have 3 north stars at Alpine. One is to be the number-one-performing private equity fund in the world, as measured by MOIC. Our specific goal is 5x on every fund. Number two is we want to be the best place to work for top talent, so we want it to be a place where the very best people can come and have just an amazing career. And three is we want to use this platform as a force for good. Really, everything that we do fits under one of those 3, and usually all 3.

When you think about 5x MOIC, why do you care about that? Why that number? Where did that come from?

We went through a really tough period in the recession. We didn't have a fund for a number of years, so we had 3 years to work on our business and really do some deep thinking. I hired some executive coaches. We can talk more about that.

Part of that was the questions you're asking: "Why are you doing this? What's your goal? What are you waking up every day to do?" I think we wanted to create something that was going to get us just jumping out of bed in the morning. And so we said, "Hey, we want to be the number-one-performing fund of all time."

So we looked at all the data that was public on some of the pension fund websites and information, and we said, "Hey, if we could deliver 3x net consistently on every fund, that would put us in the conversation." We've been outperforming that, so we increased our goal a little bit.

What's underneath it? You're probably a person who could build a whole variety of different kinds of businesses. Why is high-performing private equity one that's interesting to you?

I never knew what private equity was until I graduated from college, so I didn't have this background. This was never a goal of mine when I started, but when I got recruited out of college to go into private equity, I had a real burning interest in business. Once I learned what private equity was, I thought, "Wow, this is the best expression of building businesses." We get to do it over and over and over across a bunch of businesses.

In terms of why I try to be the best, I guess ever since I was pretty young, I just never thought about doing anything other than trying to be the best in the world at it. There's a great quote by Daniel Burnham who says, "Make no little plans, for they have no power to stir one's blood."

What's the earliest that you can remember having that sensation or feeling?

2. The Lawn Mowing Curriculum

I was 12 years old. My parents went through a really bitter, ugly divorce. We changed schools to a new school, so I didn't really have friends, and the ground beneath me was pretty unsettled.

I grew up in a small town in Ohio, in the Rust Belt outside of Toledo, and I mowed lawns. I mowed lawns about 6 hours a weekend to make money. That was the best-paying job. I had a Sony Walkman, and I started to listen to books on tape.

For whatever reason, our library had this self-help section, so I had books like Think and Grow Rich by Napoleon Hill, Lead the Field by Earl Nightingale, and The Universal Laws of Success and Achievement by Brian Tracy. There were only 3 or 4 of them. For the next X years, I would just walk back and forth for 6 hours every weekend.

Brainwash yourself.

Literally brainwash myself, walking back and forth in the hot Ohio sun. And these authors, thank God, had incredible content that I really needed at that age. I was this young, impressionable kid who was having a lot of trouble in my life, and I had these frameworks to hang my life on, for lack of a better word.

There were really 3 big ones that came from that. One was, "Hey, you don't get to be a victim. Yes, you have things that have happened to you, and they're not necessarily your fault, but you walking around blaming people and thinking, 'Woe is me,' that's not going to serve anyone. You have to take control of your life."

That sounds probably really obvious to you and me right now, but back then, that was a new concept for me: grabbing control of your life. They were also huge on deciding what you want and writing down your goals, and I got really into that. I would write my goals down 3 or 4 times a day, literally all through high school.

And then the third one was, "You have to make some choices. You can have any goal you want, but you can't have 20. So you pick the 1 or 2 that you're really excited about, and then you have to draw a bright line and give yourself permission not to pursue goals 3 through 30." Those are really the 3 concepts. I'm summarizing thousands of hours of lawn mowing.

So then, to answer your question about when I first started feeling this way, I started applying this to really small things, like getting an A on a test or running a faster mile. It just worked exactly like all the authors said. I kept pushing the boundaries of what I thought I could do, and I never really ran into—and I still probably have yet to run into—boundaries that you couldn't blow through.

So you said it worked. What specifically worked? Just writing it down and working hard, or something more tactical?

The very, very first major thing that I ever tried to do was right after the summer when I started listening to these tapes, and it was, to this day, the hardest thing I ever did.

I wrestled. I was on the varsity team my sophomore year, and I wrestled at 155. I had a starting position. The captain dropped down to my weight class. I looked up and down the lineup, and the only guy I could beat was at 125.

I'm 6 feet tall, and I dropped 30 pounds and wrestled at 125. I was eating 900 calories a day. I was going on runs in the morning. It was 9 degrees outside, and I just powered through that.

All of a sudden, I was like, "Wow, if I could do that..." At least with the other goals I set, I was able to eat. So I got to feel this incredible power of being able to really change the trajectory of your life by just deciding you wanted to. It was really cool.

I just got done reading the stories of Dan Gable. Is that the guy's name?

Yeah, yeah.

The great wrestler.

He's incredible.

What is it about wrestling? It seems—we'll talk about rowing, too, which I know you did a lot of as well—that those sports have a lot to teach, maybe even more so than other sports. What is it about the extreme nature of those sports?

Dan Gable's one of my favorites. He has a great quote. He says, "Once you've wrestled, everything in life is easy." I think that's dead on. It's dead on.

I think that's it, yeah.

I think that wrestling is just the most primal sport. In our high school, wrestling was a big sport in the Midwest, in Ohio. They would turn a mat light on, and the gym would be packed. People are yelling and screaming. The mat light is on, the lights are off in the whole arena, and it's just you and one other person, and you're trying to defeat the other person.

It's crazy. It's a pretty intense sport. And then the weight loss and the training and everything—it was the hardest thing I ever did. I think it's something about just the primal nature of that.

Can you say maybe one degree more about this idea that you can just choose? It sounds so simple, but I've experienced that same thing, and every time I do it, I'm amazed at how powerful it can be.

But I want to understand the contours of it—

Yeah.

—from your perspective. What does that mean? What does it feel like to choose? What did you choose? What was the process? Whatever else you can say about this.

3. Escaping The Default Life

The first thing I'd say is that if you watch most people, they're kind of asleep or unconscious. I am, too, sometimes. Imagine you get up, whatever your routine is. You brush your teeth. You get ready for work. You commute to work. You have a tough commute. You get to work. You have a couple of meetings, some Zoom calls. Then you eat. Then you return some emails. You have a few more meetings. You get home, return some emails, watch some Netflix, and go to bed. There's all this busyness.

You're just kind of doing today what you did yesterday. You're doing tomorrow what you did today, and you're stringing that together and calling it a life. So there's this real level of unconsciousness about it. The first part is to step back and just make space, and I do this with an executive coach. You can do this with a journal. You can do it with a friend. But just step back and make space, and then ask really powerful questions in that time.

My favorite question of all time is, “What would you do if you knew you wouldn't fail?” I'll actually build it up a little bit better. On one of the audio tapes I heard, this guy said, “Okay, imagine there's this genie that comes out of this magic lamp, and he says to you, ‘Hey, Patrick, I've only been in here 1,000 years, so I can't give you the traditional 3 wishes. But what I can give you is that whatever you throw yourself into with your career, your life, your vocation, it's going to work out amazingly well. And you'll have ups and downs. It'll take a long time, but I'll be here to bless you with that. What would you wish for?’”

And then the punchline is, “Go do that thing.” That's your life path. That's what your soul really wants to do, and that's what you would do if you got out of your head and got out of your fear of failure. So that's one great question. Another one would be, if you didn't have to worry about the how—how you're going to do it. The coaching quote is, “The how is the killer of all great dreams.”

Make space. Ask these really provocative questions. It's not like you're going to answer them right away, but you might, 2 days later in the shower, answer that question, and then you'll really know. You're going to feel it when you really know it. And then it's really, really tough to go do it. It takes a lot of courage, and sometimes the path isn't clear. But I think that's where the real fun of life is: really trying to get in touch with what your answer is to some of those questions.

So maybe pick another thing in your high school or early years, something you wanted, and then the steps you went on—

Yeah.

—to make sure these tapes—

Sure, yeah.

Just picture you walking around with this lawn mower, like—

Yeah. Well, so I—

—“I want to make sure I drop it on the floor.”

4. The Princeton Rowing Comeback

I go to college. Because I thankfully turned on to these tapes early, I did really well in high school, and I got to go to Princeton. I was, I think, the first kid in my school to ever even apply there, let alone go. So I go to Princeton, and then all of a sudden I literally felt like Forrest Gump in that scene where his braces come off and he's running.

Yeah, yeah.

Because I didn't have to be at my mom's house from this time, and my dad's here, and high school at this time, and all of that. I had all this space. So I literally was like, “Oh, wow, now I can really let go with these goals.”

I set 3 goals going into Princeton. I was going to be the valedictorian. I was going to be the number 1 rower in the United States, even though I'd never rowed before. I didn't even know that the boats went backward. And third, I was going to start a business to pay for school. To skip to the end of the story, I didn't actually achieve any of those goals, but I came really close on all 3.

Rowing is probably the simplest one to explain. I show up. I'm a novice. I'm 130 pounds from wrestling. I got my ass kicked because there were kids who'd rowed for 6 years, and they knew how it worked. So I got cut my freshman year, but they didn't cut anyone. Instead, they said, “Okay, if you don't make a boat, you're going to be a land warrior, and you can use the rowing machines.”

I still remember that. When they posted the boats and my name wasn't on there, I did the math and I said, “Okay, women's, heavyweight, lightweight. I was a lightweight.” I did the math on how many people got cut and how many rowing machines there were. So I was like, “Okay, I have to get here really early because all these people are going to be using the rowing machines.”

I showed up the next morning. I walked all the way back. I talked myself into getting there at 5:30 in the morning. You know the punchline: I get there, and there's nobody there.

No one there.

There was no one there at 5:30, 6, or 7. No one ever showed up because “land warrior” was a euphemism for “you just got cut.”

You suck.

Yeah. You got cut. I stayed and rowed, and I met this guy who was training for the national team, Mike Tatty. He and I were the only 2 guys in the morning at the Princeton boathouse, and he ignored me. He's a legend. He coached the U.S. Olympic team. He went on to coach the U.S. Olympic team to a gold medal. I didn't know any of this at the time. I just saw this tall, skinny guy hammering an erg.

Eventually, he kind of took me under his wing a little bit. After I showed up at 5:30 in the morning for 3 weeks in a row—

Mm.

—he was like, “Okay, this kid really means it. He really is going to do this.” And he taught me a little bit.

So, anyway, progress forward: I got better, a little bit better, my freshman year, and better my sophomore year. By my junior year, I had one of the top times, maybe the top time, on the 2K rowing machine on the team. Then by senior year, I was captain. We won nationals.

So it was just everything coming together. It was a really linear expression of, if I put in a certain number of hours, this is what Mike Tatty said. He said, “Here's the formula. It's really simple. Sit on this machine and row as long as you can, slightly below your aerobic threshold. Basically, you'll hit your goals.” And I was like, “That's it?” He's like, “Yeah, that's it.” He was very simple. I just did that, and it worked. It just required a lot of hours.

Is there anything else between ages 12 and 22 that, without which, you would be a wildly different person?

I'll just say a couple of things about my dad real quick. My dad started a veterinary practice about the time I was born. He and his father started this practice called Weaver Animal Hospital in our hometown. My grandfather was a veterinarian, too. They had a falling out of some kind. I don't know what happened. I never heard the whole story, but my dad stormed out.

He had a mortgage and 3 kids, and we had no money. The only money we had coming in was that he would take emergency calls at 2:00 in the morning. His little beeper would go off, and he would get up, drive to the office, fix a dog's leg, and go back. He did that for 25 years.

I think the bad news was that he was really never around. We didn't have a great, close relationship when I was growing up. But I think that ended up having a big impression on me because, if you were to ask him about his practice, he ended up building this really, really successful veterinary practice, but he just did it one emergency call at a time over a long period of time. I think that really stuck with me.

I don't think I realized that at the time, but that was a lot of what Alpine looks like. He would say it took way longer than he thought, and he built something much bigger than he thought. I would say almost the exact same thing about my business. I never really put that together until many, many years later—that I was watching that as a kid.

What was the story between graduation and starting to tell the story that leads to Alpine? Why did you get interested in this field? What was it about investing or business that called you?

5. Wall Street Disappointment

When I graduated from college, I had never once thought about my job. I never had an internship because I was always rowing during the summers. I got recruited by Morgan Stanley, which had an in-house investment bank.

Mm-hmm.

To my knowledge, they were the only ones that recruited in 1994 directly into private equity. The guy who recruited me was this guy David Ramsey, and he kind of explained to me what private equity was. The way he described it, he couldn't see any reason to do anything else ever. He thought it was the greatest business, and he had a pretty compelling case.

So I was really just fascinated by how you could buy these companies and build them and be a part of so many businesses. I thought it was the coolest job I'd ever heard of. I couldn't believe that you got a blank piece of paper from investors to go buy things. So I was fascinated.

However, I came out of college and I was just ready to run through walls, Patrick. I had just had this incredible experience in college, and I showed up and got this job on Wall Street. I'd seen the movies and everything, and I thought it was going to be this incredible experience.

I learned how to build a financial model in the first 3 weeks, and then I did that for 2 years. That was all I did. That's all anyone at undergrad ever did. And we did it, by the way, 80 to 100 hours a week. The culture wasn't great.

I just remember thinking, “Is this what work is like? Is this what you do when you graduate? I've been in school 16 years, and this is my big moment?” And it was incredibly disappointing.

And that would end up being a really foundational part of Alpine, just that feeling of, “Wow, I have so much more to give to this place. Why am I only using 3% of my capacity?”

My friend Jeremy Giffon has this really funny idea for 2 models of success that he dubs the Peter Thiel model and the Arnold Schwarzenegger model. The Peter Thiel model is a lot of the public and market investors I know who sit around and think, then make infrequent decisions on the back of a special insight that leads to great returns. And then the Schwarzenegger model is just brute force.

Yeah.

More reps, more push. I have an early guess as to which camp you might fall into, but maybe react to that. Do you think of private equity as the ultimate open tapestry for performance almost for its own sake? The ability to push and drive outcomes versus having insights that lead to good returns, which might be the other paradigm?

I think you can have investors in private equity that have the Peter Thiel model. They make a few large investments and sit around and think, and it looks like that. That’s not really us. That’s not how we’re wired.

The way I like to think about it is that I like to think about the world in endogenous winnable games, and then ones that might be a little more exogenous and/or unwinnable or hard to win. I don’t want to go full-on brute force in a non-winnable game.

For example, in private equity, it wasn’t like this in 1984, but today, if you have a big business, you’re going to hire an investment bank, get the game, and show it to 55 private equity funds. For me to just go brute force in that red ocean—as there’s a great book called Blue Ocean Strategy, so they would call that a red ocean—I don’t think going brute force in that is a good exercise.

If I have 100 units of energy, I want to use 25 of those units to try to find a winnable game to play, and then the other 75 would be the brute-force endogenous path.

So maybe, using that—I like that framework—

Yeah.

If we think about today’s private equity landscape, where there are many funds that command huge sums of assets, my understanding is—and it’s not the style of investing I’m in—but my understanding is that if there’s a good, high-quality asset, it’s an auction process in many cases.

It’s a bidding war, and there are lots of great, highly professional, super-talented investors and firms that can buy a private business. Maybe describe the state of the market and what the characteristics might be of winnable games within that broader market.

6. Finding Winnable Games

I think there are 5,500 private equity funds. At any given high-quality business like you’re describing, particularly at the extreme high-quality end—take an ERP subscription software business. It doesn’t get any higher quality than that. There are a lot of people who can buy that. There are a lot of people who can see what it’s worth, do some calculation, and come up with a value for it.

By the way, it doesn’t necessarily go to the smartest person. It goes to the highest bidder. That doesn’t mean that they were necessarily the smartest person. It’s just a really tough game.

Conversely, the winnable game that we’re engaged in—and we learned this over the first 10 years of Alpine, when we were really hands-on with these businesses—is going and finding a $20 million-revenue plumbing company in Ball, Louisiana, where the owner is retiring and needs a new management team.

There are just not a lot of people who want to sign up for that game. It’s a lot of work. We’re putting in a new CEO at a small company. We’re putting in new IT systems. We have a whole new playbook we’re putting in. Godspeed if you want to play that game, particularly at scale.

That’s an endogenous winnable game where it’s just a ton of work, but then the investment decision ends up being pretty easy. When someone brings a deal to you and says, “Okay, here’s a business. You’re paying 8 times EBITDA. With the playbook that you have, you can blend that down to 5 times EBITDA. You can borrow at 5.5, and your platform’s going to trade at 18.” The investment committee decision there is not the hard part.

Right. Right.

The hard part is getting the CEO in place, the IT systems, and all that.

So maybe walk us through the earliest days, right before and right after the start of Alpine. What was going on? What was your goal in your journal? Give us this window into that period of time.

7. Buying Companies From A Dorm Room

I was on Wall Street, and then I got into Stanford Business School. I deferred for a year. I eventually went. I showed up, and once again, I had that feeling of being unshackled, where someone wasn’t telling me where to be and when while I was at business school.

So I decided I was going to start buying companies out of my dorm room. That was really the beginning. My dad always wanted to name his company something that started with an A because of the Yellow Pages: start with an A and come before the word American. Alpine was a great name, and I lived on Alpine Road.

Funny story about that: one time I sent a letter to a banker, and it had my address on it. He said, “Oh, wow, they named the street after you.”

That’s funny.

Meanwhile, I was one guy with no money. We didn’t have class on Wednesdays at Stanford, so I’d take a red-eye flight Tuesday night, visit these little manufacturing businesses in the Midwest, go to bank meetings and try to get them financed, then fly back and try to take my exams and stuff.

That was how I spent the 2 years at Stanford.

Keep the story going.

Yeah.

So you come out of that. Did you buy any while you were there?

Yeah, I bought a total of 3 companies. I was 25, so I had no idea what I was doing.

Yeah.

And that’s not false humility.

Where did you get the money to buy them?

These were businesses with around $500,000 of EBITDA that I bought for $2 million. The seller would finance $1 million. They had some equipment. So I got the equity down to around $100,000, which I also didn’t have.

Part of it was that I had some people on Wall Street who put in $10,000 here, $5,000 there. At this time, Capital One was just starting. You’d get an envelope in your mailbox that said, “Write yourself a check for $25,000 and pay no interest for 2 years.” I did that. I was like, “Okay, great.”

That was where I contributed my equity to those deals. Later on, thank God, you’d get another one that said, “Roll your balance and pay no interest for another 12 months.” So I was playing a very high-wire act, which I do not recommend.

Capital One.

Yeah.

Did those 3 businesses work?

No, they didn’t. Those 3 collectively ended up at 1×. I had one deal I did right after business school in the same industry that worked out really well and, thankfully, helped fund a bunch of the early part of Alpine.

Mm.

But the first 3 were—I did literally everything wrong.

So what did you most learn from those 3 and then the one that worked right after?

They were in the label-printing business, which was a good business because a label might cost a penny on a $5 bottle of shampoo, but it contains all the product information. No purchasing manager is going to be a hero by saving a fraction of a penny on the label. They had very good, predictable revenue.

I missed 2 things. One is that you were really underwriting the underlying customers. You had to go a level deeper and look at how recession affected them. So the companies in the Midwest, when a recession hit in 2001, their clients got destroyed. The revenue went down significantly. That was the first thing I missed.

The second thing was that I didn’t understand how important management was, and this would become a huge part of our philosophy later on. The founder would retire, and then the number-two person was there. I just backed them, and they were absolutely not backable.

I wildly underappreciated how much the management team mattered, and I made that mistake 3 times before realizing I had made it. So in the next label business, the underlying customer—the biggest customer we had was Trader Joe’s, which was just the best customer ever in the early 2000s.

Yeah.

They grew 15% a year, every year. They paid in 5 days. They allowed their vendors to have great margins. So it was a home-run deal. I owned it for 22 years, and it paid—

Oh, wow.

Yeah. I just sold it a couple of years ago, actually. It paid dividends along the way, thank God.

So now you’ve got a successful deal under your belt coming out of business school. It sounds like, obviously, at this point you would’ve said, “This is the thing I want to do.” Is that right, or was there still searching to be done?

It was 100% what I wanted to do, and I still chickened out. If you’d asked me at any time during those 2 years, I would’ve said, “I know exactly what I want to do with my life.”

As graduation started approaching and all my classmates were getting jobs in private equity, I was getting a little FOMO, and I was also scared. I took an interview, which turned into a job at an institutional private equity fund. I knew in my soul it was not what I wanted to do, and I showed up. A little bit of me died the day I started.

And I did that for a little bit of time, and then actually had a close friend of mine, around that time and around my age, pass away. I took a little time off, and I realized, “Hey, when am I gonna do the thing I really wanna do, if not now?” So I walked in a couple days later and quit. I didn’t have anything to land on. I didn’t have a fund, I didn’t have investors, I didn’t have anything.

Hmm.

But I was like, “I gotta give this a shot.”

It seems like so many of these stories, when they go this way, they start small and modest: SPVs or single deals—

Yeah.

—or whatever. So is that how yours was chained—

Yeah.

—together before Alpine—

Totally, yeah.

—the big funds that we know?

A bunch of single SPVs to buy one company, exactly.

What advice would you give people that hear that and they’re like, “Yep, that’s what I wanna do. I wanna find a company, put together money, make it happen, start to build a track record”?

I’d say a few things. First, I’d say pick one industry. Don’t go do 3 deals in 3 different industries, because you’re not really gonna know that much. In my case, that fourth deal was successful ’cause I had done 3 and learned what really—

Mattered.

What really mattered. So I’d say try to stay in the same industry if you can. Pick a good industry. Secondly, I’d say pay yourself. Sounds really obvious, but I didn’t do that. That was part of the pressure I had about why I didn’t go do that full time. So carve out enough that you can live reasonably comfortably, even if that cuts into your total upside or something. Duration is more important over the long period of time.

I made so many mistakes, Patrick, everything you could imagine. But I also got in the game when I was 25.

Hmm.

So I didn’t sit around thinking about it, overthinking it. I got in the arena. That would be my third piece of advice—

Hmm.

—go get in the arena.

What did you learn about raising money for deals when you really didn’t have a track record and you were 25?

Okay. I started off trying to sell my track record, which was a catastrophe, because what I didn’t realize is these people are seeing phenomenal track records.

Yeah, yeah.

And then they’re comparing me to that. I was on the plane in the Denver airport going to San Francisco to visit what would turn out to be my largest investor, and I read this little book. I don’t remember anything else this book said. It was called The Little Book of Selling. But it had this line that said, “People buy the salesperson, not the product.”

On the plane ride from Denver to San Francisco, I completely changed my presentation and was like, “Okay. I’m gonna sell myself as someone that will figure this out and is gonna be trustworthy, reliable, and kill myself to make this work.” And that pitch landed a lot better than, “Hey, here’s my three label deals.”

Yeah, yeah.

I just read that book at the right time.

So then we fast-forward to the chapter where now you have Alpine.

Yeah.

You have a private equity firm. You’re starting to raise bigger and bigger funds. What are the foundational core beliefs of the business—how it runs—that are most distinctive from other firms of its type, would you say?

8. Talent Creates The Alpha

There’s a number of them. The first one I would say is, what’s your objective function? Our objective function is MOIC. We have a specific number we put on that. We’re trying to do 5X on a fund.

Have you done that historically?

We’ve done 5X on our last 4 funds. We have it marked at 5X in our last 3, and the fourth one is well on its way, yeah. So we have an objective function that is specifically net MOIC, and I think cascading from that is how long you wanna hold businesses, how you’re gonna invest in them, how you’re gonna build them.

What’s your objective function? I think it matters a lot. What’s your goalpost? A lot of people use IRR, maybe, or they’re trying to raise their next fund or something like that, and I think it can muddy up—are you selling your best companies quickly so you can raise the next fund and have higher IRRs, or what are you doing? I think the objective function matters.

Another belief that we have is the way that we’re really gonna create alpha is through talent. That’s probably the foundation of Alpine. We think that incredible leaders, CEOs, and management teams are gonna create amazing results. We’ll look at B+ industries that other people really don’t look at as much, but we’ve paired that with an A+ team. We’ve found that to be just a great combination. We won’t overpay for the A+ industry. We’ll go down a little bit, and I can talk more about that.

That’s number 2. And then number 3 would be I’m a huge fan of thinking and using your imagination. We schedule time outside of the office. In the Great Recession, we were spending a full day outside the office just really thinking, mapping out what we wanna build and what capabilities we wanna have, using time to work on the business.

The expression I use is, we’re planting seeds of oak trees that will yield us shade 5 years from now. If you can do that consistently, you can always create moats effectively. But it takes a lot of discipline, in the middle of all the crazy stuff you’re working on, to actually take time out to work on something that’s important but not urgent. That’s the imagination and innovation.

When I do my asking around, I’m always curious: if you condense everything down to asking someone what Alpine is known for—

Mm-hmm.

—what is the thing? You only get one thing.

Yeah.

What you hear a lot is young talent—

Mm-hmm.

—development and relying on 20-something CEOs to run sometimes very large companies, and the search and development process of that young talent, those young CEOs. So maybe you can explain: when did you plant that acorn seed?

Yeah.

Why? How has it grown? We could spend as much time as we want—

Yeah.

—on this thing, ’cause it does seem to be—

Yeah, that is the core.

—the elemental part of the sauce.

Yeah, that’s right, Patrick. That is core. The way it came about was, in the early days, we were doing all kinds of things. A number of businesses weren’t going well, so one of us would go out and run the company.

Mm.

Dan Sander, one of my partners today, moved to Detroit for about a year. Will Adams moved to Maine for 2 years to run this horrible business. A guy named Mike Duran was in Chicago. I ran one of our companies, a slot machine business, for a while.

When we were in the recession and had all this time to look back at our track record, the best deals that we did were always ones where we put in either us or someone just like us to go run the business—someone who knew nothing about the industry but had this raw talent and also coachability to say, “Hey, I don’t know everything, so who do I learn from?” Not this grizzled veteran who already knows everything about the industry, but someone who’s gonna look at things differently and fresh, and then, by the way, is gonna just run through walls.

Mm.

Those were our very, very best deals. Mike Duran ran one, a guy named Josh Greenberg ran one, and then Mark Stroupe ran one.

At one point, I can still remember where I was when we had this conversation. Those were also, by the way, the most fun—most fun board meetings. You’re sitting literally with your friend, talking about how you’re just gonna crush this—

Frank.

Frank. And, and you know when you walk out of that meeting they’re gonna do it.

Yeah.

It’s not like the founder who says, “Oh, yeah. Oh, great idea, Patrick”—

No.

—and they’re writing it down. You just know it’s never gonna happen. It was the opposite of that, and it was so much fun.

And so at one point we just said, “Let’s just do that every time. From this point forward, let’s put our own team in 100% of the time.” And we burned the boats. Brutal to burn those boats, ’cause bankers don’t sell companies that don’t have management teams. So we had to rebuild an entire sourcing engine to do that. We had to change our brand in the market.

We’re the brand now: if you don’t wanna continue, you call Alpine, as opposed to the other private equity firms that’ll back the founder. It was really, really brutal to make that change, but, yeah, we made that change around 2010.

So is it true now, today, that you will not do a deal where you’re not installing your own team?

In a platform company, we install our own team pretty much 100% of the time. Every rule can have an exception, so—

Sure, someone could be amazing.

Yeah, yeah. Exactly.

Be a good fit. Got it. Yeah.

So if they’re coachable, they wanna run through walls, and meet our criteria that we would have otherwise, we’re certain that would even be easier. But historically, over the last, I don’t know, 4 funds, we’ve replaced management 100% of the time, and we’re super upfront going in.

We’re saying, “Hey, you wanna cash out and go hang out on your boat and whatever, great.” And then probably 80% of the time in the add-on investments, we’re changing management.

9. Building Platforms At Scale

Can you give us a platform architecture or a platform-building class, like 101 or 201?

Yeah.

Does platform mean a roll-up?

Yeah.

That's a word you hear a lot in private equity.

Yeah.

What is a platform? How do you build one? What are the steps?

So for us, it means a roll-up, and I'll use our best example. We started off in plumbing and HVAC, and—

It's always HVAC.

Yeah, I know. Exactly.

Seems to be a good place to be.

This guy, A.J. Brown, was a CEO in training. We put him in to be CFO of one of our companies, and he did great there. We sold the business and repatriated him. We said, "Okay, you're ready for prime time. You're going to be the CEO of a platform."

Then we paired him with another CEO in training who was just coming in, this guy Will Matson. So they became president and CEO, or CEO and CFO initially. We picked HVAC. We had a little experience in that space, and they were excited about that space.

Then we started going and visiting tons of companies. When you go visit 20 companies in the space, you learn more in one 3-hour management visit than you do in 3 weeks in a conference room. What you're picking up in those meetings is, what does great look like?

What's cool about it is that each company probably does one thing great. One company does recruiting great. Another company does purchasing, training, or marketing great. You see the IT systems they use and how sophisticated they are with them. If you add that up across 20 companies and grab every single piece of that playbook, you have the best playbook in the world.

You're starting to architect what that looks like before you've even bought a company. We're hiring the CEO, getting the industry right, getting part of the management team right, and getting the playbook right before we've ever even written a check. Then we start going and buying companies.

The first couple we try to buy pretty small. I think our first deal here was $8 million of EBITDA, and we learned a ton. We bought another one that was about $2 million of EBITDA, building along the way. Then we're also building our holdco. We're building out the CEO, CFO, and chief people officer.

And that's the platform holdco there?

That's the platform. The holdco is the platform.

Yeah.

In our best companies, we've really overinvested early in those platforms. It's really expensive to do that, and we have platforms that are pretty young that have a $15 million holdco expense. But that's really your foundation going forward.

And where does that $15 million come from? That comes from the fund?

Yeah.

Yeah.

It's—

So you're just putting the money—

Yeah.

—and capitalizing a new company that's the platform?

But it's not quite that bad, because we're pretty quickly buying companies that have EBITDA that we're using to fund the businesses. So they're cash-flow positive pretty quickly.

For this particular deal, one of the early things we figured out is that there are a lot of HVAC companies, but every competitor in HVAC was doing the same thing. They were buying the $5 million to $10 million EBITDA business that had a great management team. They were all buying that same company.

It turns out 90% of the market is below that—

Had the management team, yeah.

—and management wants to leave—

Yeah.

—and cash out. So we said, "Why don't we build a system to go buy that company?" That included talent.

Yeah.

It was a huge lever. I give AJ and Will a ton of credit, but they tapped into the veteran market. They built their own CEO-in-training program because they came through Alpine's program, and they said, "This is amazing." The company's called Apex. They built their own Apex.

One of the early people they brought through was this guy named Brad Schwartz. His résumé is West Point, Green Beret, and Wharton Business School. He comes in to run this, I think, $8 million-revenue business. Fast-forward: he's running a $500 million division today.

Oh, my God.

The business we initially bought was $40 million, I think, of revenue and $80 million of EBITDA. This year it'll do $3 billion of revenue. We haven't put any more equity in. They've just been accumulating these small businesses.

We put in $50 million of equity, and this year it'll do $500 million of EBITDA. We put in no additional equity. It's just been an exercise in putting incredible talent into each business that we acquire.

We rip out their IT systems, and we put in a financial package, an ERP system, and a business intelligence system. Every single company we buy has to input every job they do in exactly the same way, so we can compare all the data across all the companies.

We have a training school now for military veterans. I think we have 80 military veterans as general managers of that company. They've been phenomenal.

That's an example of starting literally with a blank piece of paper, which is how we do each thing. We form a pod of people to go assess a bunch of different industries. We design the playbook and then hopefully repatriate someone from our system to be part of the leadership team. We have a lot of the key decisions already made and evaluated. We have plenty of time and patience before we ever have to wire money.

So if I step all the way back and think about what service Alpine has and will render in the market, I have this visualization of decades of small businesses being built by the Baby Boom and Gen X generations or whatever. There are tons of them. I don't know how many there are—probably a gazillion HVACs alone. It's true for every industry.

The problem is that there's nothing to do with them when those people want to retire.

Right.

And basically, your solution is to solve that with talent. That was the unique insight and thing that you've built up relative to other private equity firms, or something.

Yeah. At a headline level, it's solve it with talent. Underneath that is a whole bunch of intellectual property about how to make that person who goes into that company on day one be really successful.

If you just change management, it's really hard, and it can go really badly. We've learned that the hard way. We have a lot of intellectual property on what that CEO actually does on day zero and in the first 30 days, 60 days, and 90 days.

We have intellectual property on the systems, how we're measuring it, and literally how they're hiring. It is what you said, Patrick, but underneath that there's a lot of intellectual property about how to actually do that.

Without giving away all the secret sauce, can you give us a flavor of that IP and some of the things that you've learned?

Yeah, sure. I'll give you a couple of things. First, we have about 30 coaches in our ecosystem who are versed in this playbook. They get paired up with this first-time CEO, they've been through it a lot of times, and they're doing this specifically with the Alpine playbook.

Are those coaches full-time employees or partners?

They're 1099s—

Part-time partners, yeah.

Yeah, they're probably spending 70% of their time on Alpine. They have that intellectual property. They're literally partnering with this first-time CEO and going through the first 6 months of paint-by-numbers work to show them what they're going to do.

I'll give you an example. The CEO walks in on day zero and makes their big announcement. The people are upset because Joe's Plumbing—Joe's retiring.

Joe's gone.

They've been working with Joe for 15 years. Here's this 28-year-old who doesn't know the industry. They're not thrilled on day zero, which is understandable.

The first move for the first 60 days is to listen. They sit down with the key employees and say, "Hey, tell me about your role. What do you do here? What's going well? What else? What else? What else? What's not going well? What else? What else? If you were me, what would you be focused on? What should the top priorities be? What are we working on that's a waste of time? What should I be worried about? What are the biggest opportunities we have right now? What are the biggest problems?"

They're doing that, and they're meeting with, depending on how big the business is, maybe 20 or 30 people in the business. Without a doubt, without fail, one of the first big things people say is, "I've worked here for 15 years, and no one's ever asked me my opinion before."

Fucking Joe.

Yeah, exactly. We're really engendering trust, and then we're using that. We might say, "Hey, I heard that your number one idea was that we're going to expand internationally. We're not going to do that this quarter, but we did hear you." You don't have to do everything they say—

Yeah. Yeah.

—but they have to feel heard. They do that with the employees. They do that with the customers.

Then from that, they're enrolling the top people and designing the plan. "Here's what we've got to do. Here's what the low-hanging fruit is." Usually, the fruit is so low and it's so obvious when you get through that.

I know, because I did this. I took over a business at one point. I remember thinking, “How did they not do all this stuff?”

Yeah.

They just talked to their own people. One of my executive coaches had this great quote: “The answer is always in the room.” You don’t have to go hire McKinsey. If you go hire McKinsey, they’re going to go do what I just said. They’re going to interview your people and then repeat back what you just heard. And you do that with the customers as well.

Yeah.

And then the customers will tell you about the product or the service or whatever.

Yeah. So I was going to say, one beneficiary, presumably, of this is the end customer. Graham Weaver

Absolutely. Yeah.

Like, you’re not going from 50 to 500 of EBITDA if someone’s not happy at the end.

Yeah, 100%. Just work backward. I think the 2 biggest underappreciated leading indicators of success are the net promoter score of the customers and the net promoter score of the employees.

We go in and we measure the net promoter score of employees right when we buy the business. In other words, before we came in the business, how engaged and happy are employees? And then we measure every 6 months going forward, and we publish that across all of Alpine, and we hold CEOs accountable for 2 reasons.

One is I think it is probably 1 of, if not the most important, leading indicator of success for the business. And 2, going back to being a force for good, it’s probably the thing I’m the proudest of in terms of the impact that we have: 40,000 employees are having an experience that they enjoy coming to work more—significantly more—after we buy the business.

And I just think about, okay, you’re a single mom, and you’re working at a call center in 1 of our companies or something. Before we come in, maybe you’re clocking in, you’re clocking out. You’re not that excited. You’re spending half your waking hours doing this. Maybe the people don’t know your name or whatever, and then how you show up in your community.

And 70% of people—and this is true across any industries in the US; you can replicate this study—but 70% of people dislike their job or they’re disengaged from their job right now, today. And if we can flip that and have 70% of people feel really engaged, it’s not just that it’s good for business, but I think it makes a big difference in these employees’ lives.

And so we take that really seriously, and it’s something that’s probably 1 of the things I’m the proudest of, of all the things that we’ve done.

I want to come back and spend a lot of time on the searching, selection, and training of this young, talented 27-year-old that takes 1 of these things over—what that whole system looks like. But before we do that, I just want to close the thinking on the financial outcome associated with this strategy of building 1 of these platforms.

So, again, going all the way back to your 5x MOIC target objective function or whatever for the funds, what does that mean you need out of these platforms? Where does the return come from? Is it multiple expansion? Is it fundamental growth? Simply, those are the 2 simplest areas it can come from. How do you think about what you need to get for 1 of these things to be a success?

The way we think about it is we’re underwriting typically an individual deal to, let’s say, a 3x net outcome, and that will typically not have multiple expansion. It’ll have you buying the business, leveraging it with whatever the debt multiple of the company is, and then growing it. We should be able to get to kind of a 3x to 3.5x gross in 5 years.

Right.

So that’s kind of our typical standard underwriting. Where the 5x comes into play is you have these asymmetric outcomes where things go right, organic growth kicks in better than you thought, and you can hold the business longer than you thought.

You can kind of portfolio-manage your way to a 5x through a bunch of getting on base and then good things happening. If we underwrote an individual deal to 5x, we would never close a deal. So that’s how we think about it.

If you look back at the funds now that you have all this data and all these funds, is it true in most of the funds that it’s 1 platform or deal that dominates the returns?

Yeah, there’s definitely an asymmetry, for sure. One of my favorite things—I remember I used to read every word that Buffett ever wrote in his annual reports, and I’m going to get this a little bit wrong, but it’ll be directionally correct. I want to say in, like, 1988 or something, he’d made half of all of his money on 2 stocks, GEICO and The Washington Post. He had tons of businesses he bought and sold and everything, but 50% of—

It always seems to be this way, yeah.

Yeah, there’s asymmetry. And, yeah, we tend to have at least 1 real outlier deal per fund.

As we’re learning, we’re figuring out the ingredients of that outlier better and better and better, so that we’re hoping that each seed that we’re planting at least has the potential to be that outlier. We want every shot on goal to at least have that upside. They won’t all hit that, but we’re getting better at identifying the ingredients of that outlier, which is: build a real company. Build a real holdco with a phenomenal team in a large industry. Really spend the time to get the playbook right, and give yourself some breathing room.

And if we’re doing that again and again and again, we’re now starting to have a lot more consistent businesses that are these outliers. In our more recent funds, it’s not 1 company. In fact, in our most recent fund, I’m biased, but I think just about every company has that potential as of now to be a real outlier.

Let’s go back to the talent. It almost sounds like what you’ve built is a captive search fund business.

Yeah, that’s right.

It’s all the same—

No, that’s a good analogy.

It’s all the same stuff. You know? Personal attributes, time of their life.

Yeah.

So 1 question I have is on incentives.

Yeah.

How do you incentivize—in a search fund, it’s really tight and clean. You’re buying a business. If it does phenomenally well, you as the searcher CEO are going to do phenomenally well. What have you learned about incentivizing the people that get installed to run these businesses?

Using your search fund analogy, let’s say that you’re the kind of person that wants the ball early.

Yeah.

That’s the search fund person. They want to be CEO early. I love that. I was 25. I wanted the ball. I appreciate that characteristic.

So they want the ball early, and if you think about what they want the ball to do, it’s to go run a business. That’s what they want. In the search fund world, they first have to go build a private equity firm to find and close.

Yeah.

And if you actually look at the data—I used to invest in search. I don’t know, I’ve invested in 70 search funds or more—they usually mess up that first part. Investing is a pattern-recognition business. Bankers don’t want to sell to them because they’re only going to ever do 1 deal with that banker. They have a clock ticking, so there’s a lot of stuff wrong with that first part.

And then the other thing that kind of doesn’t really work is they don’t have really any support. They’re like, “Yeah, you get the ball. Good news,” but you don’t know what to do with the ball.

Yeah.

So we’re trying to say, “Hey, we have, I think, 1 of the greatest sourcing engines in private equity. We’re going to find phenomenal businesses. Plus, we’re going to have a whole team that’s going to help you evaluate the industry and make sure we’re getting those right.”

We want you to play a winnable game. We want to give you a platform where you’re going to win based on your talents and hiring and firing and all those things, not missing on the industry. You’re not going to figure that out when you’re 28. We’re very good at that part of the business.

And then once they buy the business, we want to have—and we’ll get into the training—we want to say, “Hey, look, we have 25 years of intellectual property of how to be a CEO. But not just how to be a CEO—how to be a 30-year-old CEO going into a really established business and getting that team on your team, alongside you and going forward.”

That’s the specific intellectual property that we have. And it’s not super complicated, but we might as well start you off 25 years in year 26 rather than in year 0.

So where do you find these people? Where do they come from? How did that start? I’m sure it’s much easier now. You’ve got a reputation, like this can be a place you go do this thing.

It was a very inauspicious start, Patrick. At the time we started the CEO-in-Training process, I was a guest lecturer at Stanford Business School, and I would meet with students for coffee and stuff. The class I was a lecturer for was an entrepreneurship class, and so the students wanted to be a CEO. They’d say, “Hey, how do I go do this?”

A search fund was an option. They didn’t like some of the elements I mentioned earlier, and so I didn’t really have a good answer. So finally, with 1 student, I said, “Hey, why don’t you join us? We’ll teach you how to be a CEO, and we’ll put you in 1 of our companies.”

That sounded great. So we hired this guy, and we weren’t going to put him in as a CEO. We were going to put him in, like, CFO or COO in 1 of our companies. We couldn’t get anyone to hire him in our portfolio because they said, “Okay, let me get this straight, Graham.”

“You’ve got someone who’s got no experience, is a little bit entitled, and super expensive. How about no?” So we couldn’t get that first person placed. He left. The next year we had this woman, Laura Walsh, and same thing, but although this time I said to this particular CEO, I said, “Listen, hire her, and if she doesn’t work out in a year, I’ll reimburse you her salary from the management company.”

Hmm.

So like a money-back guarantee, and she knocks it out of the park.

Hmm.

And he said, “I want 3 more.” Then it took off from there. When I say took off, the next year we had 2.

Yeah, yeah. Sure.

Then the next year we had 3, and it took a long time. It also took us a while to really figure out what kind of business they would be successful in, where their blind spots were, and what they could do and not do. We made every mistake you could make, but thankfully we made those mistakes with smaller classes of CEOs, and now we have it a little bit more dialed in. We’re still learning. I’m not declaring victory at all.

What are some of the attributes that have made these young people successful, especially surprising ones?

I like the surprising one.

Obviously hard-working.

Yeah.

Smart.

Okay, so I’ll say some, and then I’m not sure how many of these are surprising. The number 1 attribute is a will to win: “I’m going to take this project or business or whatever, put it on my shoulders, and run it through this burning building.” You see that show up in their lives. Historically, they’ve done that.

Yeah.

There’s this ownership and drive, and that’s number 1. Number 2, which is probably 1A, is grit. They’ve been knocked down, and they got up. They’ve been knocked down, and they got up. That’s going to happen as a CEO.

Yeah.

I think the great thing about getting knocked down and getting up is that, at some point, you just have the belief that you’re going to get up. You have the expectation that you’re going to get knocked down every now and then, and that one is actually more rare than you would think. At some of the schools that we’re recruiting from, that grit isn’t as common, and we made that mistake many times.

The third is—I’m going to mash a whole bunch of stuff together—but it’s emotional intelligence, self-awareness, and the ability to get along with people. We’ve also got that. When we’ve had big failures, we’ve missed that one. Those are probably the 3 big ones. The surprising one would probably just be a bias for action: getting in the arena and trying stuff. It fails, and you try again, versus analysis paralysis.

Patrick O’Shaughnessy

Yeah. If you think about marketing to these people, how do you get—

Yeah.

Patrick O’Shaughnessy

—to come run one of your companies? Obviously, you would want to monopolize people who have that trait. That would be a great virtuous cycle. How do you do that? Is it just word of mouth? Are you more deliberate about it?

The answer is that it’s word of mouth. One of the students goes and has a great experience running a business. Their friend hears about Alpine, calls them, and says, “Hey, is this real?” The friend says, “I am having the absolute time of my life. I didn’t even know this existed. I can’t believe this even exists, and it is as good as or better than advertised.”

Patrick O’Shaughnessy

Hmm.

That word of mouth is everything. The best thing we can do is just deliver on the experience, starting with giving them a winnable game and a lot of support. Last year—which would probably be surprising to you—Alpine was the No. 1 most-applied-to job at Harvard Business School, Stanford Graduate School of Business, and Kellogg School of Management: the Alpine CEO in Training program.

Patrick O’Shaughnessy

Yeah.

Yeah.

Patrick O’Shaughnessy

I mean, you’ve literally short-circuited the front part of that search fund process.

Yeah, exactly.

Patrick O’Shaughnessy

And that’s a pain in the butt.

It is a pain in the—yeah.

Patrick O’Shaughnessy

Yeah. It’s also so interesting that, in that process, as you said, they have to build a private equity firm and then abandon it.

Exactly, yeah.

Patrick O’Shaughnessy

They don’t get to reuse the skill that they built.

They build it to do 1 deal. The other thing is that they can just do something on a way bigger scale. They’re going to run something much bigger than this, and they’re hopefully going to get there a lot faster.

Patrick O’Shaughnessy

Yeah. Can we spend a while talking about your class—

Yeah, sure.

Patrick O’Shaughnessy

—at Stanford?

Yeah.

Patrick O’Shaughnessy

So I think you took over Irv Grousbeck’s class.

That’s right.

Patrick O’Shaughnessy

Who was the father of search funds and—

Yeah.

Patrick O’Shaughnessy

—maybe first talk about him, anything you learned from him, the nature of this class, and then I have lots of questions about how you run it.

10. Teaching The Next Generation

I would say Irv is one of the most influential people in my life, and I would also say there are probably, literally without hyperbole, 1,000 people who would say that same thing. I don’t know anyone else for whom that’s true.

You sit down with Irv, and you are the most important person in the world for that period of time. He remembers everything from your last conversation. He later told me he takes notes afterward and reviews them before he meets you again. He just cares, right? He remembers everything from your last conversation.

He’s always the voice saying, “You’ve got this. Yeah, you’ve got this. I’ve seen all these students. I’ve done all this. Let me just tell you, it’s going to be okay.” It’s like an older version of yourself could come back and give you advice. He’s that person.

I can’t tell you how many times in my career I’ve been down and out, gone and met with him, and he’s given me the shot in the arm that I needed at the right time. He’s someone whose words you believe when he says them, so he’s just incredible. My experience was that I was a case guest in his class.

Patrick O’Shaughnessy

Hmm.

The case was about buying companies in my dorm room and all the stuff that went wrong. I don’t think Irv would say this, but I think I was the token failure case of the quarter. It was all these people, this parade of champions.

Patrick O’Shaughnessy

Yeah, yeah. Great story.

And I’m this 28-year-old whose teeth keep getting kicked in again and again. He probably wouldn’t say that, but now that I teach there, I think that’s the role I played in the curriculum.

One funny story, too. When I first started teaching his case, I was young. I was 29. I knew a lot of people in the class because I was basically the same age.

Patrick O’Shaughnessy

Yeah.

One of the students told me that, in the wrap-up of my case, one of the takeaways was: “As you can see from Graham, you don’t really need to have charisma or be articulate to be a CEO.” That was one of the takeaways. I was so nervous, stumbling over my words and stuff.

The class was amazing, and then I was a case guest in his class for 12 years. He was going to start a new class, and he called me one day and said, “Hey, Graham, do you want to teach my class?” I was almost immediately going to say no because I already had a full-time job, but I thankfully said, “I’ll think about it.” I thought about it for a week, and I realized I light up every time I’m in that classroom. I didn’t think I’d ever have this chance again, and I ended up teaching.

Patrick O’Shaughnessy

I know it’s one of the most popular classes there now. How did you build it? The same set of questions as for—

Yeah.

Patrick O’Shaughnessy

—Alpine, as for the class. What do you hope the class does for the students, and how do you architect it to achieve that goal?

In the first 4 years, I just wanted to learn how to be a professor and teach. I had so many limiting beliefs, like thinking, “I’m not a professor. I’ve never taught.” So, for probably the first 4 years, I was just trying to be a B+ at that.

The curriculum is largely about how to be a CEO: things like hiring, firing, and having difficult conversations. It’s not big strategic things. It’s at the 1-foot level. You’re going to have a—

Patrick O’Shaughnessy

Yeah.

—conversation with an employee about getting demoted or whatever it is, and we’re going to role-play that actual conversation. It’s really granular people stuff. It is the important stuff as a CEO. It’s a great class.

I did that for 4 years, and then what I realized was that students loved the class, but they weren’t doing it. They were like, “Oh, that was a great class. Thanks for that.” Their dream was to go run something, and they didn’t go run something.

Patrick O’Shaughnessy

Mm-hmm.

So I said, “I need to add something else to this class. I want to help students figure out what their dream really is and spend a bunch of time on that.”

We talked about this a little bit earlier, but a big part of the class is really giving the students some space, asking questions, and having them do exercises, visualizations, and some other exercises to truly figure out what the thing is that they’re excited about. If they could do anything over the next 10 years, what would that be?

That takes some time. We spend a bunch of time on it. They have to keep a journal, and we have a bunch of classes and visualizations. When they get clear on that, immediately they’re going to have all these doubts and fears and limiting beliefs. Their head is going to talk them out of it, and so we go right at that.

Hey, what are the obstacles? How do we overcome that? How do we design a path to go do that? So that's probably 25% of the class now, and I think that's probably what the students remember the most.

Patrick O’Shaughnessy

That's what they remember most.

Yeah.

Patrick O’Shaughnessy

Yeah. You've told me before some of these incredible framing questions to expand the mind beyond incremental thinking into more blank-sheet thinking. One of the ones you told me that I liked best, that I've thought about a lot since, is: Imagine you have 9 lives. You're just going to do this life. What do you want to do in the 2nd life and in the 3rd life? Really make it feel bigger, more expansive. Are there other questions like that one that you've found to be the most effective to get people to give you the real answer to what you're trying to help them find, which is the thing that's burning inside them?

Yeah. What's cool about the 9 lives exercise is that I think people get really intimidated by saying, "You gotta find your passion," and think, "I gotta find 1 thing," and they get in their head. I'm like, "Okay, let's say you had 9." They can rattle them off right away.

Patrick O’Shaughnessy

Yeah, yeah.

Okay, I'd do this.

Patrick O’Shaughnessy

Yeah.

I'd be a professor, and I'd be an author, and I'd start this business. I'd do a nonprofit. They could come up with them right away, and then I'm like—

Patrick O’Shaughnessy

Yeah.

"Good news."

Patrick O’Shaughnessy

Cool. Let's do those.

Yeah. Good news, your thing is in there somewhere. Then we try to take those 9 and talk about which ones they have the most energy for. Who are they going to meet along the way? How are they going to grow?

A great example is a student of mine. One of their lives is the thing they did before school. They were going to be a convertible bond salesperson. Life number 3 was to run a business. As they started learning how they were going to grow and learn, the convertible bond one wasn't as interesting, even though they were going to make more money doing that initially.

You can dig into those 9 lives, and then it's just a lower-stakes way to get them to something they're passionate about. The secret is you can have all 9 at some point in your life, just not all at the same time.

And then other questions: We do visualizations where you go out 20 years, and we spend some real time on this. You're meeting your future self 20 years from now, and your future self has just been incredibly successful, everything's worked out, and you really spend some time on: What does that look like?

Then you come back and say, "What advice did that future self have for you now?" The advice is always: Go do this thing; relax, it's going to work out; or don't stress about these things. We do exercises like that.

Some of the key questions are: What would you do if you knew you wouldn't fail? Relaxing the how, not worrying about how to get there, the 9 lives. There's a whole bunch of those.

Incredibly powerful, and I'm curious how you've learned to administer them. Do you personally have to do it one-on-one with the student, or is it more scalable than that?

It's both. There's a lot we can do in the class, and then they can break out into groups and do some one-on-one work. Earlier in the quarter, I have a class just on coaching where they learn how to be a good-enough executive coach for each other. We have a whole class on that.

Then throughout the quarter, when they have to coach each other, they have some core skills. I can do that for an entire group, and then I do tons of one-on-one meetings.

My one-on-one meetings are almost always the same. The student comes in and asks the same question, which is, "What should I do with my life?" It's the number-one question I get asked. Great question. Then they say, "Okay. I have path A, and I have path B, and I'm torn."

I spend a few minutes with them asking some questions. In 10 minutes, it's clear that their heart wants to do B, but their head's talking them out of it, and A is the safe thing. Then we just spend the rest of the time trying to unpack how they can do A in a lower-risk way and that sort of thing. That's the framework I use in the class as well.

How has being a teacher changed you personally? What are the takeaways that you have? How are you different as a thinker, as a person, because of this experience that you've had with all these students? Hundreds, I'm sure, of students—thousands.

Every quarter I learn the most. I try to make each class and each quarter be a reflection of the best I've got. This is my 12th year teaching. I spent more time preparing than I did in year 1. I'm trying to use it as a way to personally share my latest and greatest frameworks and thinking on really everything.

Yeah.

Everything from running a company to personal growth to spirituality. You know?

Yeah.

I'm trying to bring everything I can. So it's a forcing function that almost makes me download an entire year of reflection into 19 classes and bring the best that I can. Just the process of that reflection and having to codify it has made me learn it better.

The other thing is I have to practice it. I can't stand up in front of a class and say, "If you're running this business, you can't have B+ people in key roles on your executive team," and then I look in the mirror and I'm thinking, "Okay, I got 2 B+ people." You know? I can't—

Follow your own advice, yeah.

Yeah, I do. I do fall. I have this thing where I really can't stand up in front of a class and say something that I'm either not doing or don't believe. Sometimes it's a good mirror to look at my own life and make sure I'm living that way.

What is your relationship with the students like after the fact? Do lots of them come work for you? This is a very common story you hear, especially at Harvard and Stanford, it seems, and other schools too: Someone teaches, usually for the right reason, but it ends up being tremendous fuel for—

Yeah.

—their business because of the talent. Have you had that happen to you?

The way it became a fuel for talent isn't ’cause I was going out and recruiting my students. It was because I was meeting with enough students to learn what they really care about, what they're passionate about, and then that helped me design a role at Alpine that was directly catering to the things that students wanted at the level that the students were.

Cool.

Because I understood that really well. So that's how it was helpful: I could say, "Wow, there's all these MBAs who want to be CEOs. They have this skill set but not this skill set." It just happened to marry up really great with our strategy, which has all these $12 million to $20 million revenue businesses. I mean, you couldn't ask for a better training ground. That's how it was helpful.

Mechanically, it works out really well because we do all of our recruiting at Alpine in the fall. By the time my class comes around in the winter, students either have a job or they don't at Alpine. So my class isn't a job interview, which is really important to me. I draw a line. I never interview students. I don't even ever give feedback on students. When I'm teaching, I'm really just there to be their professor. The calendar works out that I can do it that way.

Your whole affect and the story and the setup, it just so rings of athletics and—

Yeah.

—you said personal growth. Somehow in the world of sports, it seems obvious and cool that LeBron would have 25 coaches and spend all this money on his body and do all this stuff to get better. We nod our heads; it sounds obvious. And then somehow in the professional world, there still seems to be a stigma of sorts associated with personal growth and executive coaching.

Yeah.

Why do you think that is? The 2 aren't fundamentally that different, but there doesn't seem to be the same appreciation for the potential value of something like coaching.

The first coach I had in 2009, I sat across the table from him. His name is J.P. Flaum, and he pitched me on being an executive coach. I remember thinking, "What the hell's an executive coach? What are you going to do?" To this day, I don't even know why I signed up. I think he was just a really compelling person.

Bought the salesman, not the product.

I bought the salesman. Exactly. Yeah. I bought the salesperson. I think most of the people who probably have negative things to say have actually never done it. I don't think I've ever met anyone who actually hired a very high-quality coach and had anything negative to say about the process. They probably just don't really know what they can get out of an experience like that.

So if you think about the reason you do it or have done it and have all these coaches that are a part of your business or whatever, can you define personal growth? What does that actually mean?

For me, I use a number of different coaches for different things, but I'll give you a couple of real examples. I have a coach named Mandy Shoemaker, and just to have a call with her, I have to fill out a form that says, "What are your 1-year goals? What did you say you were going to do last week? What did you do? What are you going to do this week? And what's the outcome of the call?"

Just filling that out every week, if I never even talked to her, would be a great accountability.

And then, obviously, she’s an amazing coach. She came up through the Tony Robbins system. For me, it’s like having a personal trainer for your goals and your life. What better investment is there than that?

I don’t need a personal trainer to go to the gym, but I do need a personal trainer to grab me and say, “What are your goals? Are you sticking to them? Are you on track?” I think that’s really valuable. I’m not able to get there by myself without a coach.

Then I have another coach I use. We’ll set aside 4 hours, and this will be really blue-sky, messy thinking. Sometimes nothing comes out of it. We ask big questions like, “What do we want Alpine to be 10 years from now? What do you want your life to look like 10 years from now? Where are you on track and off track? If you were going to achieve your 10-year goals in 6 months, what would be true?”

Just these really big questions. Sometimes amazing things come out of that. Sometimes amazing things come out of that 3 days later in the shower. But I like making space to have that, and I enjoy that too. It’s a way to put space on my calendar.

You activate different parts of your brain when you talk than when you think or read. So just the act of having another coach, you’re actually lighting up more of your brain. Then I have another coach, Rachel Lockett, who helps with the org chart at Alpine.

At every step of the way, I’m running a business that’s bigger than I’ve ever run before. She’s been the chief people officer at really large companies, so she can help guide me through it: “Hey, this org chart makes no sense, and here are some ways you could be thinking about it.”

I want to come back to the definition question again.

Personal growth.

What does that mean? Let’s say it’s “get better.” What does better mean?

I’ll go a little bit deep here, but I think that ultimately each of us has most of the answers inside of us, in our intuition. I think we have this compass, and you could call it your intuition, your soul, whatever that is. It’s incredibly powerful. It’s like our own LLM. It’s taken every experience and every input we’ve ever had, it’s storing all of this, and it has all the answers.

A lot of personal growth is understanding what that intuition is telling you, spending the space and time to really understand what it’s saying, and getting out of your head, which is a lot of times confusing things. Then you have to have the courage to go do what it says.

That’s probably my highest level of personal growth, because I think if you can do that over and over, you’ll self-actualize and become the best version of yourself, for lack of a better word. Then there’s a whole bunch of things underneath that to try to make that happen.

What are some of those things?

Some of those things are designing and being really intentional about your life, figuring out what a successful life looks like for you in all your different areas, and really spending time on that and designing it. Then having a practice where you’re working toward that almost on a daily basis.

Hmm. Is there an aspect of the second part of the description—courage? It’s a key word that seems to stand out in your memory. What does that mean in practice for you? What’s a time when you felt like something your intuition told you required courage, which is a big word?

Yeah.

I’ll tell you, like, a really early one. This is the first one that came to mind when you just asked the question—an early one. I’m in Toledo, Ohio, and to be popular and be one of the cool kids, they didn’t care at all about school. A lot of them were drinking and doing drugs. Some of them just really weren’t nice kids. They were bullies. In many cases, they were the athlete group.

I just remember that it took a lot of courage for me to separate myself, because I could’ve been in that popular group. I chose a different path, and at 12 or 13, for me, that took a tremendous amount of courage and isolated me. Then I think, in a very short period of time, I realized that it was the right call and that it gave me so much confidence in listening to that gut from then on.

I still try to tap into that, but I think at a pretty early age, I got a sense of how powerful it was to listen to that voice.

If we have this amazing onboard intuition—this LLM—and courage, which we can learn over time, it seems like the other key step here is asking the right question of the intuition.

Yeah.

I’m curious about 2 things: what you’ve learned about that part, how to get to good questions, and then, zooming into today, what those questions are for you today.

Your head is a really powerful tool. It’ll talk you out of a lot of things. Here are 3 really simple ones.

First off, to get into your intuition, a lot of times it’s meditating, breathwork, really being still and quiet, and getting out of your mind. That’s a lot of what people have talked about for thousands and thousands of years. Part of it is trying to get yourself in that state where you’re silencing your mind or separating yourself from your mind as much as you can, which is kind of the core principle of meditating.

But if you had to jump to just questions, which is a form as well, some of them are the ones we talked about: “What would I do if I wasn’t afraid? What am I afraid of? How is fear playing into my life right now?”

There’s a great Carl Jung quote: “Where your fear is, there is your task.” Usually, you look at where something is holding you back that you’re afraid of, and go into that and toward that thing. Your work is going to be in there, versus running away from it.

A good question, just using your future self, is, “Okay, I have this decision to make, going left or right, and right now I’m in the fog of war and it’s scary, and it’s going to be really hard to go either direction.” But stepping out and saying, “Okay, if your 10-years-older version of yourself were to give you advice right now, what would they want you to do?”

You’re getting out of the immediate fog of war, and a lot of times the answer is super clear. So those are just a few questions or tools that might help.

The point on fear and being afraid makes me realize—we talked about an amazing deal. What was a terrible early deal?

11. The Slot Machine Warning

We had a lot of deals that just didn’t go well, but probably the worst deal we did was this slot-machine business that we owned. It was the worst deal. It wasn’t economically the worst deal, but it was just so consuming.

We put money into the slot-machine business.

Made them manufacture the—

They made basically software that went into slot machines, and then they assembled the slot machines somewhere else and put them in the casinos.

Yeah, yeah.

They put them in on a revenue share, so we’d give away the machine for “free,” and then we’d get 20% of the win. So it had a recurring-revenue element to it. It was, on paper, a good business.

We sold to Native American tribes, which was exploding at the time. This was probably the early 2000s. Native American tribes were just growing their gaming presence. All those fundamentals are the reason we did it, but there was just something—

I’m sorry, I’m probably going to offend a lot of people here. But there was just something about that industry where there was still an undercurrent of some people who weren’t playing by the rules. A few things were tough about that.

Number 1 is we just had way too much money in it. We had co-investment in the deal. We were in a $68 million fund at the time, and we had $170 million in the business, including co-investment.

So it was too big to fail. We had to make it work. I became CEO of the business. One of my partners was basically the CFO. We had technology, customer concentration, CapEx, and product obsolescence. It was a very hard business to run.

Then there was, again, this element of competing with some people who didn’t follow the rules or the law. It was just this undercurrent. It didn’t feel right a lot of the time.

I still remember this one time someone asked me about it, and I’d say, “Oh, you know, it’s just entertainment, and the median income of people who play slots is actually higher, and they can afford it.” I’d have all those things I’d say.

All the rationalizations, yeah.

I remember one time walking into one of these local casinos, and there was a 5-year-old girl sitting outside with a coloring book while her mom was in there blowing her paycheck. I just thought, “I don’t want to be in this business.”

It consumed a lot of our time. That was probably the worst deal we ever did. It set us back quite a bit.

How did you work it out? What was the end of the story?

We saved the deal because we read that Illinois was going to open up and put slot machines in bars, and Illinois is the 5th- or 6th-most-populous state in the U.S. We were like, “Oh, my God, this is going to happen.”

It was going to happen in a year, then it was 2 years, then 3 years. But in the meantime, we went around Illinois and made deals with all the bars. They had no money coming in. These bars weren’t making any money. So we’d pay them X dollars to have the rights to put slots in their bars.

We were 3 years ahead of time, ahead of people. Then, when thankfully the law finally passed and the games came out, we were the largest or second-largest supplier in that market. We were able to sell the business on the back of that.

Yeah. Did you earn a return on the equity, on the $170 million?

The initial equity was about a 3×, and then some of the late equity was like a 1×. Everybody—the banks—got paid back. Every one of our investors made their money, plus we had some preferred equity. They got all paid.

Hmm.

We did escape, but we'd never want to bet our business on one company.

So in addition to the concentration lesson, is the other key lesson just don't back businesses where you're not a fan of the core product or service?

Yeah. For us, I want to think that we're having a—I mean, it sounds cheesy, but we're having a positive impact. The world's a little better because we're building this company, and if I'm being honest, I don't think that was true in that business.

What are you most afraid of today?

I told you this when we talked the other day, but my 2 boys went off to college, and it was the end of a chapter that was really one of the first times I felt like I needed to start facing my mortality. I think that's the thing I'm the most afraid of: How long do I have, and am I going to be able to do all the things that I want to do in this lifetime? This is the only one that I know that we have. Am I doing that right now, or am I going to look back and have any kind of regrets? That's probably the thing I'm the most afraid of.

What have you done about that?

I'm in the process of it, honestly. I think one of the things I've done about it is I try to, whatever I'm in at the moment, just be 100% fully on and fully present, and just be all in with 1,000% of my energy on each thing. Ironically, I try not to overthink it. I think that's been the thing that has allowed me to feel the best about my mortality.

If I think of pillars supporting the ability to do that day in, day out, as a human biological thing that has limited energy or whatever—this could be anything, what you eat, what you do—whatever the pillars are, what are those pillars for you that let you do that?

I think one of the pillars is that you have spent the time being intentional and spent the time getting in touch with your intuition, so that you just know the things you're working on are the things, and you don't have to be hedged at all. You're not spending your time asking, “Am I in the right job? Am I in the right relationship? Am I living in the right place?” You've already answered those questions, so you can just relax into those things. A lot of the work that I do on that has allowed me to relax into those things.

I think the physical part is massive. I think the most highly correlated thing to having a good day is whether I feel good physically. That starts with sleeping well, and then there are a whole lot of things you back up from sleeping well. I don't drink alcohol. I don't drink caffeine. I don't take sleeping pills. I have a nighttime routine, and I try not to schedule stuff early in the morning that's going to stress me out. I think that is so underrated. How you feel physically matters a ton.

If I go back to our Thiel versus Schwarzenegger analogy—

Yeah.

My experience with the Schwarzeneggers of the world is that the structure of their days matters a tremendous amount—

Hmm.

Typically a lot more than the Thiels. Could you give us a day in the life? Let's say a normal day of work or something—a Tuesday. In some detail, what does a day in the life look like?

A normal day, I'm waking up with no alarm, hopefully sleeping 8 hours. Maybe I go to bed at 10:00 or 9:30, getting up at 5:30 or 6:00. I'm having a somewhat relaxed morning that's going to include at least 15 minutes of meditating, and then I work out, and I try to work out really hard.

I'm shocked.

Yeah. I try to ease into my workout enough and warm up that at some point in that workout, no matter what it is, I'm going hard for—

Redlining.

At least something—

Yeah.

If I'm successful, I have my day start a little later, like 10:00 or 10:00, so that I have a little time in the morning to just gather myself and get organized. I have this habit I've done since I was 12. I write out: What are the 3 most important things you're doing this year, and what are the 3 things you're doing today to move toward those things? I write that list—

Every day?

Every day.

Weekends?

Probably not weekends. Yeah.

Weekdays.

I have it all on OneNote, and then I try to just compare my schedule to that. I look at the things I have on my calendar. Hopefully, I'm prepared for those things, and then I try to just be present throughout the day.

In that day, if I think about the archetypes for a second, a second pairing of archetypes for people running investment firms, you have a category of investor-focused people and more what I would call CEO—running a business that happens to do investing as its thing—versus people who are doing the deals. Very famously, Schwarzman or the KKR founders were kind of CEOs from day 1. They weren't really deal people. They were, of course, involved; it was more about building the machine than executing the individual deals.

I know you've done both. But if you think about the day in the life today, if I looked at your meetings—

Yeah, my calendar—

How does it break down between—

So—

Wow, we're making this huge equity investment—

Yeah.

To talk about the company versus talking about Alpine?

That's an awesome question. I'm just going to go back for a second on that question, which is: I worked at 4 private equity firms before I started Alpine. The leader of every single one of those firms looked at their job as being a deal person, trying to close deals. In many ways, they almost were competitive with me: “My deal's better, and I'm going to have—I'm going to grab your analyst because...” They spent virtually no time, if any, saying, “How do I make this the place where the best people want to stay?”

I remember the last place I worked. If they'd spent 25% of their time doing that, they'd probably have had the best returns. I remember thinking that, tucking that away in my head, and thinking, “Gosh.” So to answer your question, I think that's the most important part of my job: Is Alpine the place where the best people want to come and work and spend their lives and their careers? That's the most important part of my job.

Similarly, with our portfolio companies, which are really an extension of us because we're putting our own teams in there, are those a place where we can attract the very, very best people? I spend a lot of my time on that. How are we structuring the deal teams? What does career advancement look like? How are we recruiting? I meet with world-class people on our team and try to say, “Hey, how are things going? What's working well, what's not?” That's a big part of my day.

But to answer your question specifically, I have gone through periods where I'm doing— I mean, the first 10 years at Alpine, I just did deals. Then I've gone through periods where I wasn't working on deals and wasn't on boards. I think for me, the right balance is to probably spend around 25% of my time in the action, because I think it's good for me to keep one hand in the action so I can know what it's like to build one of these companies and what problems they're facing. I don't want to be totally out of that. Then I'm spending probably 75% of my time working on Alpine itself.

Where do you think private equity is going? It's a very interesting time in the news because Yale and others have just sold these big secondary interests and a whole bunch of their private equity and venture exposure. It is an industry—I mean, it is professionalized, mature, and huge. There are huge public companies that do this.

When you started Alpine, it was very much still in its—

Yes, absolutely.

Earlier innings, let's say. How would you describe it today? What does it feel like to you, having been in it a while? Where do you think it might go?

Yeah.

Well, if you go back to when I started—say, 1990. I started in '94, but let's say 1990. I think the 10-year Treasury was around 8%. Then you watched over the subsequent 30 years, from '90 to 2020, as interest rates steadily went down. They had a few little spikes, but they went basically from 8% to 0% over a very steady period of time throughout that.

That had 2 massive impacts. One is that the pension funds pretty much all underwrote their pensions at 8% or 9%. I don't know why they picked that number, but they all did. All of a sudden, your risk-free rate's at 0%. You have to find alternatives. Over that same period of time—that last 30 years—you had allocations just steadily increasing. It was the biggest tailwind.

Over that time, CalPERS probably went from a 0% allocation to, I don't know, a 20% allocation. That's a lot of money. Multiply that by foundations, endowments, and everybody else, and you had this massive tailwind. Then the second one, the obvious one, is that debt was really cheap. That's a big part of the private equity model, and borrowing was cheap, so you had multiple expansion.

Over that entire period of time, I don't care what anyone says: there was multiple expansion. We were buying the same companies in 1994 at 5 times, and we're paying 13 times for them now and are excited to do so.

Yeah.

So you had that trend going on over that same period of time, and therefore, returns were good, generally speaking. Today, you fast-forward, and there are 5,500 private equity funds. It's very efficient. Interest rates are going the other way. That's dynamic 1.

Dynamic 2 is that individuals are starting to be able to go into private equity through their wealth management, which didn't used to be a thing. I think the impact of all that is that the people who are putting up median returns and feel like they have this God-given right to raise their next fund—and it's going to be bigger—I think that's not going to work out very well in the next decade or so.

I think you're going to have to be pretty differentiated, or be one of the really, really massive firms that are able to collect money from individuals, which is the new tailwind coming in. I think they're going to be able to amass assets, but I think it's hard. It's gotten harder every single year I've been in it for 31 years. I think it's going to get even harder, just given some of the potential headwinds of interest rates.

One of the themes here, between your class, Alpine, and the talent program, has been that all these things require you to see the best in people. What have you found are the keys to doing that specific thing well?

I think one of my favorite things is what I was telling you earlier about Irv Grousbeck. At certain times in my life, I would walk in and ask for his advice, and he would tell me, “Hey, I've seen a lot of students, I've seen a lot of people. You got this.” Coming from him, I would believe it. It would matter that he said that.

I think a big part of it, Patrick, is that we get to be that force now for these MBAs who are coming in and saying, “Hey, look, here's been your track record. We've done this a lot. You're going to be awesome at this. You're ready. We're going to help you go do that.” Then it becomes somewhat self-fulfilling. The students believe it, and they start behaving as though it's true, and it becomes true.

So I think seeing the best in people is really one of my favorite things about Alpine. Our passion statement at Alpine is “Unleashing Heroes,” and so we think that the people we're bringing on at Alpine and our companies really are heroes. They haven't had the arena yet to fully be the hero that they can be.

As a big participant in the industry, are there any parts of it that really bother you? Are there features of private equity investing—the style, landscape, industry, whatever—that you think are messed up?

Yeah, there's a lot. I think there's so much money in the business that it's very, very hard not to get distracted by that. If you really think about what I was talking about before—the objective statement and how much that matters—I think if you watch what firms do, maybe not what they say, but what they actually do, their objective statement is, “Go raise the next fund. Go raise a bigger fund.”

I think that makes sense. That's how they stay in business, but I think it can lead to the wrong behaviors. Specifically, you cut your flowers and water your weeds. You show these great realized returns, and you're compounding your stuff that's not great.

It leads to a lot of people who come into the industry and maybe are in it to make money as opposed to build things, or who don't always show up in the best way.

Anything we haven't talked about that you feel like is an essential part of your story, Alpine's story, or the ingredients of success as this style of investor that we haven't touched?

I think probably the biggest thing is that it just took a long time. Through the first 14 years at Alpine, I had 7 years of private equity before that, so I'm 21 years into the industry. I think we managed $400 million or something like that, and we had a huge team and weren't really paying ourselves.

21 years in.

At 21 years in, my salary was $100,000. That's a fact. We hadn't yet had a carry check because of our European waterfall, so we were waiting for the last company, which was our best one. It just took a long time.

I think Alpine is a success story. A lot of it is because we just stayed with it for a long period of time, and we're constantly growing and learning through that entire time. I think that's something that at least my students, and I think a lot of people, miss.

They probably hear people on your show who sound really successful, because they are, but they may not really understand that it doesn't just happen. It takes a long time, and I think giving people the perspective going into starting a company that it's going to take a long time—and being ready for that ride—is important.

So pick something you're excited about that you want to stay with for a long time, because if you're in it to make money and exit, you're probably going to be disappointed.

Doesn't that pair beautifully with your questions for your class, though—the lifetime questions or whatever? For you to go 21 years and be making $100,000, obviously you've loved part of it. You wouldn't have kept going otherwise.

Yeah.

It seems like there's quite a nice pairing there.

Absolutely. Again, not to get too philosophical, but the real journey, the real part of your life is the journey, the building, not knowing how it's going to turn out, and the challenges you face. When you look back, that's all the fun stuff.

You wouldn't even want it to go great in the first year, because I think you'd be depressed. I think you want it to take a while, and you want to learn, because what's happening along the way is that you're growing, you're learning who you are, and you're building your own confidence and your own resolve.

I think the dirty secret is that's actually what it's really about. That's really why we're here.

I was reading some of my old Alan Watts notes this morning around philosophy. I found this quote, which was so good: “The point of dancing is not to get to a particular spot on the dance floor.”

Yes, I love Alan Watts. I love that story he talks about. Dancing is so awesome, and he says, “You're not rewarding the fastest dancer,” right?

Yep.

When I do these, I always ask the same traditional closing question. What is the kindest thing that anyone's ever done for you?

The first thing that comes to mind was last year, when my wife's out of town, and my middle son Blake and Lily were at home. So it's just the 3 of us. We had these crazy power storms going on.

I get up early in the morning, drive down to Stanford, and Blake calls me. I'm like, “Oh no, what's happening?” And he says, “Hey, school's canceled. There's no power.” I said, “Okay, no problem. Just make sure you drop your sister off somewhere she can drive before you go wherever you're going. Just make sure she's okay.”

And he's like, “No, Dad, Lily and I want to come down and watch your class.” I just remember thinking, “Wow, these 2 teenagers who could have done whatever they wanted on their day off are going to drive an hour and a half and come hang out with me at Stanford.”

It really, really moved me, and it meant the world to me.

Amazing. Amazing place to close. It's so cool how you've built what you've built with some simple ideas taken very, very seriously over long periods of time. I think that lesson is especially powerful.

So thank you for telling us the entire story. It's so cool what you've built. Thanks for doing this.

Patrick, I love your podcast. I've listened to so many episodes. I learn so much, so I'm really honored to be here. Thanks so much.