#66 - Jason Illian: Leadership, Legacy, Principles

26:16Like the rockets were exploding and he couldn't figure out why. And he's like, I'm just going to keep going. We've not figured this out. We've been wrong. We're going to figure it out. But he kept owning it right until at the end, he finally figured it out. And so that, you know, you gotta, you gotta give credit to people like that or that are willing to say, Hey, I'm just gonna, I'm gonna keep owning this and we're wrong. We're wrong. We're wrong. And we're going to figure it out. And, you know, in business, sometimes it's just do you get enough cycles, enough turns to figure it out before you run out of capital or before the idea just kills, it just dies.

26:51So you mentioned being able to say I was wrong is an important quality that you look for in leaders. Are there others that you also try to emphasize and are there some common pitfalls you try to avoid? Yeah, that's a good question. I think one of the things we often look for for leaders or like when we're talking to a current company that we made I've invested in our new one is when we sit down with the executive team, we don't really want to hear them all agree on every subject, right? Like if you're sitting there and everybody in the room is agreeing, it makes me very suspicious of what's actually going on there because I can't get my whole family to agree on where to go out to dinner.

27:33So you're telling me that you guys are going to put$50 million and you all agree on every aspect of this, right? What's healthier is when you sit there at a table and you can hear different voices chiming in and they're agreeing on the vision, but they're also respectfully disagreeing at times on how to get there. You can see that it's like iron sharpening iron, right? There's a friction happening where they're trying to create something great. And so when you see the different people at the table really trying to refine one another, you know that there's something special happening in that room now that being said that means that there can be if you have iron sharpening iron it creates sparks right so that the leaders have to have enough um wisdom and discernment you know how to guide that in such a way that it becomes productive and that's just that's what we look for the leadership teams is like how are you guiding your best people and how are you taking the sparks to create a flame that is actually passion for the entire company moving in the right direction versus burning the place to the ground.

28:43And it's the same thing. It's like, you have fire, it's in your fireplace, it's great, it warms the house, gives you light. Take that same fire, drop it in the middle of the living room, burns your place to the ground, right? And so that's what we're looking for is that kind of healthy iron sharpening iron and respectful, disagreeable conversations that's still running the same direction with a passion and a leadership team guiding it so that they're going someplace that can have a true impact. And I think that's related to where we started our conversation, which is if you have shared values and you have complementary skills, meaning your strengths may coincide with somebody else's weaknesses, then you should have some friction.

29:24Otherwise, maybe your skills are not complementary. That's right. Yeah, and I mean, if you go back and you study early battle, techniques of the Roman culture or the Spartan culture, right? They would march in such a way that the shield was on their left hand, the sword was on their right. And they all did that the same because they could protect the person next to them, right? Their weak spot, their offensive area was an area that they're exposed, but the person next to you has that shield. And so if you're truly marching, then there's not an impenetrable spot in the failings to attack. track and i think it's the same thing in business it's like you you you have strengths alex in areas that i i i don't and i probably have so many areas that you don't and so then the question is can we both be um have enough self-realization to know that humble enough to own that and then willing to walk alongside each other to go be successful together because clearly we're going to be more successful with two of us marching than one, if we can be humble enough to understand that we're sharing in that credit versus you getting all of it or I getting all of it.

30:39In our prior conversations, you've emphasized the importance of relationships. How do you build and leverage relationships to expand your network and grow your business? Yeah. So there's a couple of things here that have always been kind of core and close to my heart on this is One is just the whole idea of giving first. So Brad Feld, who is, in my opinion, just kind of a legend in the venture space. When I was a young, dumb entrepreneur versus an old, dumb investor today, you know, Brad stepped in at one of my first companies and was willing to just give advice and guidance and be a sounding board for me.

31:20he wasn't an investor you know he didn't have any direct connection to me except through some mutual friends who introduced us and he just basically said you know he listened to me and said here here's where here's what I'm thinking call me if you need me I'm happy to help his whole mentality was give first and that really rooted in me early on in my career to see like I need to be like that too like how do I give first to companies to investors to families and in such a way that I'm not expecting anything in return. Because Brad wasn't getting anything by helping me. He was spending his time, his valuable time helping me.

31:59And so what I found in my career is the same as like, how do I pour into other people? Not because I'm expecting something, but hopefully that I'm just accelerating their life, making their lives better. Now, what I found is the unintended consequences of that is by when you start helping people, they want to help you over time too, right? They come out of their way. And so there's been multiple times in my career where I've helped somebody in five years, 10 years, 12 years, somebody else has come back and said, Hey, you should take a look at this. And those have led to great opportunities, right?

32:32So I think that the give first mentality is really important to Highmount, to our firm, and to me in particular. I also think the second piece is you can't have a thousand close friends, That just doesn't work. So you have to build some type of framework about how you think about your network and where you spend your time. And so we think about it in such a way that's kind of like a three-tier network is like you have your community, your network, and your ecosystem. And your community is really like your close-knit group of friends. This is the closest 20 to 40 people in your life. But if they call, you call them back that day.

33:12If they text you, you text them back. They're people you like, trust, and respect. You trade Christmas cards with. You try to see them when you're in that city. You build relationships with that because you trust them. And in the business world, these are all the people that if they send you a deal, you still have to do your homework, but you don't have to vet whether it's going to be a good deal or not because you're trading Christmas cards and you'll drive over to their house and smash them if they're giving you bad stuff because they're friends. So you don't worry about, is this going to be a good deal?

33:40The question is how good a deal is. The second piece is your network. And this is your growing set of friends that are, you know, maybe it's 100 people, maybe it's 200 that you're getting to know, but you just don't know them well enough yet to be in your close network. And then there's the ecosystem. It's everybody else that you're getting to know, whether you meet them at a conference or an event. And people move in and out of them in different phases of life. But you have to have some type of framework for how do you manage your closest set of friends and your community and your growing set of friends in your network.

34:13because that's where you add value. You add value just in the same way a company adds value to the people it serves. You add value to the people in your life. And the only way you do that is by putting time and effort and your own energy into it. How would you say a strong foundation helps contribute to building trust with partners, investors, and customers? I look at it as if you don't have core principles, if you don't have some type of foundation and where you're starting from, then how are you accountable to anything, right? Like if my, if I say I'm going right, and then later I tell you that I don't believe in right, I only believe in left, but you haven't heard of any core principles, you can't even argue that, right?

34:59You're just saying like, oh, I guess he just changed his mind. And that's impossible. It's impossible to kind of, you know, catch that moving car. And so you have to, I'm always looking at friends, partners, investors, how do they have some core principles that I can agree with and relate to so that we can do business together? And the ones that don't, I don't even know where to start, right? Because it's always trying to catch a moving object that's always changing positions. And so those core principles, the ones that we talked about, whether they're legacy versus empire, align vision and values.

35:40Those things have to be there. And then they have to be with characteristics of high integrity, my yes being yes, my no being no, the ability to follow through on promises, the ability to own your own stuff, whether it goes right or wrong. To me, those are what you're really flushing out when you're doing diligence. They may come through numbers, but they're really just coming back to how do those reflect on those core principles that that that leadership team and that firm hold dear to their hearts. I'd like to ask you a few questions about investing. Are there any specific characteristics that you look for in a great investment opportunity?

36:21Yeah, there are a few. I think some of the best investment opportunities don't fit nicely in buckets or industries, right? By the time somebody already says, like, this is an industrial automation bucket, that means you could already be behind the curve, right? Before somebody says this is an AI bucket. Now that it's out there, it kind of feels like you're a little behind the curve. And so I think some of the best opportunities don't fit nicely. They're kind of special opportunities, right? They're companies that you're like, well, I don't know where this fits exactly. And what you hear from the great investors is when they find a great opportunity, they rarely start by saying, here's the industry it's in.

37:03They usually start by saying, I talked to this founder and their team and I was just blown away by these people. I was blown away by how they were thinking about adding value. So it wasn't industry specific. We try to dumb it down to that in hindsight, but it really started with the people. And so I think we're looking for special opportunities that don't fit nicely. And then we're looking for incredible people that are able to execute upon those. And when I say incredible people, those aren't just talented people. There's a lot of talented people that I wouldn't do business with. And I say that because they're talented, but they're not principled.

37:39Now, when you can find a talented, principled person who can communicate well and really believes in all these core characteristics and principles you're talking about, then you have something special. And that's why when you're an investor, you're looking at hundreds of thousands of deals just to go do one or two, because it's hard to find those types of people. And when I say it's hard to find it, I don't mean that there's not more people out there. People are in different phases of life and they're with different companies. And so you have to find all of that has to align to make it work. Sometimes there's really good people, but I just don't believe in what they're pursuing or I don't understand it.

38:20Maybe they understand it and I don't. So you've created a different mental model from many other growth equity firms. Would you elaborate on this approach? Yeah, it's funny. We have some people say that we're kind of a growth equity firm. Some people say we're a private equity firm. And really what we just say is like, hey, we're the best way to explain it using, I guess, current terminology is we're probably somewhere between a growth equity and private equity firm that is looking for unique growth opportunities in tech enabled and in other special businesses. And what I mean by that is we're looking for companies that already are growing typically 10 to 20 million in revenue, where we can write either a smaller five to$10 million check, or like our recent investment in Dude Perfect, we can write over$100 million check.

39:11And so it could be a minority check, it could be a majority check. We're looking at each one on a case-by-case basis. Because I think that it's easy to get caught in these buckets of like, here's how venture and growth, and we're just going to do it in these lanes no matter what. And then, oh, by the way, on the other side, here's these large private equity groups. And I think there's a space in between where it's a company that we don't know what it's going to become just yet, but it's growing. It's got great people. And maybe we should come on at a big check. Maybe we should come on in a small check.

39:43We kind of have to flush that out. And so iMount is a little unique in that way. One, because I'm an ex-entrepreneur who built things from scratch in a software safe. My partner is more of a trained investment banker who came down to the top. And so we look at these things very differently in a complementary way of saying, hey, what are those opportunities that are out there? And so if you looked at our pipeline today, it probably wouldn't make sense to the average firm because there are some of those that are smaller checks or some that's much larger checks. But a couple of the common threads are probably 80 % of our pipeline is not actively raising, meaning we're talking to companies long before they're actively raising.

40:28And we're looking for great companies that maybe don't even need the money but need the help. And so I think that's a common thread. I think another common thread is Almost all of these companies have tremendous leadership teams and are in spaces that people maybe don't completely understand or they haven't seen it coming yet. But their companies are growing and they may be helping define a category or growing into a leadership in that category. So there's commonalities, but they're also very different on a case-by-case basis. You mentioned tech-enabled. How do you define tech-enabled? Tech enabled, what it meant 10 years ago is probably something different now because technology has infiltrated so many aspects of our lives, right?

41:14I mean, you could make an argument that the hortipotty business that you're selling is tech enabled because of the software they're using to sell and move them around the country, right? And so there's flexibility in that, but we also put boundaries around like, there's certain things we as a firm won't do, meaning we're not investing in real estate. We don't invest in biotech. So there's frameworks around that. But we do give ourselves some latitude around that tech enablement to say, hey, that tech enablement could come with the software around it, or it could come in how it's deployed in that specific vertical, right?

41:47And so, you know, more companies are falling into that. But there's also a lot of great companies. We often hear and read about the TechCrunch articles about like all the amazing things happening in Silicon Valley, in New York and everything. And they are. There's truly transformative things happening. But there's also the flyover states and everything in between. There's amazing billion-dollar businesses that help us run our everyday lives that are still just early in the tech cycle. And so they're becoming more tech-enabled. And so, I mean, I sat down with a gentleman the other day that started a business, and his business was building 18-wheeler car washes, right?

42:27And they're all over the country. Like, well, yeah, I guess these 18-wheelers do have to wash their cars somewhere, right? And I was learning about his business. I was reading about it. And I was like, who would have guessed that you could be doing that? But that's a big business because we're all ordering Amazon and Walmart and everything else. They got to ship them in something. Those things are driving all over the country. These trucks have to be taken care of. And so those businesses are really interesting. And the more we get to learn about those, we realize there's tech enablement. There's more of it happening every day so they can become more efficient, create better margins, build bigger businesses.

43:08So it's a very interesting and, like you said earlier, curious business to be in. Yeah, it is fascinating in that you would have never guessed that you'd be looking at something like that five years ago. And I think that's one of the fun parts of this industry is you're constantly learning, there's new opportunities, and you'd never know what the future holds. Yeah. And once again, there's a lot of businesses that I won't get a chance to invest in for whatever reason, different timing. They don't need the capital, whatever. But I was visiting with a gentleman the other day that his family is basically one of the frozen food conglomerates where if you get a frozen taquito or taco or whatever, and then you get it from Costco or Quick Trip or anywhere, that's from his family, right?

43:56and it's a massively great business. It does incredibly well and they're growing in all sorts of food categories and trying to make foods healthier all the time. And what they really built is this amazing distribution network and the ability to create it in such a way that the food still is very good when you get it even if it's two weeks from now. And so I don't think there's ever gonna be a way to invest in what he's doing. He doesn't need capital, but I was just fascinated to have dinner and just learn about what they're doing. and I think that's the part of our job that's so fun is like when you have those dinners or coffees or zoom calls like this you're learning about businesses that you didn't even really think about you know when you were in college thinking about hey what am I going to do when I grow up I've heard you discuss a mindset of suck less every day yeah how do you implement this philosophy in your daily routine and company culture yeah yeah so that I would love to say that I came up with the idea, but I think it actually originated in college when I was playing college football.

44:59And we were watching game film one time and coach just kept rewinding this one play that I, that I missed. Like I missed this tackling, just kept rewinding it. Like, and he said something along the line. He's like, Ileon, I need you just to suck less. Right. Like, and we started joking about it, but really what he meant is like, I need you to get better a little bit every day. Right. And as you get, we often want to make these grand jumps to excellence. That's not how it works, right? Like every day we're getting a little bit better by being a little bit more sleep. I'm eating a little bit cleaner.

45:34You know, I'm lifting a little bit harder. And what happens is you're taking these incremental steps to greatness. And that's what we talk about in our job too, is like, I just want to suck less today, meaning I want to be a little more disciplined on prioritizing my meetings. I want to be a little that every day, we're more likely going to get to better opportunities sooner, which then adds more value faster. And so suck less. If you suck less every day, you're probably going to get better faster. Earlier, you talked about focusing on capability rather than industry. But it seems like if you do that, you're going to have a relatively steep learning curve to catch up as you go from industry to industry?

46:21How do you think about that? Yeah, so you're hitting on one of the challenges, but you're also hitting on one of the opportunities. And so there is a steep learning curve if you have to learn 100 % of anything. Now, if you have to learn 60%, if you have to learn the fundamentals and the foundation and you're bringing somebody else in that's an expert for the other 20 to 40%, then it changes, it's transformative. And so when we're looking at something that may be outside of our area of expertise, we're not going to go do the deal unless we can find somebody that's an expert in that area that's willing to ask the questions we don't even know what to ask, right?

47:00So there's lots of industries. If I get on a call, I can ask the good 60, good 70 % questions, but there's 30 % that I just don't even know to ask because I haven't been in that industry. And that's where you're bringing, that's where your community and network's so important, right? You're bringing people to the table. that says, I've built that business. Like I've been there. I can tell you where the potholes in. I know where the bodies are buried. In fact, I still have the shovel, right? Like they just, they know that. And so we build our capabilities by understanding how that capability pulls 60 or 70 % across industries.

47:35We bring in others that are complimentary capabilities to help us fill in that 30 to 40%. And that's what allows us to keep learning. And as you keep learning, you may choose to then do a deeper dive on one of those areas if you're really passionate about it. But if not, that's why you have somebody else that's wonderful at automotive or wonderful at machine learning or wonderful at mobile technologies. If they're great at that, I don't need to learn 100%. I need him to know 100%. And I just need to pull him in at the appropriate times to help me underwrite and understand the questions that I'm not asking.

48:10And I guess you would also have an independent, fresh perspective being relatively new to an industry when you're moving up that learning curve? Yeah, I think there's actually something very healthy and refreshing about coming with a clean perspective, right? Like you have to know enough about it to know where the potholes and challenges are, but you also have to have enough of a fresh perspective to know there's opportunity there, right? And you can be jaded if you've been in any industry long enough to say like, I've been here. This has been hard. It hasn't worked. It hasn't worked. And you can miss an opportunity because you've seen it not work a lot of times.

48:49That's why bringing somebody fresh in sometimes and they don't even know they're willing to try something because they don't have all the scars. And I think every industry gets disrupted. Every industry is getting disrupted right now, whether we believe it or not. And it's typically by people that don't know 100 % because they're willing to try stuff that shouldn't make sense and they're making it work. And we just want to come alongside those people. And that means we're going to have times where we hopefully have wonderful successes and we're going to have some times where we have wonderful failures, where it just didn't work.

49:27Now, hopefully there's fewer of those, obviously, but you're going to have those things in life and it's okay. Failure doesn't kill you unless you just stop and give up. And so we're willing to continue to push past that just like an entrepreneur or executive is. And I think it's like life too. You're going to make mistakes on what you're teaching your kids and how. You're going to make mistakes on being a great husband or wife all the time. They don't have to kill you. You can learn from them. And I think it's the same part as what we do on a day-to-day basis with our firm. One of your first investments at Highmount has made a big splash.

50:08And you alluded to this earlier, but$100 million investment in Dude Perfect. Would you tell us about this company, why you invested and its potential? So Dude Perfect is actually hitting on a number of things that we've talked about so far on sewing up and being bold and decision-making and showing a sense of humility. And so I'll unpack a few of those for us. So the first one was, is Dude Perfect was already out raising, already had term sheets from some private equity groups. And we got a call from one of their advisors saying, would you be willing to talk to the dues and just help them understand what they're going through?

50:47And so we took our first call, not because we were wanting to invest, but because we were wanting to help. And so we jumped on the call and I thought, if nothing else, I'll get great street cred from my kids because they love Dude Perfect. So I'm like, Hey, look, I can tell them I talked to Dude Perfect today. But when we got to know their business and more importantly, got to know the dudes, we realized that they were onto something really special. And so we just showed up, gave first, and then that provided this opportunity. And what we also saw was the creator economy in the last nine months, a year has become a big deal.

51:25And Mr. Beast is out there raising capital right now at$5 billion valuation. And there's all this noise. But we were looking at this beforehand. We were looking at this almost a year and a half, two years ago, because we believed in kind of the flywheel effect around, hey, if you have a great content platform, you can also look at products and experiences and merchandise and all these sorts of things around it that have now become popular. And so we were kind of on the front edge of seeing some of this. And when I say us, I want to give more credit to the dudes than to us. We were just discovering what they kind of already knew, right?

52:06And they were trying to learn how to articulate. Our belief was, is like, we believe that, you know, sports media entertainment is changing. We believe that when you have the largest sports platform on YouTube and the ability to shoot one thing with the NFL and the next with Steph Curry and do all this fun stuff and do it in a family-friendly way, you actually have a lot of surface area to be successful. And they already have been and they've already built a great business. And now the real question is, can we accelerate that? And I think we've done some great things by like we hired Andrew Yaffe, who was head of digital and strategy at the NBA to come be the CEO.

52:45So we've started taking steps to help them in this new space, which they now call the creator economy. And I think in the future, they're just going to call media. I know they have many millions of followers and subscribers and many billions of downloads. But for our audience that's not familiar with Dude Perfect, would you just quickly describe what they do? Yeah, yeah. Well, so I always say it's, if you have kind of kids that are probably eight to 16, you probably already know them. And if you have some that are earlier, you will. And if you have some that are later, they probably grew up on them.

53:19But the Dude Perfect guys, they basically started when they were at Texas A &M doing trick shots. And trick shots into basketball, football, sorts of fun stuff. They've now grown to, I think, over 115 million subscribers and followers across different channels. And they not only do trick shots, but they do sports battles. They bring on celebrities. They do things around all the major sporting events. And they do it in a family-friendly way. So you're never going to see things around alcohol or cursing or anything else. They've done it in such a way that they want to pull sports and family and fun together.

53:53And that's only thrived in a small screen first environment. So if you have kids now, they typically don't come in and watch your TV. They're looking at their phone and they're consuming media on Insta, on Snap, on YouTube. That is their primary source. And that's where these guys live. and so you know we shot a video recently with steph curry as an example and we did some fun things around basketball but they also did a golf battle with them right like a putt putt golf battle to their the arena and they also talked to him about i didn't know steph was like a popcorn aficionado so he likes different types of popcorn so they were like doing this contest with him which popcorn is your favorite and so they're bringing out the real side of people and also realizing that we're not all Steph Curry.

54:44It's like, that's something we aspire to. But the average person like us, like we love sports, but we're not that good. And so they make these sports, whether it's lacrosse or cricket or basketball real. And they've done a great job with it. And they just continue to grow. And so there's a handful of like, really prominent, large creators and Dude Perfect is one of them. And just to give everyone a window into the potential opportunity here? How do you think about long-term evolving of the brand and the expansion? Yeah. I mean, one of the media outlets recently said, you know, Dude Perfect's building the next Disney.

55:26And I don't think they're that far off. I mean, I think there really is an opportunity for this next generation that you got to remember the kids here are digital natives. So their live experiences and their digital worlds are colliding. It used to be, hey, you go to Disney and that was wonderful. End of story. Or maybe you watched a movie once it came out every year or two. Now people are experiencing stuff on a daily basis on their phones and they're having a Dude Perfect smoothie at Smoothie King and they're working with Muya and it's an ongoing experience. And Dude Perfect is one of very few that is learning how to unlock that because your most valuable asset's your attention.

56:09It's your time. And they've figured out a way to connect with kids. And by the way, not only do kids love them, but the families love them. Because if you're a dad like myself, there's so much junk and crap out there that if you can find something that you can give to your kids and just let them watch and you know it's safe. I mean, the Do Perfect guys, if they pulled my kids to go buy something, I wouldn't even blink because I know it's been safe because they've proved it over 15 years. So the number one thing that the dudes have done in addition to the sports and media and fun is they've built trust.

56:42They've built trust with families. And I think that just when you've built that kind of trust, you can do all sorts of stuff, to building theme parks, to selling cheeseburgers, to whatever you want to do. And I'm very excited about the progress that they're making and don't want to steal their thunder because they got all sorts of announcements coming up. But I think there's a tremendous amount of upside for them. And when you see a sports team like the Boston Celtics this week sold for$6 billion, right? They have a smaller audience than Dude Perfect. So you tell me what Dude Perfect can become.

57:19It's pretty fascinating. Jason, I appreciate you sharing your perspectives and your insights with me and our audience. So thank you so much for joining us. Alex, you're great. I really appreciate the time and look forward to doing it again. Thanks for listening. We hope you enjoyed this episode. Please visit our website at insightfulinvestor.org to access past shows and learn more about our podcast. If you have questions, feel free to email us at info at insightfulinvestor.org. And if you enjoyed the discussion, please subscribe to this podcast to ensure you don't miss future episodes. And don't forget to forward today's conversation to others you think would enjoy listening.

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