Ep. 152: Jon Lange of THL Partners | Operational Support Models and AI's Impact Across the Portfolio

0:00Hey everybody, before we get started with today's episode, I want to take an opportunity to tell you about my new book, AI Marketing Blueprint. It just hit number one bestseller status across multiple categories on Amazon, and it walks you through a proven framework that we are taking our clients through here at How to SaaS and how to stay relevant and visible in a world with AI platforms. One of the biggest problems that we have seen across clients and companies is that the traditional channels that they relied on, like paid search or SEO, have declined significantly or are getting more expensive and competitive.

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1:10Grab a bunch of copies so that you can kind of consume the content together and start to apply it to your business. And with that said, let's move on to the episode. Welcome to the Private Equity Value Creation Podcast, where we interview leading investors, operators, bankers, and advisors to help you answer one question. How do we increase the enterprise value of our companies? My name is Shiv Narayanan, and each episode, I will dive deep with a guest to help you become a better value creator and capital allocator.

1:41Jon Lange: So with that said, let's jump right in and let's get started with today's episode. My guest today is John Lang, and he is the Managing Director at THL Partners. And what I really enjoyed about this conversation is that THL has built a strategic resource group that works deeply with their portfolio companies and with the investment teams as they're deploying capital. And I know a lot of private equity investors are always trying to figure out the balance between having operating partners or operating teams. And how do you divide that investment between who's focused on actually sourcing deals and actually making investments and deploying capital?

2:15And John walks us through their model, plus how they're leveraging AI and actually helping these companies grow and thrive in the environment that we're in today. So there are a lot of great takeaways, and I'm sure you'll be able to apply a bunch of what John shares to your firm and all the businesses that you're invested in. So with that said, I'll leave you to it. Enjoy the episode.

2:40All right, John, welcome to the show. How's it going? Great. Thanks so much for having me. Yeah, excited to have you on. So why don't we start with your background and Thomas Lee Partners, and let's go from there.

2:51Jon Lange: So THL Partners is an old private equity firm, one of the first in the US. We've now been investing for more than 50 years. And from the beginning, we've been focused on growth. We try to identify great companies and talented management teams and help them drive value creation and accelerate growth together. We are now investing out of our 10th flagship fund, which is about$6.5 billion. And we invest out of three industry verticals, healthcare, where I sit, technology, and financial technology and services. And within each vertical, we focus on a handful of target sectors. So we try to be really thematic and proactive and thoughtful about identifying trends and tailwinds that will make sectors attractive, not just for a year or two, but really for five or 10 or 20 years.

3:42Jon Lange: And so within the healthcare vertical, I spend a lot of my time focusing on sectors within the provider and payer end markets. So that's some providers themselves, and then also services and technologies sold into providers and payers. You know, just quickly on me, I got my start in investment banking and a couple other investment firms. I've been at THL now for seven years, and I'm a managing director in the healthcare vertical. And so can you expand on that focus? Like, tell me a little bit more about the types of companies you're investing in. How big are they? What stage are they at? Yeah, absolutely.

4:17Jon Lange: So, you know, we invest in mature companies, typically with revenues of, call it$100 million to a billion plus. And, you know, the way we think about it is that companies across verticals and certainly within a variety of subsectors within health care run into a lot of the same issues and need some of the same capabilities over and over again. So we've really built our firm and a number of operational capabilities that we organize in what we call our strategic resource group to try to address the issues that the companies have over and over again, whether that's go to market or M &A or human capital or technology or a number of other things.

4:58Yeah. Can you expand on, so you mentioned some big buckets there, like go-to-market M &A, like what are the big areas where you're seeing the patterns or commonalities between these companies? And then as you drill down into some of those areas, like what are some specific things that you're helping these companies with?

5:14Jon Lange: Yeah, absolutely. So we find it very common that companies at a certain stage in their life cycle run into very similar issues. As I mentioned, And there are a few capabilities that we find really helpful for a variety of these companies across subsectors. I'll just call out a few. So one is go-to-market. When a company reaches a certain stage of product complexity, or it could be they expand geographically, we find that their go-to-market just inherently gets more complex. And we have not only internal resources and a lot of talent that's dealt with this before, but also just a lot of experience.

5:50Jon Lange: And one thing we find is that none of this is rocket science, but experience really matters. And having seen very similar patterns at prior companies, it can really help us partner with our current portfolio company management teams. Another is M &A. Very commonly we see founders or entrepreneurs or CEOs having built a really attractive business organically, but maybe they don't have as much experience with M &A. And that's something, of course, it's our bread and butter. We do all the time. And we can really help portfolio companies with that. Maybe one last thing I'll call out is technology.

6:26Jon Lange: Commonly, for instance, for a provider organization, every maybe 10 years, there is a transformational technology implementation. It could be an electronic medical record system. It could be an ERP system. And that's something that a management team may see only once in their professional career. We, of course, see it all the time. We've done it dozens of times. And that's something we can really help management teams with. Yeah, that's really interesting. I guess, you know, each of those areas are massive areas to kind of dig into. Can you expand? Let's start with go-to-market. Maybe we run down this list.

7:01Like on the go-to-market side, what are some of the challenges that you see these companies face? And then how are you helping them navigate that?

7:08Jon Lange: Maybe I can give you one example. I'm on the board of a company called IMO Health. We partnered with this company in 2022. It's been a real privilege and a pleasure to see this company grow and evolve even during our partnership. And so just to give a little background, this company does medical terminology software. It develops and sells medical terminology software to health systems. So think about when a clinician is documenting an encounter, it could be documenting a diagnosis or a procedure or a variety of other things. IMO software interoperates with the electronic medical record system and creates a data foundation or a data architecture for all of this medical clinical data.

7:53Jon Lange: When we first partnered with the company, it was already really a pioneer in this sort of data and data architecture and even machine learning and AI. But over the past few years, it has really been even more forward-leaning and vastly accelerated its roadmap as a result of some of the AI capabilities it brought on. We can talk more about that. And that really transformed the kinds of products and the kinds of value that it can provide to health systems. And this is the sort of thing that we see very commonly with companies at a certain stage where they had a really successful product when we partnered together, but were able to help them develop a broader set of products, which makes the go-to-market inherently more complex.

8:41Jon Lange: And so this was a case where suddenly they had a number of additional really compelling products that they hadn't been selling before. They were new. And we helped them think through what is the universe of customers that might be interested in these products? And what's the relevant customer segmentation? And what's the really targeted specific customer pitch so that the value really resonates with customers and you're really getting your message across? And so that's something we have a lot of experience with. understanding TAMs, understanding segmentation, understanding how to describe and articulate tangible ROI for customers.

9:20Jon Lange: It's something we worked a lot with IMO Health on. And I think as a result of their fantastic efforts, they've really transformed the company through AI and provided a lot more value to customers. Yeah. That's a great example. I guess my question is, How involved are you guys getting in this case? Like, are you playing the role of advisor? You mentioned your strategic resource group. Like, can you talk about the dynamic of that? Like, how is that staff and how involved is that group getting with the companies? Yeah, absolutely. So it, of course, varies by company, varies by engagement. And this is very much a pull model, not a push model.

9:58Jon Lange: And that's something that we try to be really clear about. And we think is really important that we want to partner with management teams and align up front on what sort of capabilities, what sort of functional help might be actually helpful to them. And so, you know, it can evolve over time. We always start before we partner with the management team and try to align up front on the value creation plan. It may be that the value creation plan entails, you know, significant engagement on go-to-market and no engagement on M &A, or it could be, you know, there's a big technology implementation that's going to take a lot of resources, but there's no go-to-market need.

10:36Jon Lange: So that sort of sets the stage for how engaged we're going to be. And then of course, over the life cycle of investment, we may find that a new opportunity comes up like this where the product portfolio and the roadmap is just accelerated so materially that we're able to devote more resources to really add value. So first, the key step up front is aligning with the management team on what sort of resources would really move the needle. And then the second piece is when we decide we really want to engage and everybody's aligned on really jumping in and this is a major priority, then we try to be really thoughtful about how we engage.

11:18Jon Lange: And that could be actually deploying some of our own strategic resource colleagues within THL. And those are typically former operators or consultants, often have had interim roles at our portfolio companies in the past. or we can certainly engage a third party as well, if that's the most efficient and most effective way to engage. So this sort of engagement runs the gamut from light touch, from board conversations and strategy to really deep putting our own colleagues embedded with the company side by side in the trenches, adding value there. Yeah, how are you deciding how involved they're getting?

11:56I guess, because to get involved with a particular portcoy, and we see this with our private equity partners that have ops teams or strategic resource groups where there's a level of depth beyond which it's hard for the strategic resource group to get because if they really focus on one, then they're kind of ignoring the rest. So how do you balance that?

12:14Jon Lange: Yeah, it's a great question. There's, of course, no silver bullet. And it is an ongoing conversation both with our management teams and also internally. The way I would describe our internal process is we always want to make sure that we have the capabilities and the resources to address the needs of our partner management teams. We always try to make sure that we are being thoughtful about staffing internally, hiring internally, using third parties effectively, but we never want to be in a situation, and I'm pleased to say we really never end up in a situation where we can't address the needs of our portfolio.

12:54Jon Lange: Then it's a conversation with the portfolio companies. And so, you know, making sure that we are being really thoughtful and effective and have resource allocation in mind in those conversations, because we find certainly it's helpful for us to redeploy resources when they're no longer needed. And also management teams typically are very much aligned with that. They want an initiative completed and completed well, but then they want to be off to the races and running with their team to take their own initiative to the next level. What about with M &A and integrations? Like, is that led by the same group?

13:30Are you guys leading that on the investment side? Like, how are you partnering with the companies in those cases?

13:35Jon Lange: Yeah, you know, it's a real partnership. And, you know, maybe taking a step back, I think one differentiator and something that's made us really successful at THL is having integrated teams across sourcing and business development, deal, execution, diligence, and then also value creation. And so for M &A, all of those capabilities are brought to bear. But in particular, the deal team partners closely, not only with the portfolio company management team, but also with our strategic resource group to think through not just valuation, not just diligence, but from the start, how are we going to integrate that?

14:15Jon Lange: How are we going to add value? And that, of course, really plays into what we can pay, what valuation is attractive. So it's a really integrated and seamless team. And then again, we align with the management team up front ahead of either a small acquisition or a big acquisition, how much integration support they need. Again, that could be deploying one of our colleagues side by side with management for a period of time, or it could be a third party, or maybe management internally just has the capabilities to go it along. Right. Yeah, I think that's something that we've heard from firms that are, I guess, on the cutting edge of deals and integrations is that all these teams are actually working together throughout.

14:58It's not like you do the deal and then you think about the value creation plan. You kind of are thinking about all things at the same time so that once the acquisition is complete, the strategic resource group or the operating partners can hit the ground running.

15:09Jon Lange: I think that's a really important point because it does come full circle. It is also interrelated that when we're evaluating an acquisition, for instance, and I'm thinking of one we just evaluated recently, synergies and implementation and integration is so important to how you underwrite the deal. particularly if we are looking at an add-on. So we are a strategic buyer where synergies are part of the thesis. Thinking through how that implementation is actually going to go ends up being a really important part of underwriting. The other piece that I think is super important is that at the heart of everything we do is making sure that the deals we do, that the initiatives we pursue are ultimately good for the patient and ultimately good for the provider.

15:59Jon Lange: And so that's one thing that we can really be forward thinking on with M &A if we are already thinking about value creation, already thinking about integration before we do the deal, making sure that it's not only the right thing financially, but the right thing for the patient, the provider and the system. we'll get back to the show in just a moment but before we do one of the most common and important value creation levers that we hear about on the show from private equity investors and our own PE partners is go to market yet when these same PE partners bring us into their portfolio companies or new target investments that they're exploring we find that the marketing function is quite immature underutilized and under optimized and so that's a huge opportunity that we see inside these companies and if you have a portfolio company that you feel like it's scale a lot faster to drive more pipeline and revenue or you're looking at a new investment where you feel like that could be core to your investment thesis well we'd love to explore that with you and figure out how we can partner with you to drive more enterprise value creation on the marketing side similar to the way that we've done with major PE firms like TA Updata, HG, SDG and many more at this point, we've done hundreds of engagements across hundreds of industries and verticals, and we have a ton of benchmarks and frameworks that we bring to these engagements to help you drive as much enterprise value as quickly as possible.

17:23So if that sounds like something that you might be interested in, you can just email me directly at shiv at howtosass.com or go to our website and schedule a demo, and we'd love to speak with you about it further. And now with that said, let's get back to the show.

17:37Jon Lange: Talk about like the M &A planning as you think about expanding into different markets and where it goes like, what's the strategy behind that as you're looking at these companies? Because operationally, obviously there's technological changes, there's go-to-market complexities, and then you also have things like AI really changing how these businesses should operate. So how is M &A tying into all of that? Yeah, you know, it's a great question. Of course, it's a bit of a different story for each company and each opportunity. And maybe taking a step back, I would say one thing that gets me really excited about healthcare investing is there is just such an unmet need and so much innovation that can be done over the next 5, 10, even 50 years.

18:19Jon Lange: And so to me, that's sort of a North Star as we think about M &A. How can we address unmet needs or how can we add capabilities or add innovation to make our products more compelling, to improve outcomes for the patient, to expand access or to lower cost? And so maybe I'll give a couple examples. One, with the healthcare software company I mentioned, adding on AI capabilities was super important. And so the company already had developed machine learning and AI capabilities really for years before AI became a hot topic in the past handful of years. But they really doubled down at the right time and brought on a team through M &A of really talented data scientists and AI experts.

19:08Jon Lange: And that has even further accelerated their roadmap and helped AI permeate their entire organization. Maybe the other example I'd give you is we have investment in a hospice company where I sit on the board. And hospice just has such an unmet need across the US, probably across the world. And so as we think about acquisitions, we think about one, making sure that we can acquire companies that are the utmost quality, have the best outcomes, the best experience for patients, but also use M &A as a lever to really expand access for patients who might not have as easy access to great hospice care.

19:48Jon Lange: So it really depends on the company and the story. But I would say keeping that North Star in mind, how do we meet unmet needs? How do we improve innovation? How do we add capabilities? That's a really good place to start. Yeah, that's a great answer. Tell me a little bit more on the AI and technology side. How is that affecting how you're looking at product strategy or go to market or just the competitive landscape and even what you're investing in? Yeah, absolutely. So the interesting thing about AI, and I'd be really interested in what you're seeing as well with your clients, is that we're finding it is impacting and will over time even more profoundly impact really every aspect of every business that we're partnered with.

20:37Jon Lange: And so one exercise that we've done across our portfolio is actually going through, and this sounds a little funny, but what does the business do at a really granular level, a click level, or manual effort level? You know, if there is someone who is focused on revenue cycle management at a provider, for instance, or if there's someone who's focused on engineering at a software company, what are they doing every day? And at a click level, at a minute by minute level, are there things that could be automated or that could be improved with AI? And the things you find from that are pretty incredible.

21:16Jon Lange: And so maybe one example of that, we were evaluating an acquisition recently, and the company we were looking at had less AI implementation, had thought less about AI, and they were employing 40 people just to schedule appointments, whereas we were employing no people just to do that. We had repurposed those people to, you know, work at the top of their license to have more impact for the organization. So that's the sort of thing where it's not one big thing. I would say it's every function in the company. It's been really helpful for us to take a really deep view and apply AI everywhere. It makes sense.

21:58Yeah, we've seen that with our clients as well, where on the product side, they almost have to rethink what the core value prop of their business is. and what they actually want to double down on. And then on the AI front, like just incorporating AI capabilities where they have certain advantages. Let's say they have proprietary data or proprietary access inside their platform that gives them a leg up on generalized AI platforms that are out there. And that allows them to be very competitive and relevant for their customer base instead of, let's say, customers that are trying to kind of stitch together a solution using some of these AI platforms.

22:36So I'm curious, tell me about the data side. Like how much is that a play or how you approach these companies where you feel like they have something proprietary or defensible within a world of AI where it can't just be easily duplicated?

22:48Jon Lange: Yeah, it's a great point. And I think as we think about it internally, and we spend a decent amount of time thinking about this sort of thing, the nature of competitive moats has at least come into question, but I think really has changed in the age of AI. And so where software development may have been a moat in the past, that alone isn't going to be the same moat in the future. And so there are a variety of things that still are incredibly compelling competitive moats, even for software companies. But it's sort of back to the basics of business 101. on. And it's, you know, do you have proprietary data or proprietary expertise, domain expertise that might be informing your business, whether that's a software business or whether it's a service business?

23:40Jon Lange: Do you have customer relationships that are really sticky? Are you providing a service that is truly differentiated? And that could be through differentiated data. It could be through proprietary data relationships. It could be through a variety of other things. But one thing that's really exciting to me is that AI has really democratized certain pieces of product development. And so that allows us to really double down on the truly differentiated businesses and the truly differentiated experiences, which we think can really add even more value in the age of AI. 100%. What about on the go-to-market side?

24:17Because one of the things that we've seen is that historically, let's say companies relied heavily on inbound marketing, Google ads, SEO, et cetera. And now customers are self-serving their way through AI platforms and self-educating themselves and talking less to sales reps or even coming less to websites. That dramatically shifts how you approach go-to-market because we have these sales teams or we have an inbound funnel that we're counting on to convert customers, but there's less volume than ever before. So I'm curious how that's affected or influenced how you look at these companies, especially when you're investing in them.

24:52And then once you have acquired them or you're at the table, how you look at revenue growth when they have lesser volume or they're seeing lesser inbound traffic and volumes for whatever it is that they're selling?

25:05Jon Lange: Yeah, it's a great question. And certainly, different companies we look at are in different stages of addressing this and of applying AI to their go-to-market function. But I would say broadly, we just see an enormous opportunity for using AI for go-to-market. And there are a couple of reasons for that. One, there's just a lot of manual effort in sales and in go-to-market. And AI and automation are incredibly powerful in reducing that need for manual effort in automating a number of those things which used to be manual. So just at sort of the fundamental level of what the function needs, AI can be really powerful in that.

25:51Jon Lange: The other thing is that particularly as product development accelerates, AI and automation can be really helpful in doing a better job of matching products to customers, really understanding customer needs, and then also articulating the value proposition in a way that can really resonate with customers. And one maybe simple example of that, one of our portfolio companies, we had a marketing department that was developing videos for customers, demos for customers. And historically, that could take weeks to develop a demo, really understanding the specifics of what a particular customer segment needed and implementing that.

26:33Jon Lange: Now it takes a day or a couple of days. And of course, we hear about that acceleration in so many functions, but I think there's just an enormous opportunity specifically within go-to-market to use AI to really accelerate those functions and deliver strong pitches and strong value to customers faster. Yeah, 100%. Yeah, I think that's one of the things that you almost have to rethink how you find customers across different channels because they're learning and educating themselves way more than ever before. How much of this change in terms of how people are buying, how is that affecting your investment decisions or how you look at the competitive landscape?

27:14Because on the product side, the product is facing headwinds or more competition, let's say. And on the go-to-market side, the same thing is true. And meanwhile, there's more optionality for customers. So how do you evaluate an investment with all of those variables to see like, okay, we actually wanna deploy capital here?

27:31Jon Lange: Yeah, again, it's a great question. And things are changing so fast in the age of AI that you just have to be focused on it. And you have to be asking these questions every time you evaluate a company and certainly at the board level for the companies that we own. What I would say again is that it sort of goes back to basics, where ultimately, is the product or service that the company delivers truly differentiated? Does it have a true competitive moat in the age of AI? And I think part of that is just being really focused on using the tools available to advance the product, advance the service, advance the patient experience or the customer experience.

28:12Jon Lange: And so, as we think about it, again, very much depends on the specific company, But we think the companies that are already focused and that are already implementing AI across functions, and that includes go-to-market, are going to be the ones that are really successful going forward. This is a new wave of technology. You can't ignore it. And if you do, you will lag behind competitors. Has any of this changed how you are staffing the particular portfolio companies that you're investing in or even how you look at your own strategic resources group in terms of the talent that you're bringing on?

28:47Jon Lange: Yeah, absolutely. So certainly, this is a topic of conversation at every board level. We think about what AI capabilities we need internally at our companies versus what third parties we can bring in, whether it's consultants or other AI experts. And then internally as well, we are developing our own internal AI capability. And that involves, again, training for our current employees. It involves new employees who are AI and data experts. It involves really just a rethinking of how we operate as a firm. And that includes everything from our investment process, our investment committee, how we evaluate and triage new deals.

29:30Jon Lange: And so we are trying to be introspective as it relates to AI, just like we are at the board level at our portfolio companies. Yeah, yeah, that makes a ton of sense. Like the people side is the main variable because a lot of companies are looking for similar talent. I guess the tricky part is that there aren't that many people that are AI native or like that have had decades of experience in this area because it's so brand new. So how do you navigate that challenge where everybody's kind of learning this as they go? Right. Like even for us, like when we talk about the work that we do with AI for these companies, like we have built playbooks as we service more and more clients, because every time we see a new clients go to market, we see where the spend is going, what the data is like.

30:13Then we make adjustments and we look at their visibility, like all of these data points come back. And with every loop, like our playbook is an iteration on the last. And that's how we've been able to grow that over the last year or so. But I feel like it's very difficult to find people who are going through a process like that. So I'm curious, like, how do you do that in a market where everybody's still learning?

30:34Jon Lange: Yeah, you know, I guess I'd say a couple of things. One, I think this is just such an incredible opportunity where everybody has the opportunity to really dig in and learn. and young people in particular, people without as much experience, in some cases are even more AI native and can really teach the rest of an organization new and exciting and compelling ways to use AI. So that's certainly something we think about within THL and at our portfolio companies where how can we use this as an opportunity to train people to think big about what are the opportunities for AI, rethink that over and over as AI evolves really quickly, but also look to our younger colleagues and have it be an opportunity for them to really take the lead and bring to our organization ways that they're using AI or new ways that they're thinking about opportunities that AI could tackle.

31:33Jon Lange: So that's the first thing. The second thing more broadly, you know, at THL, we've developed the unofficial motto, smart, hungry, humble. and I think that's certainly really authentic to us, and I think a really important way that we operate, but at the heart of that is humility, and I think that's a really important quality in investing. If you're not humble, you don't learn, and you don't grow as an investor, but I think that really applies to an opportunity like this too, where there is such new technology, it's moving so fast. If you're not humble about thinking about what you don't know and trying to learn really quickly, then your competitors are going to beat you.

32:15Yeah, 100 % agree with that. I know we're coming up on time here, John, but if people want to learn more about you or potentially connect and potentially see how they can work with THL, what's the best way for them to do that?

32:25Jon Lange: Yeah, so please check out our website, THL.com. You can get in touch with us through that. And also please check out our healthcare podcast, Healthcare in Action on Apple Podcasts, Spotify, or wherever you get your podcasts. Awesome, that's great. And John, we'll be sure to include all of that in the links in the show notes. And with that said, thanks for coming on and sharing your wisdom. There are a lot of firms that are trying to figure out how to leverage their strategic resource group better and figure out how to use AI. And I think a lot of the things that you shared are items that investors and founders and CEOs can employ in their business.

32:57So I appreciate you doing this. Great to be here.

32:59Jon Lange: Shiv, thanks for having me. Thanks for listening to today's episode. Before you take off, just a few requests from our side. Number one, if you haven't done so already, please subscribe to the podcast on iTunes or Spotify or YouTube or wherever you go to listen to your podcasts. Number two, if you are in the market for due diligence services, strategy consulting or fractional CMO services, please get in touch with us at www.howtosass.com. And third, please buy a copy of my new book, Exit Ready Marketing. It covers a ton of concepts that we take our customers through, private equity investors, B2B companies, CEOs, operating partners, and marketers.

33:40And there's a ton of great value in there that expands on my previous book, Post Acquisition Marketing, as well. So with that said, I hope you enjoyed today's content, and we'll see you on the next episode.