Episode 67: Jim Sharpe of Unity Partners 
on Aligning Values with Growing Portcos

Episode Transcript  

 Shiv: All right, Jim, welcome to the show. How's it going?

Jim: Doing well, Shiv, thanks for having me on today and looking forward to the discussion.

Shiv: Yeah, excited to have you on. So why don't we start with your background and Unity and we'll take it from there.

Jim: Absolutely. By way of background, I was born and raised in the DC area. After high school, went to the University of Virginia in Charlottesville and studied at the undergraduate business school there. And then from that, had a brief foray, I headed to New York for a stint in investment banking, after which I realized that I was meant to be more of an operator of building and leading businesses. So throughout my career, I spent most of my time leading companies. I spent a combined 12 years at a firm called GLG, which pioneered the expert network and had a chance to see that company grow from about 10 million of revenue to 600 million of revenue over my two stints there, which was really exciting. I've also, on two occasions, been a CEO. One was a manufacturing business I built in the Southeast, which is its own story. And then more recently was CEO of a HGGC portfolio company, which was a software and services business. And the short story there is that the partner who brought me in to lead that company ended up starting Unity Partners and asked me to join him about two and a half years ago. So that's how I'm here at Unity Partners, which I'm sure we'll talk about today. On the personal front, live in New York suburbs, work in the city, try to get down to Florida when I can, love to be on the water, spending time fishing with my wife and two boys.

Shiv: So many things to unpack there. Why don't you talk about the why join Unity and what's unique about Unity versus being part of a bigger firm like HG and the types of companies that they invest in.

Jim: Yeah, so throughout my career, I've been associated with private equity funds as an executive or leader of those companies. So I've had a chance to see a variety of different models of private equity and had my own views on what good looks like there. And in terms of joining Unity, during the period of time that I was leading my last company, and again, John Block, my business partner, was on the board of the company, he brought me in to be CEO, we had a chance to work together closely. Our business was very heavily impacted by COVID. We ended up leading to an exit, which was an okay outcome, but at the same time, learned a lot about working together. And when John told me he was leaving HGGC to start Unity, he was doing it because he wanted to build a business that had an ethos that was important to him. And one thing that stood out to me from the very beginning was that his initial draft slide deck to me focused very heavily on six core operating principles and a set of values that essentially established the firm. And it stood out to me, just given my experience with private equity, that it was interesting that he was so deliberate about the principles through which he would be building an investment firm. So the way that we got partnered up was that he asked, he said that he wanted to bring investors and operators together from day one. So approach the investment process with operators in the mix. Given my operating background, we discussed partnering together and the rest is history. So I joined Unity back in August of 2022, the two of us and a PowerPoint deck and some investors who expressed interest in coming in and got started.

Shiv: What were those six principles?

Jim: So I'll take one step back is that we always start by talking about our why. I don't know if you've ever read the book, Start with Why by Simon Sinek. So we believe in the power of starting with our why and our why is building better together. So if you go to our website or if you even see a sign off an email, you'll see the words building better together, which are very intentional to us. Building is we build great platforms with ambitious leaders. We roll up our sleeves and help them build those companies, so a spirit of building. Better, that word to us means be the best at being better, a spirit of continuous improvement, but also doing better for the ecosystem, which one of the things we do is roll out employee ownership plans, which we could talk about to help all the employees of our companies have a chance at the upside. And then together is that spirit of unity, that spirit of partnership. In fact, we named the company Unity Partners very deliberately to reflect that. So with Building Better Together in mind, we have these six core principles and they all happen to begin with the letter P because that makes good marketing and branding. So I won't go through all the principles, but a couple that are very important to us. One is passion, which reflects the five-year and one-year plans that we put together that we call passion plans. So we're always operating with a plan, a five-year view, a one-year view, and even a hundred day and 30 day view of what we're doing toward that five-year plan. So that's passion. The second one we could talk about would be propel and that's the value acceleration effort. Many firms call it value creation. We very intentionally call it value acceleration. And then the third principle that I'll talk about of the six is that of purpose and purpose reflects our purpose plans. We believe in creating an employee ownership culture. Part of that is creating accountability, but a very important part of that is also putting in place ownership plans such that every employee at each of our partner investments has a share in the upside of the company and we believe that that helps to not only help everyone get motivated around the goal, but also it's a great thing to do.

Shiv: So, I mean, there's a lot there that I think is awesome. Why don't, well, again, a lot of PE firms need to have this type of a manifesto almost. So why don't we start with the passion plans? You said one year, five year, explain that in more detail.

Jim: Yeah, and as a matter of background, it's very important to us that our principles each have real meaning behind them. These aren't like values that appear on a wall when an elevated door opens in an office. We've all seen that. These are things that have action behind them. to the point of passion plans, we build a five-year plan. Early on in the process of meeting with the management team, we have a meeting where we talk about building the passion plan together. And our five-year plan is called our Passion for Excellence plan. And we say, what do we want to look like in five years? Of course, what are the high level financial metrics? What do we want the firm to look like? How are we going to get there? What sort of shared services do we need? What kind of team do we need to build? That's a five year passion for excellence plan. And that sits, that holds true throughout the course of an investment hold. We then cascade that down to a passion for action plan, which is the one year plan. So what do we hope to do in year one of this investment? What do we hope to do in year two of this investment? And we track ourselves quite often on how we're doing against those passion for action plans. And it's very important to us that when we're going through this exercise, that CEOs lean in. Very early on in the management meeting process, we were trying to evaluate whether this is an ambitious leader who wants to partner with us in our style. Sometimes they lean out. Sometimes they say, no, I actually just want to sell my company, or I actually just want to be replaced in my role. But that's not what we do. What we do is we back an ambitious leader and build that platform with them. So it's very important that they lean in across the table when we're building those passion plants and we just stay in a continuous cycle of updating how are we doing, red, yellow, green, against each of those elements of the passion plants to ensure that we're on track.

Shiv: How do you make sure that the, or ensure that the leaders that you're partnering with are aligned with these kinds of values? Because I think it's very easy to get into a situation where maybe let's say you have these values, but the company you invested in or the leader that you're partnered with doesn't necessarily believe in the same. So are you using that as a filter to determine whether or not you invest in a company in the first place?

Jim: Yeah, to a degree. So what's really important to us is that a leadership team has a set of core values that are important to them. They don't have to be the exact same as ours. We happen to think that ours resonate well with partners that make good partners. But overall, when we come in and lead with our why, which we always do, and we talk about our principles at the beginning of every single meeting in Unity's ecosystem, we like to hear what their principles and passions are. What are their operating values? And as long as they're passionate about those values and they align somewhat with ours, then we feel like it could be a good fit. So that's something we establish and evaluate very early on in the potential relationship with the company.

Shiv: And on the plans around purpose, like is there alignment between these two things or like, cause I can see it getting kind of feeling a little too, I don't want to say two values focused, but too much, too theoretical almost as you're kind of building all of these different plans out. So how did those two ideas connect together?

Jim: So within the passion plan, you'll probably have six different buckets that we, where we focus ranging from what's the profile of the business look like in five years to what are the organic growth levers. One of those buckets is what we call unity on the page. And within that is a mention of rolling out the purpose plan. So we always roll out the purpose plan in the first hundred days of an investment. And then we continue to communicate or the CEO continues to communicate about that purpose plan throughout the life of an investment. And just to walk you through how it works. So the purpose plan, you essentially take a percentage of the company equity and you put it aside in a bucket. And that bucket is allocated toward all of the employees that do not have specific stock option plans or were not owners of the company during the deal. So in the case of our swimming pool maintenance business, all of the technicians at that swimming pool maintenance company have a stake in the purpose plan. We have a commercial street sweeping business out of the Midwest. Similarly, all the drivers have a stake in the employee purpose plan. And the idea is that if they stick around during the course of the investment hold, there will be a lot of value accrued to that plan. And that plan would then be divided up by the employees that have a stake in that plan. So at the last company where I was CEO, at the time of our exit, we had somewhere around 300 employees. And every single employee at the company received a check at the time of the transaction, which was something that we were all very proud of.

Shiv: Yeah, it's it's an alignment of incentives thing, but I think the employee incentive plan or stock options or ownership plans, um, it's, it's emerging more as a discipline inside private equity to give employees access to some of that, but it's still not common enough where, where a big transaction happens and the money exchanges hands and not all the employees benefit or a big chunk of employees don't benefit. Right. So I think, I think that's interesting to see is, are you seeing that on your side as becoming more prominent as well or is it something that you're trying to change the culture on?

Jim: I do think both I do see it becoming a broader topic. I firms are realizing that, first of all, ownership culture is made up of a lot of things. One, it's really nice to give equity ownership, but also ownership culture requires accountability, communication, alignment, all these other things. So we focus on all of that holistically as part of the culture of the business. But I do think more and more private equity firms are seeing the value and the alignment and sort of the altruistic side of building these employee ownership plans. So I do think it's on the rise, but yes, we are trying to also have an impact by doing this at each and every firm. Again, as I mentioned, I did it at my last firm. My partner, John Block, put him in place at numerous companies while he was at HGGC. So it's something that we have a bit of experience executing and so far so good on rolling it out across our portfolio companies. I think the major challenge of these though is communication. Not every employee is going to value this future opportunity that may not resonate with them. They may not know how much it's worth to them. They may not know why they should value it. So it is very important that on an ongoing basis you're continuing to communicate heavily about what the Purpose Plan represents.

Shiv: Yeah, talk a little bit about that. just as a sidebar on what you're saying, like I think this is a topic I'm really passionate about. I've talked about this on other webinars and podcasts too, is for me, even just starting this business, a big part of it was possible because I had an equity stake in our previous business that I was able to cash out on, which gave me the runway to be able to start this company. And I think equity is one of those ways in which people can get significantly more opportunities in life. And making that possible as a way to actually grow the economy, grow just society and communities in general. So I think that's great. Talk about the communication piece because even in our company, basically everybody has equity and I have to constantly communicate the value of that or the tax benefits or how to account for certain things, to plan for it. So talk about what an effective communication strategy looks like there.

Jim: Yeah, and I think every each CEO does it a bit differently, but speaking from personal experience on a quarterly basis, I'd have monthly town halls as a company, and then you try to have your quarterly piece of that be tied to the purpose plan. And the idea there is helping teammates understand how value is created and accrued in a business. So obviously helping them understand revenue. And by the way, many businesses out there don't provide transparency into revenue and profitability. I know there's various ways of presenting transparently, but in my experience, it pays to be transparent. So we would provide transparency about how the business was doing, and then you could provide a path of where we'd like to be over a multi-year period, and then show how market multiples work. So in my experience, I would actually use market multiples of other companies that people were aware of, like brands where people were, that everyone in the room would be aware of and say, okay, this business sold at this value. Here's how you think about the multiple of what this company could be worth, and then you divide that by a hypothetical example of how many owners there are in the purpose plan at the time, and that just shows what the actual point, like one point or two points or three points of the purpose plan would equal. And that's just a way for that message to hopefully resonate and show them that if they're staying there for a number of years and help us lead to a successful outcome, whatever that outcome may be, that they will have a stake in the upside.

Shiv: Yeah, this transparency piece is huge because in a lot of companies an employee might be given options or RSUs or whatever, but it's very unclear what are those things actually worth? You might have a strike price associated, but what is the potential for it to go up when it sells? Like roughly, what is the realistic expectation? What percentage of the pool do I own? Like there's all these open questions that team members have that often don't get answered. So it's kind of like an asset that they don't really put as much value on without that transparency.

Jim: I think that's right. One thing I've noticed from my past is that many firms do like to put option ownership in the hands of a very specific group of the company because they understand and appreciate or probably more motivated by it. Therefore, they don't, one of my former teammates called peanut butter, they don't spread the peanut butter everywhere to all employees because it wouldn't be appreciated, the amounts might not be large enough. I think part of that is a deficiency of communication where if you can help communicate widely about what the equity of the company can be worth, you'll get more buy-in from the team. Again, it doesn't mean everybody's gonna stay at the company for a number of years. It doesn't mean everyone's gonna appreciate or understand the value of that equity. But I think on the whole, in aggregate, it creates a greater ownership culture and a higher likelihood of success, and again, is the right thing to do.

Shiv: Totally. And it's also a relative thing, right? Like for different people in different careers, like a $10,000 equity bonus is a significant amount of money. And for others, it doesn't feel like anything. I think it really matters what level that you're talking about, where if it's someone super senior, yeah, they may expect a lot more, but at all levels, even a little bit of equity means that you have a stake in the outcome and you feel a little bit more tied to that vision and some of this passion, the flash passion planning work that you're talking about.

Jim: Yeah, I would agree. I think you can have a real impact. Again, everybody's vision of what value is or what's really important to them is relative or different. But I think overall, in my experience, giving someone a check that was unexpected, could represent paying off a car, paying off a house, it is, overall, that potential was something that was very rewarding for me personally as the CEO that was leading the plan. But I think it was also very rewarding for the employees who benefited from it.

Shiv: 100%. Yeah. Let's talk about the third thing, which is the propel side and you call the value acceleration. What do you mean by that?

Jim: So this is something that's important to us. When I was, I've been working at numerous private equity backed companies. Some of them have a very prescriptive way of helping the company. Some of them have no ability at all to help the company. And I've seen a wide range of these outcomes before. But one thing that always, that I always paid attention to was the fact that they would call it value creation. And as an operator, I was always thinking that the actual operators of the business were the ones creating the value. The private equity partner can help accelerate that value. So very early on in our formation at Unity Partners, I mentioned to John that I wanted to call it value acceleration because to me, that is more appropriate for what we're doing here. And so the way that Propel operates, we back an ambitious leader and then we also help them propel their business forward through organic growth, through scale and through integration. And we do it in a way that is accelerating the value plan for that leader, not creating it. So that's the distinction there on the wording.

Shiv: And what are some of the components that you're leveraging in order to enable that acceleration?

Jim: So what we do, I've described a bit about very early on from the first management meeting, we start formulating a passion plan. So what does five year and one year look like? That then cascades into a hundred day plan that's rolling of what we'd like to do to help the company. So again, our strategy is a partner and propel strategy. So investors and operators working together from day one, we start that process very early and then we get to work. And once we have that plan in place of what we'd like to do, and it really goes across six different practice areas. Tech and data, HR and leadership, sales and marketing, you name it. We have six different practice areas where we help portfolio companies accelerate their plan and we get to work. And what we're doing is we're executing on things that are sometimes strategic, sometimes tactical. We're tracking how many initiatives we're executing in a given day, week, month, quarter, and checking in with the CEO at the portfolio company to ensure that we're helping them. Now, the way that we go to market with this is we have a role that's called the VP, so like the vice president of Propel, and think of them as like an embedded chief of staff. When we make an investment, we send a VP into that company for at least a year, and they're partnered with that leadership team essentially full time. Most of the vast majority of their time is with that one company executing in that chief of staff type role and helping as a generalist execute on all the things that are in that plan. The other role we have is the Propel lead, and I spent some of my time in this role, which is you sit on the board, you are helping to ensure we're hitting the passion plan. You're also diving in tactically sometimes to assist the companies. And then lastly, we have independent board members that tend to be relatively active and have a specific area of expertise so they can actually help the company as well. So we surround the leadership team with these resources, both from the investment team and the Propel team, which are very heavily aligned throughout the life of an investment.

Shiv: How do you balance having so many resources at the table with giving the leadership team enough room to implement the things that they want to implement, right? And with the autonomy that an A player might need, because it can easily get to a point where there's too many cooks in the kitchen and everybody has different ideas and you're having meetings on meetings and you get caught up in a whole lot of bureaucracy.

Jim: Yeah, you're absolutely right. Remember that we're tending to focus, we focus on lower middle market services businesses that are in highly fragmented markets. So often when we invest in a company, it has a leadership team, but it needs additional members to join that leadership team. It may not have ever thought of sales and marketing. It may have very limited technology that they've put in place. So there's a lot of room to run in terms of assisting these companies. The CEOs with which we partner often are leaning in and saying, please bring me the help. I need it. But at the same time, you're right. It's important that we're not overly prescriptive. We don't come in with a playbook and a 10-point plan of exactly here's what you're going to do tomorrow as a CEO. The plan has been constructed in partnership before we've enclosed so that everybody around the table is aligned on what we need to do from before we even close on the investment. So therefore, there's a bit of alignment and agreement around where to focus. So again, we're not coming over the top with a set of new prescriptions of exactly what to do. And so far it's been functioning pretty well in all the cases we have across the portfolio. These are very talented, ambitious CEOs that are trying to run fast and they need the help. But there are things that they haven't done before in some cases. And that's where we can bring some of our expertise to bear. We also have a large network of experts around us. So we built a curated network of professionals, vendors, software suppliers that we think are best in class. An example of that would be bringing in HubSpot for the first time to start to think about a sales and marketing CRM system. That's something that we do at many of our companies. It's just one example, but we do bring a lot of different resources to bear around the table.

Shiv: What are some core things, and I understand that completely by the way, but what are some core things that you are focusing on through the Propel initiative when you're partnering with companies? Like what are some of the key areas that you decide to hone in on that you think can accelerate value the fastest?

Jim: Yeah, so I'll speak at a high level about that and then maybe I'll tell you some stories as well, bring it to life. So every company in our portfolio has some sort of tech transformation ahead of it. These are services businesses, but tech enabled businesses. So for example, in the tax and accounting world, moving from a wide array of softwares that had been accumulated over a decade and a half, to a centralized software platform that's best in class and scalable is a tough shift, but a shift we needed to make. In the world of commercial street sweeping, another one of our investments, building routing software that helps build more efficiency into the routes that we're running and look at the profitability of those routes. In all these cases, the way that you communicate with your customers as well in the swimming pool maintenance business, adding communication to your customer interaction is a huge lever and it can be technology driven. So first is technology. Number two is talent. So in all of these businesses, they need additional talent. Maybe they have nobody in sales and marketing. They need to build out their finance function or whatever it might be. We assist them in helping them build out their teams. Some of that is literally trench warfare. We go to LinkedIn and recruit the person. Other times you're using a search firm, but along the way, like we're really assisting on the talent building side of things. And the third thing I'll say there is sales and marketing is often an area where our companies have not spent any time or money. So they've grown nice businesses without any sales or marketing effort. So we help them start to think about the CRM system, start to think about sales and marketing talent, maybe digital marketing, if they haven't before, and that pours fuel on the fire to accelerate growth.

Shiv: Yeah, we noticed that too on the marketing side and sales side companies are often under leveraged. What is in, specifically in terms of the types of companies that you're investing in? Is it getting just the fundamentals in place that you see as the biggest gap or are they not spending enough? Are they not running enough campaigns? Is it a talent issue? Like what is the real gap there on the go-to-market side?

Jim: So I think often it does vary company to company as you'd expect, but often these businesses have built themselves through executing really well on what they do. Word of mouth brings their new customers to them. They deliver for those customers and every year those customers pay them more money and then new people call and add to that. So often they don't have a great CRM system that even manages their client list overall. They certainly haven't built any sort of systematic interaction with those customers other than just treating them well and being good service providers. So the first step is often building in that data layer of what's the CRM system, what is our actual client list, and then what do we want to do systematically to start interacting with them? That's one. Number two is actually putting sales and marketing resources in place. They may not have anybody who actually sells. It's usually the CEO who's been doing the selling. So actually building a sales and marketing team that can handle new and existing customers and then as you mentioned the digital marketing side in many of these businesses they've never paid for a an AdWord or search engine optimization effort and starting to put those things in place we we leverage some independent agencies and talent or we bring in talent into the companies to help do that and in our experience that it's a great lever to pull to just help finally accelerate through through sales and marketing.

Shiv: How do you justify the increase in spend to drive up sophistication? And this is something that we are working with larger PE firms all the time on. I mentioned HG earlier, their client that we're doing this with right now. How do you educate the portfolio that it's important to be aggressive? And even you as the investor, you have this investment, you've deployed capital, maybe you have some debt, you have covenants, like you're kind of balancing all of these constraints. And so how do you justify getting more aggressive on the go-to-market side?

Jim: Yeah, so the way that we invest, I mean, when we are investing in a business, we tend to underwrite a target case that represents a 5X return over the period of the hold. And that's pretty ambitious targets. And of course, we're okay if we come in lighter than that. But to execute at that level, we put in place a very believable set of assumptions in terms of organic growth and certainly M&A that drive that model, and grow that model. But within that, organic growth is important. So we know that we will need to do something to accelerate organic growth, which therefore sets a table for investing heavily in marketing spend. But when we start to invest in that marketing spend, we do the things that any good company would do, which is you evaluate the customer acquisition cost of a customer, and you compare that to the lifetime value of a customer, and you start to evaluate which channels are working and which are not. When you bring on sales and marketing personality, you obviously think about what type of book of business they should be able to command and what do they command. So yeah, it's a very metric driven view. But in the early days, we're often starting from a place of where they did no marketing at all. And other than the CEO being a great marketer of the business. And so it tends to have a nice impact, but you do have to keep your eye on spending. And then once you get more confidence that it's working is when you start to spend more. And we've seen that in a couple of our businesses where the digital marketing spend has really grown and that is a huge lifeblood of accelerating the growth of business.

Shiv: Yeah, as long as you have a culture of data and tracking spend all the way through the revenue, it becomes a lot easier to scale. So completely.

Jim: It does, yeah. And if you don't do that, you can get in trouble pretty quickly and spend a lot of money upfront and not see the value from it.

Shiv: And now see the value. We've seen company burn through millions of dollars that way. So, so that makes sense. The last thing, just talk about the M&A side and how much you're focusing on that, especially given how values driven you are, how big is M&A a part of growing these companies?

Jim: So M&A is big. If you look at our strategy, our partner in Propel strategy, it's to back an ambitious leader, help them grow through organic levers, but also help them grow through M&A and then propel growth through the levers I mentioned. So M&A is an important part of the puzzle. From the moment we're investing in the business, the passion plan involves an expectation of what kind of M&A we would do over a five year and one year period. We then get to work on that and we build an M&A list, a target list. Hopefully the CEO has actually done some M&A or had conversations, but we also leverage some systems and partners in each market to help us identify a list of M&A targets. And we use some system-driven tools that are pretty neat to help us reach a wide array of potential sellers. And we get to work on M&A. And so for the first year and a half, we do it out of the Propel team and out of the investment team. where the unity is helping drive the M&A side. And then as M&A gets going, we bring on a corporate development person at the company to help drive an M&A. So in each of our businesses, it is a big part of the build. And then it gets back to, okay, so now you've acquired businesses, what do you do? Well, we integrate our business as well. We are not a strategy where you just bring them together and don't integrate them. So it's very important to us that with each company we bring in, we're starting with that start with why exercise to help align on the branding and values. We build and share services. So the entire platform is sharing finance, sharing HR, whatever it might be, and really truly integrating these businesses together.

Shiv: Yeah, I was going to ask that because in a way, every time you acquire a company, you kind of have to redo everything. And so you kind of have to have this discipline of going through that process more than once over the whole period of an investment.

Jim: Yeah, and it comes down to good integration tracking. So basically building the process through which you do M&A. Again, very heavy communication upfront. Set a plan with the new acquisition target of what good looks like. And then get off to a good start on the M&A tracking from A to Z.

Shiv: Right. That's awesome. I'm looking at the time. We're coming up at the end of the episode, but before we just wrap things up, as founders are listening or other PE firms and executives listen, what's the best way they can find you and get a hold of you or Unity?

Jim: Absolutely. So we are at unitypartnerslp.com. So feel free to check out our website. You'll see much of the content that ties to our why and our principles listed there. And happy to chat with anybody. Of course, my email address is jsharpe with an E on the end at unitypartnerslp.com. So always happy to chat with anybody. We're looking for new, innovative leaders to back. We're looking for operators that want to join our portfolio and we're obviously looking to build the Unity team as well. So happy to chat.

Shiv: Awesome, Jim, and thanks for coming on and sharing all your wisdom. We'll be sure to share all those links in the show notes as well. And personally, I really appreciated your approach to investing and integrating companies and growing companies from a values driven approach. I think it's a bit of a refreshing approach in the private equity space. So thanks for coming on sharing that.

Jim: Absolutely. Thanks for having me on today.