From Operator to Advisor: Carlos Granda on Navigating Private Equity

In this episode of Fireside with Founders and Leaders, host Rupert McSheehy welcomes Carlos Granda, an experienced operating advisor with a remarkable career spanning over three decades in the technology sector. Carlos shares his journey from being a chief customer officer at leading companies like Google, Salesforce, and SAP to transitioning into an advisory role within the private equity (PE) landscape. The discussion offers invaluable insights for anyone contemplating a career in PE, exploring the nuanced differences between operating in a PE-backed organisation versus traditional corporate environments.

Carlos delves into the challenges and rewards of shifting from operator to advisor, emphasising the importance of building trust with leadership teams and understanding the unique dynamics of PE firms. He also introduces the concept of the "GRR Time Bomb"—a critical metric that can signal customer churn long before it happens. The conversation further touches on the transformative role of AI in enhancing value creation within PE firms and the common pitfalls faced by startups attempting to penetrate the enterprise market.

What is Fireside with Founders & Leaders?

In this podcast, we talk to some of the greatest founders and leaders about their journey to where they are as well as discuss their companies and many other subjects depending on the guest.
We are aiming to create meaningful content that everyone can get value from. We hope you enjoy 😁

you're listening to the Far Side

with founders and Leaders Podcast

the podcast that gives you a behind the scenes look

of some of the world's most

amazing founders and leaders

looking at their journeys

and how they got to where they are today

hello everyone and welcome to the latest edition

of the fireside with founders and leaders podcast

today I am

delighted to bring you the amazing Carlos Granda

who is currently working as an operating advisor

working as a mentor

he's worked at companies like HG Capital

Google Salesforce SAP um working as chief

customer officer for a number of those organizations

now he's moved from operator to advisor

something that we talk about how he made that switch

and also we delve

deep into what it's really like to work for a PE

organization so if you're someone who's

thinking about getting into the world of PE

trying to understand it a little bit more

trying to really understand the nuance the difference

we're gonna bust some myths today

we're gonna help you get set

to really position yourself

and understand is this the right environment for you

and if it is how you can try and get there

so I know you're gonna love this one

I'll leave you just to check it out

hello Carlos welcome to the podcast

hello Rupert good morning

good afternoon to you good morning

and good good morning to you and good afternoon

to me cause you are uh coming all the way

from from California right and I'm over here

in the UK today

so we don't have distance on our side

but we're making things work and so far

things are going pretty well with

communication so it's not letting us down um

we've got some really great topics

to talk about today so I wanna get

stuck into it cause there's some

some what I think people will find very

interesting things that we're

we're going to talk about

but I'm gonna ask you to set the scene

in terms of your background and who you are because you've worked

for some really interesting companies

if anyone goes on your LinkedIn they'll see that you've worked

for likes of SAP and Salesforce and Google um

so some big names people will recognize but you've

you've

sort of moved into a slightly different position

uh more recently so yeah I'll let you tell

tell the story and talk about your journey

from from where you started and and where you are now

sounds

great for first of all Rupert thank you so much for

inviting me I'm

excited to participate and share a little bit about my story

I won't spend

too much time on it cause we don't want your

audience to fall asleep

I did spend 30 years of my career

in technology industries

pretty much all focus on post sales functions

um I started my career doing consulting

work and then slowly moved

into the software side of the world uh

started as a developer kind of an individual

sort of contributor to eventually leading practices

and then pretty much

over the course of my career I've been able to uh

manage pretty much every component

of the customer journey sort of

post sales once a Po comes in

so my team always took over whether it was onboarding

or implementation adoption usage

and eventually customer support customer success

it seems like the names and acronyms change

seems like every year there's a new word a new buzzword

so I've done it kind of done quite a bit

so I did work for companies like

SAP Salesforce Vmware Google Cloud uh the Google Cloud

experience is probably one of the most fascinating

ones cause we did start customer success from scratch

and having to hire

lots of very very smart people but have to do it uh

right as the pandemic started so that that in itself

can yeah can have its own

its own show of how challenging it was but also uh

rewarding I have to say that was probably one of the uh

probably most rewarding

things of my entire 30 years of having to build

great culture and

build a great team and great friendships

but about two or three years ago I sort of

decided that it was it was time to transition

to a new phase in my life I'm not gonna call it retire

cause uh

people in my family will get

very upset if I use that word yeah um

but I really transitioned

into sort of this new world of being an advisor uh

instead of that shift from being an operator

to an advisor it's uh it's not easy

uh everybody thinks it's easy but it's not that easy uh

and so hopefully today you know we'll be able to share some

some thoughts best practices cause

there really isn't a playbook out there for people

who want to transition

into this role so hopefully maybe

some of the things that I went through that I can

you know I'm happy to share with with your audience

nice we can create the playbook uh and then let's do it

this is it this is what it's for so so you moved

from operator to operating

advisor as you mentioned right so yup

what was the thing that triggered the shift cause I'm

interested interested

was it like a pull or was it a push or what happened

you know

it's a great question I think you and I talked a little bit about it when we first

sort of met and started having this conversation

you know I I went a little deep

you know uh I don't know if it was the post pandemic

situation um I don't know if it was having my two sons

and you know one of them graduating

from college at some point and then the other one

sort of starting college

sort of being an empty nester as you you wanna call it

uh we dealt with some health issues in my family

as well so I don't know if all these things were sort of coming together

uh but it came to

to the point of me wanting to realize

that I wanted to have a more purpose driven

sort of second half of my life uh as you know I see you

you Chelsea fan

back there you know that I am a soccer or football fan

so looking at sort of what happens in the second half

what adjustments do you make at half time

so you can come back and kind of

enjoy the second half of the game the lead

or maybe come back and win the game and so I wrote

this thing called My 4 Pillars of purpose which was

really kind of trying to find

what was really important

what was really meaningful to me

um you know you get to a certain extent where you know

some of the financial incentives

that pull you in into working on a day to day job

it gets to a point where like what's

what's enough you know what's

and you know I've always been a big believer

that you know not just in leadership roles but

just being a dad that the best thing to do is to

model the behavior you want for your own sons

and so at least for me you know

I know you have a seven year old son so with that

comes to like what you can't just tell them what to do you gotta show them what to do

and so part of that is to ensure that you always have sort of some purpose in life and so I

decided to write this

four pillars of purpose cause I didn't have anything

better to call it and I wrote because we have

my family we have a soccer non profit

a football non profit that we've been doing since 2,015

where we collect soccer gear for kids

around the world who are less fortunate

so that was sort of one of them um

the second one is I've been doing

a lot of mentoring so I do mentor

through the Latino community through Alban

or other programs

where I mentor they pair us up sort of

you know seasoned veterans with sort of young

entrepreneurs who are getting started

many many times focus on technology and obviously some

you know this new word called

AI or at least these new two letters called AI

so they pair us up with that and then also investing

in in other parts of the world I love to cook

so I started you know investing in some

you know uh food and restaurant

things out there as well

but I also felt that I was not that old

or at least as people thought that is like you know

you still have more to give and so part of that was to shifting

into the fourth pillar

which is really being an advisor

being an operator and you know

how do you actually help coach

mentor companies advise companies and so I enter the PE

world of understanding what the world is which is was

uh very um

unknown space for me I did not know what it meant

I didn't know how many P firms existed

if you and I were in Las Vegas

and had to put some money on how

to guess how many P firms exist in the world

I probably wouldn't have guessed more than 50

I honestly had no idea

that this whole new world existed and so um

learning that was has been a great journey of learning

and adjusting as well so that's

that's really kind of the why I made this shift

and I've been doing it for three years and I love it

I love it I don't I'm not gonna say never

but there's probably a very

very slim chance I would ever

go back and be a full time operator again

it would have to be the right P firm the right

seal the right circumstances so I'm not gonna say no

never um but it would be a very rare opportunity

and when you've been making this

identity shift if we call it that right from um

from operator to to where you are now

like what surprised you about about

yeah it's a good question um

I think everybody gives you some level of advice

so I think

there's probably two things the first thing everybody

said oh it's gonna be very different

you know you're gonna move from

being in the driver's seat to being in the back seat

of a car

yeah and even though people tell you you really don't

appreciate it until you're actually in uh

in in the middle of the battle

um and it's very very true so I think in many cases

uh depending on the P firm so I'll caveat

in general a lot of our conversation

today I'm gonna caveat by being very general

because I don't wanna generalize

and by the way it's not 50

PE firms there's over 5,000 PE

firms in the world so I was nowhere

close so you would have made a lot of money on me

if we were in Vegas together um

so I don't wanna generalize it but I think

every P E firm is different

whether you're majority stake minority stake

as well as just your philosophy around how

you treat your investments

and so you can either be very hands on or completely

away so there's that

there's definitely a range of their

style their philosophy and

you know if you have complexity of a multiple P

firms owning a company that in itself

changes the dynamics of what you as an operator

can help those comments yeah

right so it's not just being in the in the back seat you may be in the

you know if you're

if you're using the train analogy you may be in the

the last wagon yeah of the train

so you're nowhere near so trying to influence change

becomes

very difficult so I would say that's number one

um and I think the second one when it comes to

sort of moving into this role is that there isn't a playbook

there really

isn't a playbook I talked to a few folks

that I knew in the space and

nobody really had this like

do this do this do this do this

um it was very very different

and people didn't like to share their story

they were very guarded

as a sharing of like the journey that they went through themselves

so which is very very interesting and I think it just

comes down to the competitive nature

of all these P E firms and they're all competing for

investments and targets which is great

but I think that translates into everybody

else and so for me I'm like

there's 5,000 P E firms in the world so

if I if somebody asked me about

what took me to get here

I wanna share I don't know there's plenty there's like

there's plenty work to do I'm like

there's probably we probably need 10,000 Carloses out there to even

you know hit 1% of what I think P farms really need

yeah

and so so for me that that was also very surprising

that wasn't really a playbook

yeah yes you can go into Claude or Gemini or

open or chat GPT and type it in there

but the three years ago when I first started

it was really more kind of getting to know people

networking and and trying really understand

what's it gonna take to get here

and that's probably still the best way to do it right is to go and

speak to people try and network

it it's um it's one of those those sort of places you

so I call inner circle right you have to be

on the inner circle build trust build relationships

before people then start to let their guard

down so imagine

that it wasn't always the case that people

people don't still tell you

like things now you're in a position

where people will talk to you and they'll

tell you a bit more of what they're doing because

you've built their trust and

you're part of that sort of circle if you like

yeah no it's a good point and I think

another thing to think about is that

the whole P world is a

whole new different set of people

that I never really interacted

with for the last 30 years

you know through my network I can probably get to

pretty much anybody in a company whether

CEO CFO CCO CTO CTO cause somehow

someone is connected to somebody that I know

but you go to the P world a lot of these

very smart investors

very smart partners that came from Wall Street I wasn't

in that world and so to getting to know the truly

power hitters

and sort of the people that are the influencers

for a better word in the P world are not people that I

new and so it was

it was really almost like starting from scratch of like

building your network making the connection and and

and getting them to understand

like this is what I bring to the table yeah nice versus

what they bring to the table so it's just very different

super entertaining and uh very rewarding uh

cause they're way smarter than I am when it comes to putting

numbers

and spreadsheets together than I ever thought of I was

um but yeah it's it was just it's just a different

network of people that uh now I'm finding myself

that OK now I'm opening it up and now I can

get to certain people that before I never had a chance or even they know that existed

and

and what parts of being an operator did you have to

to ultimately let go of like

um yeah so for me I'm a natural operator I'm

just that's just what I do I

uh even my family thinks I'm nuts when

we plan a vacation it's like it's

it's a project it's a program a project with

milestones and implications and budgets and

and so being in a role where you're an advisor

you can't do that you can only show them

and so building trust with the portfolio companies

with the leadership team

that I am not there to take your job I am not there to

get rid of you and replace you I am there to help you

and I think I would say that's probably where I have to use

really use my skills of um

getting them to trust me and understand

that yes I bring this to the experience to the table

but I am here to help you um

I think that's sort of the

the first thing is just really getting them to trust me

um and I always uh coach this to my own team

when we started a new company

or we were in a new company and we always said

look respect their journey

cause they it took them they were

successful before we got here so respect that

yeah but they also hire you cause they need some help

and so then bring your your so find a balance between

respectful of where they were

and that you don't have all the answers and

hey things that worked at Google or SAP or Salesforce

may not work here yeah

so almost have to be very humble

coming in but at the same time

understanding and sharing your your your

your experience and I think the trust

kind of builds on its own over time

yeah nice and and you said obviously

we said a couple of times

there's no playbook for this or

there certainly wasn't any playbook other than

now as you say you can go into one of the AI models

and probably

build a playbook whether that's right or wrong

let someone else decide but

like what do you think of the questions that someone

should ask themselves before they consider

making this move if they're someone who's

you three or four years ago

thinking OK I'm gonna make the next chapter

yeah I think the

the first thing is that it's not for everybody

I I really think that um even if I had a playbook um

every human has to assess it for themselves

because there's financial constraints there's

personal constraints there's

uh you know family constraints there's um so everyone

needs to kind of look at their own situation

independently from

my advice or any advice that comes from any of the

uh AI models out there

um so I think that's number one is you need to assess it in

in kind of whether you are ready or not

for the transition I think that's the most

important thing

and I think the second thing is that look there's

there's over 5,000 p

farms in the world and they're all are

super successful in their own merit

but at the same time they all have their own style

their different

almost like a personality of how they treat

not just the targets

of companies that they're trying to buy

but also how they take care of them sort of post

acquisition

and so then you kind of have to match your style

as an operator who wants to shift

this to kind of work with those PE firms

I work with some PE

firms who completely leave me alone like literally

they make an introduction to a portfolio company

and I never hear from them again and suddenly

I'm helping them I'm actually

reaching out to the PE firm to see like

let me share with you what we just did and they're like

ah you're fine yeah

so there's some are like that and there's others

that are like no Carlos this is where you're going to

breathe eat

and go to the bathroom this is like literally

what we're

you're gonna do for each portfolio company so

you have to adjust your style for some people one

one extreme or the other extreme works better

so you need to just adjust it so there isn't

I guess that's maybe that's why uh there isn't

really a playbook but at least there's a framework

to kind of think about is that

every P firm is different um

you have to assess your own personal situation

independence and understand

that you're I think the third one is that

I think you're not in the driver's seat anymore

you're in the back seat and you have to be okay

with that it took me time by the way it's

there's times that I'm still wanna jump over the

the the seat and take over take over the wheel um

but learning that it's it's it's hard

it's probably the hardest thing outside of the three

did you feel you've you've now you've got

control of that though in terms of where you are

from where you've been you're not

you're not sort of scratching to get over

over the seat as you said a second ago as much

yeah I think I've Learned the techniques

and sort of the balance of working closely with a P

firm closely with a portfolio company and I think

I would say the the number one thing is just

I think your experience helps you build trust

and I think that's where

you know AI can give you 60 70% to get there

but you still need the 30%

uh that you need the experience

I was using this analogy with somebody and I said look

you know I I was I was doing this event

uh in the East Coast uh

back late last year and I asked the audience

and I said look AI is great

but let me ask you guys a question

and I said does anybody

travel everybody raise their hand does anybody

go on family vacations

you just came back from South Africa right so everybody

goes on family vacations great yes

would you feel comfortable

having the AI fly

the plane by themselves with no pilot

no pilot in the cockpit or no pilot

anywhere as a passenger

and everybody said no way yeah yeah yeah no freaking

way yeah yeah so if you think about it that way right

our AI models can get us to the 70% there of

sometimes what the answer could be or should be

but you still need 30% of old guys like me

who can bring sort of that experience cause there's

there's a pattern recognition

that AI does not bring to the table

not yet I gotta say someday they will

but they're not there yet

and I can give you plenty of examples

where AI came up with an answer

and once we dug in into the situation it was like no it was something

different than what the actual answer from AI was

and so just learning

that is I think is in being humble

about that that's I think that's where the P

firms that get it truly are making meaningful impact

and we've talked a bit about AI so I'm gonna

gonna jump in in terms of some of the the AI

related topic we can't not talk about AI

these days it's everywhere um

we talk about like AI creating value creation

uh across the board with different organizations

and making sure that there's like

the pricing is correct and all

all these sorts of things different different areas

that AI can help but

where do you think it helps in terms of creating value

in terms of like MNA um for P firms cause they

they have a playbook

towards all of that stuff right you

there might not be a playbook for doing

what you've done but they've got a playbook

that they normally work to so

how's AI changing that part of the game

yeah it's um

I would say in the last

even just in the last like probably 12 to 24 months

uh maybe even less probably

um I think AI has truly at least I believe so may not

not all the PFS

may agree with me but at least this is my own personal opinion

so I'll carry on by that

yeah um I do I do believe that AI has changed

and will continue to change the traditional thesis that

most P firms do

evaluate or do due diligence when it comes to

um buying companies

uh because I think AI change that so traditionally

um and again I'll caveat by like

not all 5,000 do it this way may they may do it differently

but at least in the software space

at least some of the ones that I've interacted with is

and this is no

not a matter of national security this is pretty traditional

but they all look at

hey we're gonna do a bunch of MNA work

right so we're gonna buy company a

and we're gonna try to wrap it around BC DNA

companies either through geography expansion or

feature expansion

or I'm gonna go take out a competitor or

you know whatever it is

it's good good strategy mmm hmm

part 2 of that thesis is

number one thing is that we let's

we should look and evaluate price

should we increase prices

is there an opportunity for us to

maybe we haven't been getting uh

the money that in return

maybe we haven't increased prices

most customers and you're getting more value so

we should increase prices

and the third one is all about optimizing sales

kind of growth right cause it's all about

the value of these companies

all about top line growth and things like that

so I do think before I get to your AI answer or

your AI question is it

that typically will manifest itself

into seeing churn in year 2 year 3

because a lot of those things you do are going to impact

how um customers are viewing themselves right so if

you're working with one company and then this company

gets bought and suddenly they have tons of companies

customers feel the pain

they're the ones that actually feel the pain

of that acquisition and what they're doing

so I think that's one I think on the price increases

if you increase price with any additional value

customers are going to especially within the AI world

it's much easier to

go somewhere else than stay with what you have so

that traditionally

the the the challenge of traditional thesis

is very different impact turn yeah

so now I believe that I think when you're doing due

diligence um

the AI lens need to be kind of in the forefront yeah

because you're not the thesis of like

I'm gonna buy company a and buy B C d and E and F is

well now you need to think about is like are there other

AI companies

who potentially if you're if you're the incumbent

yeah are there other ones that are gonna disrupt you

so your thesis of price increases more acquisitions

sales optimization new logos top

top line growth which then translates into valuations

which translate into multiples which translates into

enterprise value three and a/2 to 5 year x exit

now you're you're dealing with seems

like by the time you and I are done this conversation

there's gonna be 10 new AI companies

that were just born yeah and so

now that has to be considered and looked at not just

does my target

have an AI functionality or an AI module is

our thesis is not gonna have to be adjusted to

are there other AI

startups that can potentially disrupt this company yeah

and so that's that's a different lens

that maybe we haven't seen before that I think P

firms will have to

start looking at and then obviously in post sales

you know AI is just

just driving so much change whether is in go to market

whether is in product engineering product development

and then obviously in my space of customer experience

gosh we see it everywhere whether it's customer

support whether it's customer success

whether it's onboarding

whether it's implementation I mean it's just

it's being disrupted yeah quite a bit and I think so

not just due diligence but also the value creation

piece of it begins to

uh be need to be considered what AI will do for that

and and so we've talked a bit about sort of where

AI is and it's obviously it's like everywhere but so

there are some firms and I I believe this myself

this is my opinion that probably uh

have an over reliance or an overestimation on

the things that AI can do so from a PE

perspective like what do you what do you see that

they're doing um to overestimate like AI leverage

yeah um

it's hard to to

give you a range cause a range can be very big

especially depending on the size of companies

right if you're a 50 million dollar AR

or you're a 250 million dollar

AR or you're a billion dollar AR

AI will be uh sort of consumed slightly different um

but I would say

anything traditionally that when you think of AI

you're like everybody's like we can save 30 40% of cost

by reducing this cause we gotta

get we can get rid of you know 34% of humans basically

you know in our organization so the cost the impact

is right away

so to me I think that's an overestimation

in my opinion cause I was thinking

about this just a few days

ago so I mean if you think about

when the whole offshore model

came out yeah where you said look we can

send all of our development

we can send all of our implementation our customer

support to whether it was India

Thailand the Philippines Argentina wherever it was

right we all said

we can reduce cost cause you know a a person

here in California is gonna cost us this much

a person in the Philippines

or India or any other places will cost us literally

you know 10 x less than what cost us here

yeah and so on paper if you do a comparison 1:01 yes

but when you come to the actual implementation of that

is you still had a lead person

in the Philippines or India you had a lead person here

they did QA you have to do double QA

cause some of the QA that was coming

on board on the other side was not done properly

and so it wasn't the 10 x savings

it was maybe only 4 x savings

and then the headaches

of having to manage an offshore piece of it became

much bigger the people will say

do I really need that I'm not sure I need that

yeah and so I feel like in some cases it's somewhat

similar with AI

where AI is making these very massive promises

um I heard something today where 80% of case

deflection be done by one of the AI tools out there

right

yeah wow like that just seems

like super big but it's just yeah yeah so I

make and so I think the

the the problem is that in some cases

people read that on a magazine or on a Super Bowl ad or

you know wherever it is and suddenly

they're like we should come and do that in our organization

like tomorrow and like yeah

it doesn't work that that the same way so I think

I think organizational readiness is important

I think organizational maturity is important

I think understanding

the overall ecosystem where AI can play

I think it's important

I think sprinkling a little bit of AI

on on on your organization

it's not the way to do it you gotta do a full transformation

I think you definitely have to be ready

but you also have to be honest with yourself

about are you organizationally ready for that yeah

yeah you know is your is your leadership team

ready for that change and transformation cause

we're talking about change and transformation

that's not new most aren't ready

that's the main thing right ultimately

there's lots of companies that aren't ready and

as you say the sprinkling and that's again why I see

just generally take PE

aside like most businesses are doing a sprinkling and

then they're realising actually

that doesn't work you just need to you need to

take it down and almost build it up again yeah

it's like you like you'll do that you're like yeah I'm gonna

sprinkle some AI um

I can get rid of these five people here but then guess what I have to hire

five more people over here so not gonna support AI now

yeah I'm like well

what's the really cost benefit that you did and so

I also I do think like when somebody says

when I think of

when I ask the question to whether there's a border

the CEOs and I like what's the value of AI for you and

their their answer to that question

will tell me whether they're ready or not it's very simple

the question is simple is

what's AI gonna do for you

and if they're thinking like oh this is gonna save me money

this is gonna reduce you know the hit counts

that I have in this particular department yeah

you're not ready yeah the companies

that say you know what this is gonna reduce 30% errors

of how we're filing claims or

you know for a insurance company

or you're dealing with patients

right this is gonna reduce

and give us more time for our doctors to spend time

with patients

in front of them rather than having to deal with charts

and doing all this and that

that tells me OK you're ready

you're ready thinking about change transformation

and ultimately who runs the business your patients

your customers that's who actually pays our bills not

the AI and the headcount reduction

that we have to do sometimes so I think that

tells me quite a bit

and and when we last caught up you you spoke

about something that you framed as the G R R time bomb

uh I thought that was a really interesting interesting

interesting phrase but also

when you talked about it and explained

it it's it's quite fascinating

but it all makes sense so

can we talk a bit about it what is it and uh yeah

let's get into that because that's really interesting

yeah so let me first start by sort of so

GRR is you know gross

revenue retention it's really where customers

turn that's it is a hidden metric that

everybody looks at it right most P firms do a

really nice job during due diligence

as well as to monitor kind of as things go by

but GRR to me is a lagging indicator right

it tells you when your customers

are going to leave you they they turn but you know

or they left you not when they're going to but

when they left yeah but to me

those customers didn't leave you today

they were leaving you six months ago mm hmm

the signals were there that six months

ago nine months ago 12 months ago

the signals were already there

yeah and so to me that is why I think sometimes GR I we

we spent a lot of times I've spent a lot of times

reviewing board decks I the the slides

that get put together for the quarterly board

deck that has to be put together whether it's a P

firm or even if you're not owned by a P

firm just in general

and I find it ironic that

90% of those slides are focused on sales go to market

pipeline conversion yield compliance uh

retention of sales people

retention of the pre sale

all those things and then the other

50% of the 90% is focused on product product right now

product this and that

and about 10% is spent on actual customs

yeah and a couple of those lies is GRR

yeah or NRR or NPS or

CSAT and so to me those are all metrics

that are like lagging indicator metrics that is like

so what

you're telling me the cost you tell me Rupert left us

well Rupert was unhappy a year ago

six months ago nine months ago and so I think

the GR time bomb is that in many cases

the traditional thesis of

lots of acquisitions price increase all these things

are creating sort of the Year 3 GR drop is sometimes

um some companies and executive teams don't see it

happening cause when you do lots of acquisitions

now you have potential product competition

yeah you may have potentially this

product and this product overlapping

functionality and so now you're

putting customers into a situation where like

you just bought this other company

they're not integrated

which you always promised to integrate them

they're not necessarily

integrated what is that gonna do to me guess what

I'm gonna go explore some new starter

yeah cause I don't need the 30 bells and whistles

I only need these two or three

things to you do it really good

this other company that's all they do

that's one the second one's are price

increases right especially if you're not

releasing great functionality

value added stuff

and suddenly you increase 20% 30% of price

just so you can get a bump on

AR and that's your thesis goes forward

that potentially could become a challenge

customers take that opportunity than the next renewal

cause if they're stuck for for

on the next renewal they're gonna go bye bye

yeah that's just what's that's what's gonna happen

and I think the third thing that you know when I think of GR

is you know we evaluate companies on growing

but I always ask a question is

like are you going through new logos

or are you really gonna up selling

cross sell that organization

or you know from a product's perspective

so have you done due diligence and post sales

and typically

most of the due diligence is all done on product and

sales and go to market

and channel and market share all the beautiful

things that happen in the front end but typically

the back end is what's actually driving that

and that's where GR becomes sort of a big issue

right so everybody

says what's your GR somebody says somewhere in the 90s

check everybody moves on yeah and then two years later

when you have multiple

account teams calling on the same customer with

potentially competitor products

within the same organization

or you call me for renewals

and they're like wait a second

you just increased prices

this is the third time you've increased

prices on me in the last two years

that's when something

gr becomes an issue and next you know it's like

let's call Carlos or someone like Carlos

who can come in and help us and guide us through this and so

that's why I call it the time bomb

because it's not something that you look at but it's like this hidden

issue that

just by looking at some of the stuff that they're doing I can just already

start seeing it that all this is gonna happen

in six to nine months

I think that's where AI is very powerful it can actually help you do some of that prediction

some of those insights that you can truly leverage

and is that what you do so if you go into a portfolio company

with declining GRR would you

would you start with that as your diagnostic

starting point if you like by just looking

lifting up the

the hood and having a look at what's underneath

maybe using AI to to give you a bit of a head start

yeah so traditionally you would go look at a uh

at a company and understand

them and by the way the leadership teams

you know especially

when they're presenting to the board and they like

gr drop by 2 percentage points

they already have tactics

they already know at least in their mind what it is

what's not working and so it really depends right cause

I I don't have the magic wand

to just fix it in 6 months and in a year

it just doesn't nobody does

maybe others do I don't

but I think it really depends on the reason of GR

and the reason for the turn

right if the turn is related to product or architecture

of that product and how it integrates

maybe to an ecosystem depending on what kind of product you have

depending on what that is

that may take longer it may take a year

for that product

and so then at that point then I sit with the team to say okay let's

let's discuss

features functionality road maps and fixing this

hmm cause sometimes that's it's kind of

not necessarily a top priority because guess what it's not maybe

has not hit the the level of uh

the the you know the house on fire yet

and so maybe the engineering team has not done it so

taking a look at that and kind of

sitting down with the teams okay

how do we help prioritize

I I won't do it I can't do it but I can show it

here's the 10 other features that we want nobody cares

that you want a red button instead of a blue button

guess what

this particular functionality is gonna help reduce

3 percentage points of

GR and by the way that continues to grow even further

yeah so that's kind of one thing to look at is

truly look at what the executive the leadership team

whether it's the CEO or anybody in that organization

has already put together cause I mean there's

just valuable insights that they already have

so that's I think the one thing but

really understanding um the reasons for turn

and say okay what's it gonna take for us to fix it

some of the fixes

can be long term it also depends on when you wanna fix

Jr yeah some companies

they goes like we need to fix this by the end of this year

cause we gotta get rid of the company

or we're trying to sell it or whatever the reason is

need to fix it by the end of this year there's

bonuses attached to it whatever it is well

when you put tactics together you gotta define

short term and long term tactics

yeah sometimes it requires

hand to hand combat which means like we have

you know 300 renewals coming up this quarter

we have 100 that we don't feel like it's gonna happen

well guess what there's no

strategy that I can put in place to fix that

this requires let's take those 100 sort them by value

we map them up with a leadership team and

each one of them is gonna call one by one

to ensure that we don't lose those customers

like that's

so in some cases is that versus

in other cases is like well guess what

it's not price increases is actually your on boarding

was not done correctly you haven't onboarded

this customer so let's look at on boarding so

it really depends so assessing their customers

where is um the turn happening by segment

sometimes GR needs to be looked at it by product

or be looked at it by geography maybe it's happening more in North America

than it is in Europe yeah or in some cases

you're selling it through a channel

you're selling it through a partner

versus selling it with your own sales team

well guess what you have less visibility

when you sell it through a channel

they don't tell you everything so is your GR

much higher in the channel than it is in direct so

like getting deep into like

really understanding the root cause of it

then we can put together a plan um AI has definitely

helped us accelerate the initial diagnostic

but there is no way and I'm willing to say

there is no way that no AI tool today can go to

run an AI model and in 30 minutes

give you the answers to all your gr problems

that's just not there yet maybe someday

but I just haven't seen it

yeah I think I agree with you I think that

that goes for for most things though right it's um

you just need there's still work that needs to go

go into it and as you say

at the at the early part of this conversation

AI is great for for doing lots of bits of heavy lifting

but you still need the people involved in it

to to use their experience to ask the right questions

to dig a little bit deeper to really understand

like what's going on because there are different

potential outcomes that can can happen

depending on the setup of the firm

and all sorts of other things

yeah

there's lots of things that that that happen and and

some of it is very silly I'll give you one

one example it's just super silly but

I went into a company and I was helping around G R R

and their number one thing was the number one reason

was price mm hmm

that's the number one reason that the their customers

were turning and I'm like wow I'm like that's

so walk me through your prices and all we went through all that data

the board deck that's all it had all these tactics

around how to do better negotiations better pricing

maybe concessions anything

they were trying to do like just figure out a way how not to lose more customers

over price and as I started digging into it

I realized that when customers were turning

the No. 1 item on the dropdown menu of turn reasons

that the CSMS or the renewals

team or whoever was handling the support or the

the turn exit

the No. 1 thing on the dropdown menu was price

so to get rid of like quickly to move on right you just place

pricing one to the next time they're like

alright so I'm like okay let me find

so it's like 70% of the customers

Cherry was priced I'm like

what are you guys doing like why are you guys increasing

price so like and then we started

digging into it and what we realized

because I mean you and I know right we never

we never leave because of price

we leave because there's no value yeah

and so when we start digging into we realize

it had nothing to do with prices

but that's what the AI model initially had told them

because they pull all the data and guess what every customer

data said and

even in the even in the conversation through um

you know the the transcripts of these sort of meetings

customer mention price like 10 times

but when you start digging into it

you realize that actually the issue was on boarding

yeah custom were sold and literally

three four five months later hadn't even

installed the product hadn't been configured

yeah hadn't been set up users

hadn't been set up like just this is like the dumbest

smallest thing you can possibly think of and so

it had nothing to do with prices

yeah I'm sure some were I'm not gonna say never but

but it wasn't the crux of the the problem right no

the issue was on boarding and so leveraging

good technology products

out there there's tons of them out there that exist

or even just working with engineering like what can we do

and actually the issue was the handoff

you know sales kind of finished it collected

their P O moved on they're partying

in Vegas or Hawaii wherever they're

celebrating my big win

and customers like no one's calling me back

what do I do now yeah yeah

and it's so it's as simple as onboarding yeah

and so suddenly we paid that quite a bit and started

working on onboarding and

installing we were able to see reduction

kind of in the first six months like quickly

cause communication went out we put a plan in place

we communicate with the customers we got involved

we start looking at these customers and it like

cause there were

if you don't get customers to get value in the first

90 days six months yeah it probably the the

the chance of them leaving you is probably in the 50%

like in the first you know

if you don't do that in the first three to six months

they're gone

yep cause they never get on board

with it they never keep they

they don't build the habit of using the product

cause they go I'm frustrated it's been 90 days

you know what I'm just moving on

I'm going then it comes to renewals and

you go are you gonna renew they go nope

nope and they probably put I'm like why

first thing on the the category and then

you get into this circle

I was just like that is like that was the most

amazing thing I've ever seen I was just like wow

and and so moving on from um

as of where

where we've been talking about now so in terms of like losing

customers to

that strategy of like go to market and investing in

your go to market strategies right when you're taking

a new product or new features out to market um

sometimes

well companies don't get it right all the time

uh and they misallocate their investment

so what have you what have you seen where companies

have misallocated like go to market investment

uh on products they've been been trying to sell

it's probably

it's probably more not so much on portfolio LED

companies it's probably some of these new AI

startups so

one of the things that I've been doing for the last

three years too not just working with P firms

but working very closely with these AI startups

right uh

super smart

founders who are getting these companies started and

they have a lot of courage

I don't know if I could do it but they do and so it's pretty

amazing but

I would say the number one thing I think you and I talked a little bit about this the analogy of the being a general contractor

mm hmm is in many cases

when I work with these AI companies is

there's so many of them out there

but I feel like they're missing the point

around their messaging and their value proposition

they spend 60% 70% of their time explaining

how it works how the sausage is made

versus focusing on the value that they can create

and so I was speaking at an event last year

with some AI founders I think it was the same event

and I use this analogy of like most of them come

I go you can't just be a general contractor when

the faucet in my bathroom is leaking

yeah like that's my pain point

don't come in and tell me you're gonna remodel my house

tear down the put a second

story and put a new pool and a barbecue and a

you know a man cave in the garage yeah

I don't care I want you to fix

the leaky faucet in my bathroom yeah

and so they all come in with this very much this like I can do it all

structure and unstructured

data I can create a genetic AI I can do this I

can like all these like

really wonderful things and let me tell you how we do it and

they're all very proud about when they should

very proud of what they've built yeah

but they don't focus on the actual value creation

the value proposition so to me I think that's where um

you can tell when you're assessing

AI companies cause there's so many of them there is

the their level of maturity is when they're

spending way too much time

telling you how the sausage is made and how it works

versus

like on the impact that they have or what they've been able to accomplish

and do and what they're learning from

I think that gives you quite a bit of a sense of like their level of maturity

around how they're thinking about it and so I think

uh when I see slides that spend 60 70% of the

sausage making and all the integration all the APIs

they can integrate great I don't care yeah

I care about the value that if I'm a CCO or CEO or CFO

what value can you bring to me

by implementing AI and I think that's where

there's so much noise for a lot of these companies

and they're

struggling and so that's kind of where I try to help

mentor the AI startups

to kind of think about it that way right what is your messaging

what is your value proposition

how you should think about it like that

and I think that also then begins to translate

into the big enterprise companies

yeah they already have kind of a

traditional product or traditional SAS

based three tier architecture kind of product now can

now let's bring AI into it

what should your go to market

motion should be mm hmm to complain changes yeah like

you know it's it's very disruptive

I love our sales teams I love our sales

market teams but you have to begin to adjust

cause we're in a very different world today

and and what are the the other sort of common mistakes

that you're seeing these some of these AI start

AI startups make when they're

they're selling to enterprise that's what

they're trying to get in with on the most part yep

to get in with enterprise level organizations or

consumer

but I think you're pretty well positioned to probably

talk more about the enterprise side of things um yeah

what are you

what are you seeing as some of the mistakes there

um I think they um

they all have a uh

a playbook to say let's go take out x incumbent

so if you're like doing CRM stuff

like let me go figure out how to take out Salesforce or

you know compliment Salesforce

I'm like that's that's a little tough

or on the customer

experience side of let me go take out gain

side or to tango and like so they have like

they have like almost a like the big David and Goliath

story where they're like

that's who I'm gonna go after and I just think they

they should just shift to more like focus on the value

focus on the persona on the messaging

and not try to boil the ocean um I think in many cases

the stuff that they're doing today is stuff that

I've been trying to do this forever like there's

there's nothing

somewhat new to this like we've been trying to do

data integration consolidation of data

so we pull it up in a dashboard so we can render

content to somebody and somebody can go make decisions

yeah like that's that's what you call data warehouses

like that all these things have happened over time

the difference now that is that you know

we're shifting from this is what happened

to why don't we stop it from happening

that's the shift and I think so I think that's where

they need to start thinking

that like yes you have AI technologies

you have sort of a new

paradigm shift that you can take advantage of it

but just be careful and be humble that hey

these are problems especially when you're talking to

a CRO a CFO who's been around yeah

you know everybody's trying to pitch this like this is brand

new

you've never seen this before I'm like well no we have

yeah it's just a faster

more modern electric car than my traditional

1966 Mustang yeah it's a little different but but I

but I still like my 1966 Mustang so yeah yeah exactly

you can still like the old stuff right the way it was done before

it's okay yes I think there's some

there's definitely some patterns and some good lessons

Learned

that happened in the past that could be leveraged in the forefront

um but I do think AI is gonna is continues to change

and dramatically change

software companies

I mean there was an article on the Wall Street Journal

around the whole what

$1 trillion or $1.6 trillion meltdown

swept by the new AI announcers

whether it's anthropic or open AI or you know Google

but just things think about things have shifted um

in 2021 20 when I was at Google

the three big battles was Microsoft Amazon and Google

yeah that was it who's gonna own the cloud space

yeah and who do we look at today

Google and Tropic and open AI you know

and so it's just very interesting that things

continue to shift

um so there's always gonna be the the three

the top three you know but you know things

evolve and change but there's definitely some lessons

Learned that we can take from the past

yeah nice there's there's enough room for everyone to

play as well that's the main thing as well that

I it's not have doesn't have to be

just the top three right there's plenty

of plenty of room for other organizations

to other things um

before we sort of run out of of time I wanna actually

go back to talking a bit more about

um P businesses and maybe uh

doing a bit of myth busting or

or however you wanna frame it because I think there are

there'll be people listening who

never worked in a PE organization

maybe they have but not knowing the difference between

what it's like to to work in a a PE backed organization

versus a VC backed organization etcetera um

I think PE more recently and

some in some ways rightly so has had

a bit of a crown on its head as this place that people

certainly tend to want to work um

whether that's through job security or whatever

whatever it might be but what do you see that changes

when a software business becomes PE backed from

maybe being you know found found around or even

uh like VC to to PE PE backed as an organization

yeah I I mean obviously

you know you always think about

I think it was the three tiers of investments

you start with you know if you're a small company

startup you're looking at angel investments you're

you're borrowing money from uncle

and aunt and grandpa and grandma to get your company

started which is great

and then you get to sort of the VC

phase where you're like okay you know 3 million

5 million dollar checks are being written

so then that's when you get into the VC phase

and then eventually you get into the P

world and depending on the kind of P

you're working with they can be looking at growth

some of them have more focus on particular

industry things like that so I think if anybody

is considering or thinking about working

um in a P backed software company um

I think it's it's a great opportunity to create a

wealth creation for you if you are with

the right company so for me the questions

I would always ask and I ask them today cause I do get

asked quite a bit to like would you like to join this company

so for me it's very simple No. 1 is understanding

the P E philosophy when it comes to their investments

there's no right or wrong

it just more does it adjust to your style okay

my style could be very different than yours and so

a P E

firm may work well for me but it may not work for you or vice

versa so I think that's really really important

the second thing is to ask is

how long have you had this asset yeah

because think about this right

most PE firms are thinking

kind of in the three and a half to 5 x

years three and a half to 5 x return

that's that's their window kind of three to five years

3 to 5 x return so if you join a company

when they first got acquired the company

let's say in the first year

then you have an opportunity to go build

three or four years build a plan build a strategy

evolve the organization

transform the organization and get there

yeah but if you join sort of in the

last five minutes or in extra time

using football analogy

depending what the score is you either

gonna come in as a defender or you wanna put another

striker

so we can go score to tie the game or win the game

and so it really depends on

where they're at in their acquisition journey

if they're in the latter part of it then

the guiding principles and what you're thinking

about might be a little bit different cause I

I can come in with a three to five year strategy plan

with a company

that is trying to exit by the end of 2027 or 2026

just it's very different right so

yeah I think understanding

those two key dynamics are super important

and for me the third one too is that I think as you're

interviewing for a job

you shouldn't just interview with the CEO

and the CRO and the CFO and the

Cho like everybody within the portfolio company

but I would also ask

let me talk to the investment team

you know the deal team

yeah let me get to know them too because they are very

they have a huge influence and

I would say majority of the P firms have a a good

support system to support the leadership team

they're very good at providing all the tools

and things that they need

but also understanding that cause they're a very

key stakeholder in whether or not you taking on a job

will you be successful or not

so kind of those that I would say are my three

always criteria you know besides what you normally

would do and due diligence of yourself right it's like

is this the right company

is this the right space is this where I wanna be

but I think those three things for me are always

very critical that I think in the last three years I've Learned that are

very very

important whether or not somebody can be successful

and you talked about it being a potential right fit for

the person depending on values etcetera

all sorts of different things that make make up

whether it's right or not but

what are some of the the packs sort of warning signs

if you like that you've seen in the past to go

this isn't gonna be a right fit

rightly or wrongly depending on who the person is

yeah I I don't know if it's

I don't know if the warning signs are just P

focused but they probably have seen it a lot is that

um you know if you go are joining a company

and they've had two CEOs in the last three years

or you're the fourth CC

that is being brought in or the third

CRO in two years or three years

then there's something there

either you don't have a product fit

uh or you know

there there's so many different things I think

understanding

the dynamics so I don't know if it's just a P backed

concern that you should have but those to me are the

the typical warning signs where you do that cause

you know in many cases

PS are there to make money I mean like less that's

there's no

you know they're not a non profit organization

okay they're they're there to make money so anything

you can do to help them achieve

and kind of make the money it's

important for them and so

making sure you're aligned

to their objectives and their goals

and then they're aligned to your objectives and goals

yeah are super important

um I've seen it where they're they're not aligned

and lots of turnover lots of things are happening

um but it doesn't

sometimes it's just not the right fit

it's not cause someone's bad someone's you know mean

or it's just sometimes it's not a bad fit like anything

else but I go but you just have to

you just have to expand

your due diligence beyond just the company

yeah but the things around it that sort of align

to the company and sometimes

a company is owned not just by 1 p

yeah true that they're owned by two or three

yeah so now understanding that dynamic

becomes super important whether you're majority state

minority state what's the percentage what's the that

that also give you a little bit of a sense of like which

which one is the right you know if that's really

the right fit for you

but it's a it's a big change isn't it and when the P

firm comes in and you're working with the P firm

there are metrics

that you need to hit there's pressure right

it's not it's not for everyone as we discussed earlier

um and you get the same with

any any investor but I think P firms tends to be uh

another level of uh of pressure

with with targets to really

to really sort of drive because there's a

there's a real end goal and there's

there's quite frankly there's

a ton of money at stake yeah it doesn't go well

yeah yeah no

and it's a very good point actually when I was helping

uh interview for different roles um and I've helped

got for the last three years done so many interviews

uh you know interviewing people that

you are in my role or colleagues are in my own network

um

that's a big thing is that you know do they actually bring

PE experience

because the the the request the board meetings are

very very different when you're asking for funding

to your CEO cause you need a new tool to drive

customer

success versus you go to the board to ask for money

to drive customer success

it may be the same ask

but there's two different messages right two different

metrics that they're thinking

about so you have to be very operationally focused

very metrics driven

like a true operator

like you can't just come in and fake it

that that's also I think a little bit of of

like I think what peas bring which is great

I love numbers so it's it's really good

they're way better than me but but

yeah they definitely a a

there but there's it's definitely

a skill

that you have and if you don't have you need to be very good at it

nice to you know learn it

yeah well look Carlos it's been absolutely fascinating

talking to you today

I really appreciate you giving up your time and sharing

uh some of your your infinite wisdom

uh for today I think we could have done about another

another five episodes given

all the the things that we can probably talk about um

so have to have to have you back on again I think uh to

to talk about some more stuff

as we see all of these things evolve and advance

um it's gonna be pretty fascinating

to see where we land in the next few years

yeah it's been a pleasure to to share this is fun

and you're right we probably can talk for

another couple of hours of so many different topics

around this area

but thank you for having me I really appreciate it and I hope the

hope the audience got some

at least a few few nuggets that they can take to

if if they're making this transition as well

perfect

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