Operating Systems (Permanent Equity Weekly, February 2020)

Permanent Equity’s weekly email (Edition 31, February 2020) on business operating systems: the routines and norms that make a company run, and how a long-term owner improves them.

Why it was kept

Kyle saved the email under Operating Systems; Permanent Equity later revisited the idea in Operating Systems, Revisited (Permanent Equity).

As Kyle captured it

• Email from Permanent Equity on business Operating Systems
  • Source:: https://www.permanentequity.com/weekly/the-weekly-edition-31-february-7-2020
  • Operating Systems
  • Most folks know the term operating system to apply to computers, phones, and hardware. But any complex system, from individual humans to companies, have routine procedures and norms that when taken together form its operating system.  At Permanent Equity, our top order of business is to continuously improve our portfolio companies’ operating systems. But as is normally the case with change, questions arose over what this actually looks like in practice from a seller’s perspective.
  • This week we published a new essay on what to expect from us as a seller post-closing. Well, the answer is, in a nutshell, not much. We don’t like to get too far into the weeds where industry-know-how trumps our lack thereof, because we are already buying businesses that operate well in their space (read: they generate excess free cash flow).
  • These businesses have routines, procedures, and practices that have been built over years of experience. But there are generally changes that can be made to boost efficiency of decision-making, operations, financing, hiring, firing, and everything in between. We try our hardest to optimize our companies such that everyone from employees to executives are doing more of what they are best at - running their operations.
  • We improve our portfolio companies’ operating systems with both high-tech and low-tech solutions. We seek to improve their technology stack by implementing the right solutions to capture the low-hanging fruit. Whether it is a fully or semi-automated marketing funnel, a new CRM, an improved accounting solution, or a proprietary talent pool, we support our portfolio companies by helping free up time and capital. In addition to technology solutions, we also support our companies in non-tech related areas including legal counsel, negotiating financing, and strategic planning. The beauty of our portfolio approach is that it is relatively easy to roll out an operating system solution that solves a general problem across the portfolio fairly seamlessly.
  • At the end of the day, it all boils down to our mission as long-term owner-operators: to let the operators operate, to help them as needed, and to grow the family over time.