Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

This week, we are discussing sourcing executives. We'll talk about our Pod structure, or the way our business is organized to deliver outcomes for the challenges we encounter in conducting fieldwork as part of our own investment research process and those of our partners.

We are focusing on solving needs through fieldwork for long-term, fundamental, relatively concentrated investors who tend to conduct extensive fieldwork. These are the types of users of primary research services that we cater to.

The first question I want to ask you is to explain the differences in how we are structured compared to a traditional network.

Following up from our last conversation about how analysts should best submit project briefs to expert networks, which we discussed in the last podcast, let's now consider what typically happens when an expert network receives a project brief. There are significant differences between how traditional networks are structured and how we are structured.

Firstly, regarding team structure, a few years ago, we implemented a system where we hired investment research analysts. In the traditional expert network industry, employees are generally called research analysts, but that term can mean different things depending on the type of research. We specifically hire investment research analysts who are investors themselves. We partner these investors with high-quality recruiters and headhunters who can source the best executives using various techniques.

The reason for this approach is that we realized early on that the optimal way to structure this business is to be the customer. We were effectively the customer, conducting our own executive interviews and sourcing our own executives. This dual role as customer and provider helped us understand what we were looking for, resulting in great interviews with excellent executives.

A significant challenge in the industry is the information asymmetry between the customer and the service provider. Our structure, which includes an analyst and a recruiter in a Pod, aims to reduce this asymmetry. For example, if I'm submitting a project on HEICO, our analysts will understand how HEICO works, read the 10-K, and comprehend the filings. They can converse with a portfolio manager about HEICO or the aerospace aftermarket, craft a brief, and work closely with our sourcing team to find the right executives.

This approach not only strengthens our relationship with the customer, such as a fund manager, but also leads to better quality and more consistent sourcing. It allows us to explore various channels and customers effectively. This is very different from traditional expert networks like GLG or AlphaSights, which are structured differently and often hire non-investors to serve customers, focusing more on speed and volume.

Let's examine a specific project to understand how this process works in practice. I'd like to discuss a sourcing project on HEICO, a business you've worked on for years and one we have been interested in for a long time. It's run by people we deeply respect. Let's walk through the process there.

It's a good example that illustrates how challenging and complex this work can be. HEICO is an aerospace group with two main segments; FSG and ETG. FSG is more commercial aeropsace and ETG is defense and space end markets.

The FSG business is vertically integrated across the value chain and consists of various segments. They have distribution businesses, such as Seal Dynamics and Air Cost Control, which are specialty distributors. They also have PMA businesses and own MRO shops. These are all very different businesses.

When a customer, like a hedge fund manager, expresses interest in HEICO, whether it's in M&A, PMAs, or the commercial aerospace business, they need to understand that HEICO covers various sectors. Without the right internal people to navigate HEICO's filings and documentation, or without executives who have built knowledge and understanding of the aftermarket and different sectors, finding the right person can be challenging.

It's not always clear from the outside looking in. Our piece on HEICO surprised some investors with the diversity of its businesses. Often, investors submit projects without knowing exactly what they're looking for. HEICO's organizational structure presents many challenges.

Within FSG, which is typically associated with HEICO's commercial aerospace part, there are three broad segments; broadly. PMAs, distribution, MRO shops. HEICO is also highly decentralized. So if you go on LinkedIn and you try and find HEICO people, not everyone's going to be classified as working at EICO, on LinkedIn, because their salary is paid by Seal Dynamics, which is that operating company.

You can find subsidiaries in the filings, but you need a structured approach or people at GLG and AlphaSights to dig through HEICO's 10-K and understand the subsidiaries. Recognizing that Seal Dynamics is a distributor versus a PMA shop is not self-explanatory.

To truly understand a business and find the right person to explore how these companies work, you must grasp the organizational structure. You need a team and structure incentivized to dig and understand where to look. Otherwise, you might just search for a former VP on LinkedIn and contact the first person who responds, which is what many people typically do.

It becomes increasingly difficult within traditional [expert network] structures where the organization is rooted in a philosophy of speed and volume. When considering the kind of work or support needed for a business like HEICO, it becomes challenging. If you're in a rush, making calls to as many people as possible, it becomes hard to do the work effectively. It's difficult to identify and pre-qualify the most valuable person.

It's not feasible to achieve optimal output this way. If you want to find the best people, you can't expect to have them by tomorrow. It's important to clarify the history of the expert network industry. These businesses mainly originated from big consultancies like Bain and BCG, primarily serving large corporate and private equity customers. These consulting firms and PE firms are under immense time pressure. If you're at Apollo or KKR on the LBO team and something is up for sale, you must act quickly and get up to speed on a business within weeks.

When something is for sale, banks shop it around to PE shops. If they find it interesting, they commission McKinsey for commercial due diligence on the market or customer base to learn more about the industry and provide their report. The PE fund will also contact GLG and others to quickly learn about the business. This creates a scrambling nature in the industry, moving quickly and often relying on the same pool of executives. If you're in a rush, you'll use similar techniques, like searching LinkedIn for former VPs and senior executives or identifying the biggest customers of an entity.

Consequently, the same pool of executives gets passed around quickly. There's a culture of speed and volume in the industry that doesn't necessarily yield the best output or incentivize teams to find the best executives. We've consciously tried to move away from that by instructing our team to find the best person for every project and interview.

Not everyone has the same needs, and we want to respect the variety of needs and specific problems that the main customers of these networks have. We're working in a relatively small niche.

Well, they've got a much better business, right?

They have fantastic businesses.

They can recycle their resources all day long, right?

Exactly.

We've chosen the harder route. We serve people who have owned HEICO for 20 years. Good luck with that.

Good luck, indeed. And what does that mean?

You'd better know what you're looking for.

What does that take? It requires a fundamentally different approach to the work. When you're dealing with someone who has owned HEICO for 20 years, they've done numerous calls, they are well-networked, and they are looking for what is incremental to them. By definition, it's the highest hurdle you can serve.

The hurdle is significantly higher. We're trying to serve someone who has owned HEICO for 10 years versus a 28-year-old from McKinsey. Both have their needs, and maybe we're in the wrong market.

Let's outline how the Pod structure works and how the investment analyst, hired as a full-time employee at In Practise, collaborates with a researcher to drive outcomes.

It's not necessarily revolutionary. The main difference is that we've decided to actually hire investors. At IP, if you're a customer conducting calls with executives through our platform, we believe the relationship should be investor to investor. Every interaction the customer has with us should be led by an investor. We aim to be a true partner, able to converse, relate, and understand market dynamics. We can quickly learn about an industry and communicate effectively. The key difference is hiring investors to deal with investors.

Practically how it works is very simple. The idea is that the customer sends a project, and the analyst is there. They're effectively the account manager analyst, and they're there to interpret the project. By the way, these analysts spend 50% of their time conducting calls on their own coverage list for us, for IP that's published on our platform. The other 50% of their job is roughly being an account manager serving hedge fund customers.

They're partners, doing their own research as well. They're covering customers and companies themselves. They understand projects that come in and can really interpret them. If you give them HEICO, they will understand. If they don't already know HEICO, they'll understand how to approach it and learn about it. Originally, we had a process where the analysts would conduct a mini case study, skim the filings, understand where to look, and break out the business. Part of the art is also translating how the company reports itself to how it's actually organized in reality.

For example, how are people presenting themselves on LinkedIn? You might not have a lot of people representing themselves at HEICO as working at the flight support group because that technically doesn't exist at HEICO as an entity. It might be a centralized function with a small team, with one or two people doing corporate M&A and stuff, but that's not really a P&L in terms of having the assets as subsidiaries. The analyst's job is to really interpret the project that comes in from the customer. This is where we think the information symmetry lies.

If I give you a project about TransDigm, and I've owned TransDigm for 10 years, it's going to be very difficult for you to find great people, apart from the obvious, like finding a former VP or EVP that left in six months. Anyone can do that on LinkedIn. We can talk about how to do intro calls and how to relate and onboard the executive property, which we can discuss next time. But in terms of just finding them, most people can do that.

The way we structured it is to reduce the information symmetry. Investor interacts with investor, and the analyst interprets projects from customers. They then construct a brief for the sourcing team. Originally, we started with mini case studies where they would explain the business to the recruiter, maybe put some angles of where they should source, and show some ideal profiles. But as the Pods have gotten to know each other and trust each other more, they're working very closely together. It's much more fluid, and they can just send example profiles and show angles, different Boolean searches, and different techniques outside of LinkedIn, where you can really add value by finding unique sources, industry data, associations, etc. This really briefs the recruiter to go and find more leads to potentially conduct an intro call. It's all about reducing that information asymmetry between the customer and us as a provider.

I want to touch on what may be an elephant in the room for some of our listeners, which is why would a professional investor or an investment analyst want to work within a primary research firm?

You get an unlimited research budget to speak to executives you admire and study great things without constraints, within reason. We believe we've designed an excellent learning environment for someone interested in business and investing. Who knows how this may evolve over time? Fundamentally, the analyst role is a dream for anyone who wants to understand how business really works. You spend all day speaking to executives, which is very similar to how I spend my day and how we've operated for the past 10 years. If you want to learn about an industry, navigating your way through the best executives to truly understand how it works is the core of that role.

You live in a world with an interesting feedback loop. You sit between sourcing the best executives in these industries and working with great investment managers. There are learning feedback loops on both ends. You learn how top investors craft their investment thesis, what might go wrong, why they may be looking at certain things, and you help them craft their thesis and build conviction. Additionally, 50% of your time is spent conducting your own research and speaking to executives. It's a fascinating job for someone who's curious.

I think touches on the main reasons we have a regular stream of applicants weekly, asking to work with us. People from investment funds, we've hired two people directly from funds who were users of primary research firms. We find it easy to attract deeply curious and experienced investors. The other half of the Pod is comprised of what we call a recruiter or sometimes a researcher. Let's discuss what kind of person that is and where they come from.

These individuals also need to be deeply curious about business. They receive a project brief from the customer, which is also primed and presented by the analyst. They need to interpret it themselves. We're always looking for people who love speaking to others, are curious about the world, and willing to source as many great people as possible. We haven't perfected this yet; there's always room for improvement.

Right now, everyone's a generalist. Maybe over time, we'll have a US healthcare recruiter who becomes highly connected in that industry, building relationships and feeding executives back when they want to consult or for long-term advisory positions. As we're scaling slowly but surely, everyone remains a generalist, deeply curious. Over time, this may evolve, and we could supplement with deep industry specialists.

What we discovered, and I want to delve into this in more detail, is that addressing a problem we identified early on has been a journey. Whether during our time at Third Bridge, served by the so-called research team, or In Practise, solving the issue of information asymmetry, the type of recruiter available is rare. It's uncommon to find someone deeply interested in business and investing who is also excellent at relationship building. When such individuals are found, they quickly move on from expert networks, often leaving within a year to 18 months. Retaining talent is nearly impossible.

The average tenure is a couple of years, right?

Exactly. The average tenure within an expert network is 18 months to two years. The most talented individuals won't stay longer than a year if they possess business analysis acumen. If they have the skills you desire, they don't remain in that context. What we've found, as Will elaborated, is the hypothesis of splitting roles. We call it a partner program because, at In Practise, you have a partner assisting in sourcing. This partner is a peer, an investor interested in business, working alongside someone skilled in relationship building. We're not forcing these distinct skill sets into one person.

To be honest about this industry, a large percentage of associates or young people working in expert networks were misled about the role, especially five or six years ago. It was labeled as a research position, but in the finance world, "research" implies deep industry analysis or sell-side research. From my experience, many in that role felt misled, realizing they needed more people skills to speak with executives and find them, rather than researching companies. This makes it difficult for traditional expert networks to retain great people to serve hedge funds and customers over time. Our structure aims for durability, with clear roles and opportunities for growth, avoiding the pitfalls of misrepresenting roles and the resulting two-year average tenure, which is problematic.

Let's return to HEICO and consider the needs of someone who has studied the industry for years or held a position at HEICO or a competitor. Let's discuss the different capabilities required. We've noted for years that many of the most interesting individuals we want to engage with are not on LinkedIn, or they don't respond to messages. They might be on LinkedIn but don't check their messages. These are men and women earning between $1 million to a couple of million annually—the deep industry veterans. Being approached with a list of questions and a proposal for $300 to $500 is something they never respond to, if they're even on LinkedIn. Many of the best people we've spoken to and built relationships with over the years have minimal online profiles or are not contactable via any network. So, how do we find such individuals? How do you solve a problem for someone who doesn't care about the money and is extremely busy? Because, by definition, if you're really good, you're pretty busy.

It comes back to one principle we have, which is give before you take and add value to them before asking for any kind of engagement. And I think like we said before on the prior call, around these briefing questions that the industry has somewhat fallen into providing to executives. Asking these two questions to see if you can consult on AI or something very broad is borderline disrespectful for executives. So I think what we've found is that by using our library, using our research, using insights that we have to share insights with executives, we explore how we can add value to them. It could be they're in a new role, it could be they have a different type of position. We could be sharing a bit of insight about the industry that would actually help them in their role. That typically converts way higher than just, hey, do you want 300 bucks for an hour call with Mr. Hedge Fund Man? So I think it goes back to just give before you take.

Regarding what we can actually give, I want to emphasize the importance of having a content library. Throughout our careers, we've engaged in learning in public, focusing on publishing interviews, writing long-form pieces, and curating research pieces. Will, could you elaborate on the curated research pieces and how they benefit operators? These pieces are tools we use, beyond individual interviews, to build relationships.

It doesn't have to be just our own library or research. It could be as simple as a news article or HEICO's recent earnings presentation. Many operators, as you mentioned, are very busy building things and not sitting at a desk like us. They aren't necessarily reading every single IR presentation that comes out as we would. Sharing perspectives or even just public information can ignite a conversation with an executive or prompt them to think about something interesting that impacts their day-to-day role or business.

With our research and proprietary library, we can go a level deeper. We aim to provide real insights or perspectives from different companies in the industry or broader points to share with executives. This increases the likelihood of them replying to us and even sharing it with others if it's interesting. It builds a brand and reputation, leading to better engagement when speaking to these executives, rather than a simple outreach from a traditional network.

There is another point to consider in this conversation, which has a real impact on the sourcing process. We are often in a position to be clear with experts about what we're looking for and what we've found. Many senior, high-value individuals don't want to get involved unless they know who they're dealing with. They want assurance that the person they're speaking with is properly prepared for the conversation.

Senior executives often have poor experiences with major networks where the person on the other end is unprepared or a junior analyst running through a checklist of questions in an unpleasant manner. This can feel disrespectful and unenjoyable. From a sourcing perspective, working with us and our partners means entering a project with clarity, providing a different bandwidth and ability to engage with people effectively.

That's hopefully our Pod structure and organizational structure working effectively. You only have a few minutes to engage these executives, if you're lucky. It could be even shorter. It's interesting; I was on the phone yesterday with a public company CEO. I'll be interviewing him at the end of January. It's a $7 to $8 billion company. If you know what matters to them and their business, you can capture their attention.

Typically, senior people are interested in what capital providers think about the industry or their business. Sharing insights or potential views on what matters for the industry, and perspectives from capital providers, can capture their attention if done intelligently. I've always aimed to add value to these executives. Yesterday, I spoke to the CEO and discussed what I've heard from various industry executives over the last six months.

He's based in the US, and I'm in London, which offers a different perspective that's helpful for him. He's the CEO of an $8 billion company, and it was a seven-minute call at 6.30 in the morning, when he had time. I think it's just about understanding how to navigate those conversations, how to connect with them, understand what really matters for them. And I've been surprised at how we can network through different industries and that's just one example.

Often, the best executives and interviews we've done are not with the most senior people. They're with those on the ground who don't think about expert networks or don't reply to them because they don't understand it. The principle remains, which is how can you add value to these people? What could help them in their current role? How do you connect with them to build trust? Because that's the other thing, it builds trust with them when you can get really to the point about what might drive an industry or a business at any one given point in time.

Hopefully, our Pod structure, which is still a work in progress, is a step in the right direction. With analysts or investors dealing with investors and interpreting projects, we aim to keep sourcing the best people to join us.

Join us next week, where we will be discussing vetting executives.

As always, this is for informational purposes only and should not be relied upon for investment decisions. Please conduct your own research.