Adam Coffey Podcast Transcript
Adam Coffey joins host Brian Thomas on The Digital Executive Podcast.
Brian Thomas: Welcome to Coruzant Technologies, home of the Digital Executive podcast.
Welcome to the Digital Executive. Today’s guest is Adam Coffey, CEO, board member, bestselling author, and acclaimed international speaker. Adam Coffey is a visionary leader who drives transformative growth and fosters high performance cultures with 21 plus years of experience as the CEO. Adam built three national service companies for nine private equity sponsors.
During this time, he completed 58 acquisitions. His track record includes notable outcomes measured in the billions. Adam Coffey is a respected mentor to MBA candidates and a sought after speaker at top business schools. He brings diverse expertise from commercial industrial service businesses along with being a licensed general contractor pilot, former GE executive, and US Army Veteran.
Well, good afternoon, Adam. Welcome to the show.
Adam Coffey: It’s good to be here. Hello to all your listeners out there.
Brian Thomas: Awesome, Adam. I appreciate it. Been looking forward to your podcast here for the last several days, and it’s exciting to speak to serial entrepreneurs. I like to call you, but let’s just jump right into your first question, Adam, if you don’t mind.
With over two decades as a CEO across multiple industries, how do you adapt your leadership approach to fit the unique challenges of each sector?
Adam Coffey: It’s interesting because if I look at every company that I’ve run, they were in different industries and I was never an expert in an industry until somebody hired me, called me president, you know, CEO of a large company.
And then everyone in the world assumes I’m an expert. In a given industry. So I’ve had to develop a toolkit, you know, over the years, across the decades. That helps me immerse into a, a new industry and quickly understand. And so I have a methodology that I use and you know, it includes things like when I’m doing financial analysis, I’ve developed this tool I call the thirty twenty ten rule, which helps me quickly analyze the financials of any company in any industry to see.
How it’s performing at kind of the unit level economic, you know, so like if I’m running a service company and it’s guys and trucks out fixing things, you know, my unit level economic is the truck. I’m looking at the 30, 20 10 rule. Do I have a minimum of 30% gross profit? Do I have less than 20% sg and a, am I making it least a dime on a dollar?
And so I can quickly assess using an income statement, how a company is performing regardless of industry. And then I know where to focus some attention. But another thing that I do. Is I typically, as I’m first starting out, I’ll do a series of interviews. Uh, my last company I got in, I did 80 interviews with direct reports, with line employees, with customers to quickly kind of immerse myself.
And then I did a series of ride-alongs. And so I would take an HR census outta hr, you know, and I’d say, okay, what do I have a lot of? You know, last company, I have 1400 service techs. I’ve got 425 construction workers. I’ve got 67 salespeople. So I’m literally looking at where is the population And then I go out in the field and I spend some time in those different job categories.
Think about like that TV show, undercover, CEO only. I’m not undercover. And so the purpose behind doing that is to not assume anything. It’s to understand what people do for a living, what the jobs are actually like, so that later on if I’m looking at a spreadsheet and I’m seeing columns and, and job classes or names and numbers, it’s like I’m not looking at 2D information on a spreadsheet.
I’m remembering what these people do for a living. I’ve walked in their shoes, I’ve been on construction sites, I’ve been in the truck on a service call, and I’ve ridden with. A sales rep. I’ve spoken to customers, I’ve interviewed people at the line level, you know, of the jobs. And so it’s a combination of analyzing financials, looking at HR census, getting out and immersing myself in a company that very quickly helps me kind of come up to speed on the company.
Its challenges and the industry because every time I’m hired. I’m brought into what I would call a turnaround situation. People haven’t fired the CEO because they’ve been delighting, you know, the board or shareholders or, or the private equity firm. If it happens to be PE owned, something’s not working right.
So the financial analysis helps me troubleshoot very quickly. In my GE days, I was a turnaround guy. The HR census lets me know where’s the majority of activity. Taking place, the immersions or the ride-alongs are helping me understand the work being done. And you put all of that together and it helps me get into a business, assess where it’s at, identify the problematic areas, understand what the industry and the company’s doing.
And then that just kind of springboards me into, you know, my initial strategic planning for. How I’m gonna attack what I’m seeing, what I’m finding. And I find that making that approach kind of generic and, but applying it to every company in different industries has allowed me to kind of step into any industry and assess and learn and turn a business around very quickly.
Brian Thomas: I. Awesome. And just to highlight a few things that I thought were relevant here, where you stepped in, you said you’re not an expert in one given industry, but you were able to get in there and ask the right questions. You can look at a p and l and determine where the margins are and what needs to be at, but I like how you roll up your sleeves, get out in the field with the people, the people that are in the trenches doing the real work and asking those questions.
I think that’s awesome as a leader.
Adam Coffey: I call that my informal feedback loop. ’cause it’s, it’s frequent. Then, you know, I’m a strong believer in culture and to build an empire we need people and you have to have a strong culture. I develop relationships with line employees early in my run at a company. And so, you know, you, you’re a CEO, you’re on top of the organizational chart.
You have a staff, and so the staff you’re interacting with on a regular basis, and they may be telling you what you want to hear, they may be telling you the truth. There may be some version in between. And so I’m creating also by developing friendships, you know, and relationships with people in the trenches, what I call an informal feedback loop, which also lets me assess from from the trenches how they’re perceiving what’s going on in a company.
And when I am instituting massive change. Oftentimes it’s that informal feedback loop that helps me understand when I’m pushing too hard, too fast, because I can go quick, but you shouldn’t go any faster in a turnaround. Then the culture can assimilate what you’re seeking to achieve and what you’re trying to do.
I also find it very helpful in establishing kind of that informal feedback loop, which is very helpful to the future.
Brian Thomas: Thank you, Adam. Next question. Having worked with nine private equity sponsors in completing 58 acquisitions, what key factors do you consider essential for a successful partnership?
Between CEO and PE firms. It starts with alignment, in my opinion. So first of all, we all need to be rowing in the same boat, in the same direction. So how is that achieved?
Adam Coffey: Well, in a typical PE backed company, there is an incentive equity pool that is created. It’s often anywhere from 10 to 14% of the stock.
You know, they’ll create a separate class of stock equity comes in and Class A, they’ll create a management. Pool in a class B. Once equity is returned to the original shareholders at an exit to the people who made the investments, then management is sharing in all of the upside the profit that’s being generated.
And so by creating an incentive stock and then allowing different members of leadership, and more recently you’re starting to see some big firms like KKR, you know, actually give stock to everybody in the company, all employees, but creating this kind of an incentive pool. Aligns management with private equity.
So I think alignment is the first key. We don’t ever wanna position ourselves to where what’s in the management team’s best interest is not in private equity’s best interest or vice versa. That’s when problems start. So alignment is key. That’s first. But in addition to just simple alignment, we also need to learn how to recognize and stay within our own swim lanes.
So let’s say I’m a founder and I’ve built a great. Business and I’m selling it to private equity and I’m, I’m aligned because I’m a rollover investor. I didn’t take a hundred percent of my chips off the table. I rolled 30% of the enterprise value forward. I’ve got that alignment. Private equity’s created that class of stock where I’m now have incentive equity to give to key employees.
You know, as we’re building the business, we’ve got complete alignment, but we also need to learn and understand our own individual swim lanes in the world of private equity. They’re not an expert in running businesses. They’re an expert in financial engineering. They certainly come up to speed on industries very quickly, but it’s important that the PE team understand their limitations, what they bring to the table.
It’s important for the entrepreneur or the CEO to understand, you know, as an operator, what their role is, and to understand that they now have a partner. And when we lose alignment. Or we start playing in each other’s swim lanes is where we start to get some potential issues. And so we have to be able to understand.
Covid hitting was a classic example when Covid I hits, industries were impacted differently. Some did really well, some did really poor. And so trying to understand when a company is not performing, are we looking at a management team’s failure to execute? Or are we looking at something that’s a macro level economic factor that’s impacting our ability to execute and understanding that, you know, hey, a management team isn’t responsible for a global pandemic, but they are responsible for how they operate once within the global pandemic and making adjustments to do the best they can to ride out this unforeseen challenge.
So I’d say alignment. Which is accomplished through rollover equity or incentive stock, and then understanding each other’s swim lanes, understanding each other’s needs, and making sure that we’re cognizant that we are as a, a founder, I just got a big payday because I sold the private equity. That’s not time for me to, to dial out.
That’s not time for me to slow down. Private equity is who bought me. They just made me wealthy, but they’re expecting me to work harder than I’ve ever worked before to generate returns for themselves, their shareholders, and because of alignment also for myself and for my employees. And so it’s truly, it’s understanding roles responsibility.
It’s having effective communication amongst the two sides of the table. It’s having alignment through stock and incentive. These are the ways that we can achieve great outcomes. And it’s when those things start to diverge, that problems typically arise.
Brian Thomas: Thank you. I appreciate that balancing act between the CEO and the PE team.
Uh, obviously that alignment is key of understanding, recognize and stay in your own swim lanes. Totally get that. Very much similar to, you know, a CEO and a board, uh, a lot of times. So thank you. And Adam, your book, the Private Equity Playbook, has been hailed as a private equity cult classic. What inspired you to write it and what core message do you hope the readers take away?
Adam Coffey: It’s funny ’cause I was walking the dogs with my wife and it was actually my wife who spurred me to write it. I had been talking, I think we all have a book in us out there somewhere. And, uh, it was actually my wife that got me off my rear end and, and actually caused me to, to sit down and write it. But the business case behind it was really quite simple.
I had been running companies for private equity for decades and when I started in the world, when I left. The Jack Welsh era of GE in 2001, and I started running companies for private equity as A CEO. The world of private equity was small. There was about 800 billion in assets under management. There was about 1400 PE firms in existence, and over the last 20, 30 years, the world of private equity has just.
Bloated. Just recently, I, I read a, an article that McKinsey had put out that said private equity had eclipsed the $7 trillion mark when I wrote the first edition of the private equity playbook five years ago. And I just recently came out with a, a second edition that was updated, but when I wrote the first edition, it was 2.83 trillion, and now just a short five years later, it’s over 7 trillion.
The asset class is literally exploding. There’s tens of thousands of. Firms that have been created during this time period. But yet, to be honest, if I am teaching a seminar and I have a thousand entrepreneurs or business owners, successful people, millionaires sitting in an audience, if I start a private equity seminar with a basic 10 question quiz, multiple choice about private equity, 90% of the room fails that miserably.
And so, although we’ve all heard the term, very few entrepreneurs. Actually understand what private equity is and how it works. I saw that gap and at this stage, private equity is buying 50% of all companies sold, you know, bought and sold on the planet are bought and sold or financed by private equity. And so it has quietly, I.
Very quickly permeated every industry on the planet. Yet still to this day, there’s a basic lack of understanding of what it is. You know, we hear nothing but negative things on the news, and so the private equity we hear about on TV is the destroyer of companies, you know, the destroyer of industries. In the name of profit, well, they can’t be that and grow at the rate that they’ve grown.
And so the private equity that I worked with was different than the private equity I heard about on tv. And the lack of understanding can lead to entrepreneurs choosing bad partners or not optimizing their exits. And so the purpose behind the private equity playbook was to educate a generation about what private equity truly is.
How it works and how to use it as a tool for your own personal gain and benefit versus just being a tool for them to generate returns for shareholders. Let’s learn how to use them as a tool for wealth creation.
Brian Thomas: That’s awesome. Thank you for highlighting that and clearing that up. ’cause we do see both sides of around private equity today, but I like the stat of over 7 trillion worth in this PE industry today.
And while PE might have. Infiltrated into all industries and all companies, it can be used to your advantage and I really like that. And then Adam, the last question of the day, if you could briefly share, given your extensive background in building national service companies, how have you seen the commercial and industrial service sectors evolve over the years, and what future trends do you anticipate?
Adam Coffey: As private equity has exploded and grown multiples being paid for, companies have expanded. There’s no question about that. And because private equity’s one cardinal sin is not deploying capital, they must invest all of this money that they’re taking into their funds. And so as a result of that, there is kind of a feeding frenzy.
It’s a great time to exit. You couple that with the fact that right now is the largest wealth transfer of human history over the next 10 years as baby boomers retire, millions of baby boomers around the globe will be selling companies that they’ve built, you know, across a, a career or a lifetime. And, and so there’s a a tremendous amount of opportunity that’s out there.
And although PE buys 50% of all companies bought and sold on the planet, that also means they’re not buying at least half of the companies that are bought and sold out there. But it’s because of the accelerated PE activity that multiples have expanded, and companies where the prospect of selling a business was not great are now much improved, and the valuations that people are receiving as a result of PEs activity is allowing entrepreneurs to exit companies and truly create.
You know, not just a retirement, but generational wealth for future generations of their families. And so what I’m seeing is more and more money flooding in, the money has to be put to work. A high interest rate environment did put a little bit of a wet rag on the flame, if you will, for a little bit while people were adjusting to this environment.
But the money has to be put to work. So at, at the end of the day, deal flow is. Back 2025, interest rates are starting to moderate, and so we’re seeing an increase in deal activity and the money must get put to work regardless. And so it’s a great opportunity for entrepreneurs to, uh, to, to be building businesses, to be selling businesses.
Service companies are, are very popular in the world of private equity, you know, for a few reasons, especially. When it’s a company that’s needs-based, not wants, so I need my roof fixed. When it leaks, I want a new car. But if I’m unemployed or broke or the economy’s bad, I don’t necessarily have to buy the new car or my wife wants to buy a new dress for a, a dinner, we’re going to, but if we’re struggling, then she just goes to the closet, gets out an old one.
I just keep driving my car for an extra year, but if my roof’s leaking, I gotta fix it. So service companies hard to disrupt necessarily by, you know, through ai, guys in trucks that need to get someplace. You know, not to sound sexist, but you know, a lot of the companies that I’ve, I’ve run in my career are guys, trucks fixing things, guys trucks, installing things, building things, and so needs versus wants.
Low capital expenditure versus high capital expenditure. Contracted revenue versus project based revenue makes it more popular. Low capital expenditure. High free cash flow means I’ve got a lot of cash flow in the business that I can use to service the debt that’s required to buy the business. You’re seeing services, whether it’s professional services like accounting firms, independent wealth management firms, insurance agencies, or blue collar type services, or trades like hvac, roofing, pest control, landscape maintenance services are very popular sector.
They’re also highly fragmented industries. Which means that private equity can come in and use their favorite tool, which is the buy-in build. So we can buy a bunch of companies, put them together, create something big, very fast. Big is rare, big trades for a hire multiple. So I can use multiple expansion to create arbitrage, which is how PE generates the majority of their return.
So service sector, service industry is very healthy. Lots of PE activity. Higher multiples than were being paid 10, 20 years ago for sure. But a lot of activity, which means a lot of opportunity. That’s what I’m seeing, you know, and the economy will continue to, to do whatever it does. Good cycles, bad cycles.
Stock market goes up and down, but the world of services, industrial, commercial, residential is alive and well and healthy.
Brian Thomas: Thank you. I appreciate that. Adam, just highlight a couple things. I agree with you. The largest wealth transfer in the world, history of the world is happening now with a lot of baby boomers retiring.
But like you said, in PE there’s lots of opportunities because of this, including that 50% opportunity untouched, right? But we must put that money to work and did take a note that services industries are very popular right now and and things are thriving. So I appreciate that and Adam, it was such a pleasure having you on today, and I look forward to speaking with you real soon.
Adam Coffey: Well, thank you for having me, and good luck to everybody out there.
Brian Thomas: Bye for now.
Adam Coffey Podcast Transcript. Listen to the audio on the guest’s Podcast Page.
