foreign hello and welcome everyone to our latest experiment the Harris podcast my name is Jeff Bender and I'm here to help you better understand who we are where we are going and to engage you in our journey these podcasts are intended to introduce you to our leaders our initiatives and to new ideas and ways of thinking our goal is to not only inform you but to engage you in helping us create the enduring organization please enjoy so on this podcast I'm going to be speaking with Mark Leonard founder president and chairman of constellation software our parent company Mark founded constellation in 1995 25 years ago using a less than memorable initial name in his business case and Pitch referring to it simply as software go over this 25-year period constellation has invested in over 500 businesses now has more than three billion dollars in net revenue and more than 20 000 employees worldwide CSI is currently organizing the six operating groups Harris being one of them I've been fortunate to be able to work with Mark for over 20 years watching him reinvent himself and continually challenge me to be a better investor and owner of the businesses we bought please join Mark and I as we get to know him a little bit better and understand how he thinks about our two areas of focus being disciplined employers of capital and great owners of BMS businesses Mark welcome to the podcast thank you Jeff looking forward to it now I think to start with which I know is an area you don't typically talk a lot about but uh if you were from Harris I typically will use uh my three kids for sure and occasionally my wife uh to to illustrate a point or to uh to make a point uh Did you sort of mind sharing with us sort of what your family situation is and uh what your kids are up to family situation wow um so um my wife and I uh met in business school she's a French Canadian um she's um the nicest human being that I know um everyone uh adores her um she's kind of thoughtful and goes out of her way and really I would not have achieved anywhere near what I've achieved without her support and um her taking care of the family um as you mentioned uh have four kids um they're in their early 30s to mid 30s now um launched on their lives we get along well I'm visiting a couple of them right now out on the West Coast um and um I guess one thing I I'm kind of surprised at how open people are about themselves and their families in this internet age because nothing ever disappears yeah so it's I I learned early when I was in the Venture business that whatever you say to third parties um tends to get used in whatever way they wish to use it and when I was in the Venture business I had a bad experience with the press and that really put me off talking with them and made me very careful about um what information about companies uh we shared and we were very careful to create full messages and even then we recognize that you deliver a full message which means that the journalist doesn't have to work particularly hard and they can just take the whole thing to Lock Stock and Barrel and use it and move on you've got a good chance of getting that full message through but if what they're doing is trying to be Sensational they will pick and choose and misuse whatever you deliver to them and that kind of irresponsible use um strikes me as the norm and I find even when I look at um internet chat groups of various kinds the breadth of opinion and interpretation is extremely large and so one of the things I try to do is insulate my kids from that if they choose to be on the internet and known for particular things and create their own brand and to some extent some of them have in their particular Realms um that's great but but I do warn them that you don't control what happens when it gets out there so yes I have four kids and and they're welcome to talk about how they live their lives on the Internet or elsewhere yeah I find with uh using my kids I I find it's it can often be hard to um to become relatable to uh to everyone and I think I've found that that using you know real life stories that I think a lot of people also experience and can relate to I think also sort of helps whether it's talking to customers or to employees so again that's that's sort of you know a tool that uh that I use that I think uh um I found sort of helpful over the time and certainly the feedback that I've received that people like it but I do appreciate what you say is that certainly anything you put out there uh can and will be used against you at someone else's uh choice and discretion which is not always uh not always yours for sure on that you're talking here about using storytelling and empathy as um tools to communicate and I think amongst are um group of managers you're the best I've ever seen you're a remarkable at it and it's um it can be a learned skill and I encourage people to use it because as humans we tend to relate to stories um and it's uh and and certainly as we go through this I'll try to find stories that illustrate sort of beliefs that I have and want to share um hopefully though also beliefs that are grounded in fact and not fiction oh I appreciate that I wanted to pick up on something that you actually mentioned on our last constellation board call and this I think I can't remember where I can't remember what we were talking about or whether it was just we were all waiting to start the meeting but you had mentioned or I believe I heard you mention that you had just bought a mortar mixer could you maybe provide a little bit more color on why someone uh such as yourself would be buying a mortar mixer and what you plan to do with it so I I don't recall what it was but it was probably sort of what we're doing in these coveted times that's uh out of the usual um so one of the jobs I had along the way was working as a Mason's Helper and um it was uh one of those things you do to make money and as it turned out it was a a wonderful job for me it was one where at the end of the day you knew what you had achieved and you had a sense of accomplishment and you knew that what you did would probably be still there in 100 years time um so there was pretty cool work and I could work as a Mason when the seasons were good and I'd figured out I could go to school on a semester type basis as opposed to full time and so when I was collecting um unemployment I could go to two different schools part-time collect unemployment and uh and um and then once uh um spring rolled around I could go back to work is amazing so I did that for um several years and I worked with a wonderful old mason he was old as the Hills kind of a Hobbit of a human being small and Stumpy and um incredibly muscled old guy with a straw hat and a pickup truck that was about as old as he was and tools that came from the Middle Ages and um he sort of taught me the trade and it started off mixing mud and water for him and then dressing stones and eventually pointing stone walls and then building stone walls and it was uh idyllic I would take my breaks and read wonderful literature and then go back to being on a scaffold three stories up in the air um pointing his thumb wall it was just a remarkable time I lived on a farm and had an old car and one of my brothers came and lived with me and worked on one of the big Mills we were redoing so Halcyon Days going to school learning reading being healthy and uh and so I'm trying to recapture some of that you know maybe on weekends I can be uh Wally the old mason again that sounds very uh very aspirational so could you could you share so when you were Reading literature was there a sort of a a writer or an author that you would tend to uh want to read more of their work you know at that time I think I was reading John fowles um who um was a remarkably good writer and uh John Barth and um those kind of folks so it was it really was literature it wasn't not ancient or classical literature but but modern literature oh interesting okay now obviously you know everybody will be listening to the podcast is obviously going through their own changes to their routines uh as a result of uh of covid-19 what uh what do you find to be the biggest sort of difference to your uh sort of daily or typical routine that you've had to adjust to because of covet but I think it's probably the same one that you've adjusted to which is not being on an airplane um it's uh it's lovely um but at the same time it's also uh um a big big change not to be schlepping out to the airport and spending time in airports and uh um on airplanes and I I do miss those sort of uh you know seven hour flights uh to Europe where you get um uninterrupted time um but the the good side of uh covert for me has been surrendering to good habits and so I work out more regularly I sleep more I eat better it's uh it's been it's been good yeah I have people ask me all the time you know do you know do I miss traveling and I think it's I'm still working I think to figure out back to you said you know establishing new habits and I realized that a lot of my thinking time and even a bit of downtime happened when I was traveling whether it was and you should spending time in the airport spending time at hotels you know really really understanding how much I missed those logs like you said you know seven eight you know if I was over to Israel you know 10 or 12 hour flights to just kind of unwind think reflect and do other things whereas now I find you know the days are pretty standard and they they sort of you know they come and go pretty quickly and I think it's it's it takes more of an effort to carve out that time to sort of be again more thoughtful and more reflective so I keep I keep working on that so I've started trying to get my Wednesdays now where I try not to book too many meetings on a on a Wednesday just to try and sort of you know give myself some time to uh to to think about those those types of things so so do you have a morning routine like do you sort of is there sort of a typical way that you know you like to start each each day um I tend to wake up between four and five and have the same breakfast and read two or three newspapers so yeah let's uh it's it's pretty standard all right so what uh so what newspapers do you read um you know because we're in Canada and the Global Mail is sort of the leading business newspaper but uh um for other employees around the world you'll recognize the financial times from London which I read and uh if I've gotten through those two I'll make my way into the Wall Street Journal oh interesting okay I know Jerry's a big fan of the Wall Street Journal uh Doug uh Doug Reed is a big reader of papers of the morning he adds the uh I think it's the the South China news I think as to his reading as well he likes to sort of he likes a little bit more of a global uh Global flavor so he uh so he tells me so I I know that I understand that you have your Bachelor of Science um which I think is I'm probably not super typical of a lot of the the people that we have at uh at Harris or constellation so why did you choose to study science especially sort of given some of your uh what you just explained of your mission your Mason work yeah and it choose sounds um so um methodical um what I did was dabble um so I was in many different faculties in many different universities and over a seven year period I eventually ended up with a three-year science degree and you know in between I played a lot of bridge and sports and um tried a lot of different faculties you make me feel better now about my I give you my son grief about how long it took him or one of my son's grief about how long it took him to get his degree then if if you could take seven then perhaps perhaps I perhaps I've misjudged uh What uh what he might be able to uh to accomplish with his what was you what was your sport of choice you know I I played um bossy basketball Varsity uh football and velocity rugby and rugby was by far and away uh my preferred sport okay interesting okay all right now back to your science theory so do you would you say that you use what you learned uh in your science program today at constellation you know I think there's always something that you take from what you studying and I had one particular Professor who had a uh impact upon me uh fairly late in my academic career and I had a number of other profs who influenced me as well um but I think one of the characteristics of um us as human beings is that our memories and knowledge has a half-life so the stuff we learned 40 years ago very little of it is being used by US today we're constantly replacing what we know by what is currently correct um and what we currently believe to be correct so you've got to be a lifetime learner you've got to keep sort of filling um your mind with new ideas knowledge and the old stuff becomes increasingly less relevant no that's interesting one of the books I read recently uh forget the author's name now but it was actually called think like a rocket scientist and it's one of the things that I took away which I thought was interesting and caused me to sort of rethink how I go about testing uh the hypotheses that I put forward which really is to move away from this test it to see if you're right to really with the scientific approach which is focus on proving that it's actually wrong and if you can't prove it's wrong perhaps maybe it has some some validity that you can you can take forward where I think a lot of us get caught into that a paradigm of proven that were right and just looking for anything we can find that proves that we're right or we once we hear something we always want to believe that it's right and that you know that that necessarily is not uh the best way to go about figuring out the right the right thing to do so a well understood human Frailty it's called confirmation bias and if you give people um 10 pieces of data they will look for the one that confirms what they want to believe um even if the other nine say that they're wrong a lot of that research on human bias was done by Daniel kaneman and Amos taversky who got Daniel got the Nobel Prize actually for Behavioral economics um and he has written a wonderful book that I recommend to everyone called Thinking Fast and Slow it came out about a decade ago and it's probably the book I recommend most to people inside of constellation into our investors it it talks about basically the biases that we carry as humans and how we can to some extent understand those biases it's very very hard to actually truly counteract something like confirmation bias unless you frame the question in a different way which is what you were suggesting in other words looking for ways to disprove a hypothesis rather than prove it yeah I read an article uh from Kahneman uh relatively recently and I think it somebody asked him about you know given that he's he's studied it and he has you know these these theories on it he's won the Nobel Prize whether he still follows you know subject to the same biases and he's like oh yeah I'm no different than anybody else he goes I I just might be a little bit more reflective on you know sort of realizing it after the fact that I've actually you know uh Fallen uh Fallen you know for the same same biases which I thought was a very authentic of him but very sobering to your point on sort of just understanding how we humans are actually wired to uh to think and and make decisions for sure so my final question for you just on education was uh you know in your MBA you know the course that you found most interesting and and what it was that that made it uh the most interesting for you and I saw in your notes that you wanted me to talk about this and I racked my brain and couldn't think of a course that I actually liked in the MBA program partly that was because I went to a school that uses the case method and hence they didn't really teach the principles they taught the cases and you were supposed to extract from the cases the principles and they weren't always very good at doing that so would you recommend people you know the the MBA as a additional source of education and learning like what's your what's your thoughts on on mbas I think a blend of theory and cases is the ideal um and I think Western the school I went to was far too heavily case oriented the other challenge is that a lot of professors are not great teachers so the most fun I had at Western was baiting the professors in the case method they had the case notes and they knew what they wanted to extract out of you know that 50 or 100 page tone that they're dumped on you along with three others the night before to read and um as they ran the class um the greatest fun was sort of getting them off track and away from what they wanted to deliver because they were frequently arrogant and poorly prepared group and so that was probably my greatest joy at Western I'm sure I'm sure they just loved you yeah a number of them did yeah thinking about it so shifting over to uh to work experiences so I think you you shared with us uh some of the um uh the masonry work you did and sort of what you you found from that now I read this somewhere and again I can't remember honestly where I read it but it also said that you had two other what appear to be quite interesting um uh jobs or or things that you did one being a Gravedigger and one being a bouncer so first and so I guess first is are you know is this true uh yeah yeah okay and then any elaboration on on on digging Graves or being a bouncer or perhaps maybe how they they've helped you see things differently today um not really I mean along the way I was a municipal worker too you know um doing work in parks and painting fences and cutting weeds and all that other stuff and I worked in a warehouse and I was a draftsman and I was a turnkey at a couple of major buildings um and I was a clerk at Canadian Tire and um I was in the reserve and I moved furniture at night because that's when office moves tend to happen and I did research on windmills you kind of do what you need to do to survive and you move on and often that time isn't well spent but it's something you don't have a choice about you need the money and you um you do like you said what you need to do there's uh but at the same time I think then if you're putting yourself through school or learning a particular skill which you eventually become good at you price that more highly because of the journey because of the things that you had to do to get there and I certainly sort of feel that way so what then some of you sort of look at some of your early experiences they definitely seem to be more uh physical in nature although if I reflect back on some of mine they also would have been like that back to your point of very you got to do what you got to do to you know to to pay your expenses to pay for your education and obviously you know you don't have a lot of skills and qualifications you know that that type of physical work tends to to be more available but the shift then from sort of using the physicality of your body to sort of earn income and and do what you were doing to more sort of the the intellectual pursuit of becoming an investor like how did that like how did that shift happen yeah I guess the NBA probably was the thing that uh took a hodgepodge of um jobs and education and gave it Direction um and once again when I graduated um I took the job I had to take which was a job in banking but I was fortunate that I had a summer job between the years of the MBA where I had someone who is still a friend um coach me and he basically sort of sized me up and said I was working at a bank a British bank or Barclays in Toronto and he said you will be a terrible Banker and why don't you go down to the files we had all of these files they were physical files um and and read about the bank's clients and figure out where you'd like to work and so for a portion of the summer I did that the other portion of the summer I worked on a computer system for him with a spreadsheet type program that long predated and ran on many computers uh XL and did modeling for complex leases which was great fun but the rest of the time I read the files at Barclays and I came across a venture capital company one of the original sort of merchant banks that morphed into venture capital and I decided that's what I wanted to do so when I graduated I tried to get a job in Venture Capital but there was literally nothing in Canada so I went to work for an American Bank and um it happened to be one that had a large Venture subsidiary so I thought like hell to get into their U.S Venture group but uh failed and came back to Canada still working for that American Bank and papered the inboxes of the whole Venture community in Canada got to know all the key people went to their conferences paying for it out of my pocket when my wife and I had no money and eventually managed to crack the Venture industry got in I was one of 400 applicants for a job that was advertised in the Global Mail and that was how I started the Venture career and what was it about Venture Capital that sort of you know propelled you to be so tenacious to get into it I think once you've had all those jobs that you didn't want to have and that you had to have the idea of a job that you really wanted was a really attractive thing so that probably explains the tenacity plus the support of my wife in pursuing it um what appealed to me was the stories and history of venture capital the creation of wonderful companies that I knew of um and so it was really Keen to be part of that now once I joined the industry I found it wasn't really that way but from the outside it looked very exciting and it's certainly attracted a group of really smart and driven people so you had both variety and a sort of intellectual elitism um that created a Fatal Attraction almost from my perspective to the industry it take you to realize that perhaps it wasn't what you wanted it to be so you get in and you're working with people and they're not perhaps the people that you'd ideally like to be working with and then you yeah sort of reorient and eventually I found my way to Ventures West which was at the time the cream of the crop in the Venture industry in Canada and had some of the brightest folks I've ever worked with they were absolute Superstars and they were ethical and hard working and just remarkable human beings um and so it wasn't a people problem and it wasn't the variety of the work problem which was I mean it was astonishingly attractive within my personal portfolio with inventures West I had a group of photochemists that I worked with and then another day I would get to work with the leading remote sensing technologists in the world and I worked with a Dr Frankenstein of the plant Biotech Industry who was creating new plants by moving genes around and it was absolutely fascinating but after a while you want to succeed with these things not just sort of stumble along and I think that need for Mastery and focus and becoming really good at something drove me towards focusing on what ended up being consolation vertical Market software and creating a permanent Capital vehicle um for the vertical Market software industry where you didn't have to buy and sell the businesses you could keep them forever you could build relationships that lasted a lifetime and you could build businesses that were intent on being around as long as their clients were in existence and that's a very different perspective than the Venture industry which when it comes down to it is all about creating things that you can sell to other people either as IPOs or as outright sales and and so there's a a different business model for the Venture industry and within Canada at least you couldn't focus narrowly enough in any particular segment that you could be a real specialist as a venture capitalist and so why vertical Market software like had you did did you have experience with VMS when you were at ventures West or with this is just something that you sort of came across as you were again looking to you know Master something in into a project yes I did have a bit of experience with vertical Market software but the way I came to it has a path for permanent Capital vehicle and the place to focus wasn't because of Any particularly um fascinating technology it was really because of a high quality business model and what led me to thinking about high quality business models was one particular individual so at one stage as I was exploring venture capital and trying to figure out different ways to do it that might work one of the ideas I had hypotheses was that you could back Great Courses instead of um looking for particular um racism which to run and and one of the horses I banked was a guy named Steve scotchmer and I worked with him for a number of years he came from the Advanced Materials industry looking for Advanced Materials companies that we could invest in and he could run and he had a great track record and he was a very thoughtful engineer um and um as I worked with him I always found that his bar on business quality was extraordinarily high he was looking for really really great businesses um and we never succeeded in finding one that he wanted to invest his life in and I wanted to invest The Venture funds capital in um but Steven made some money from his previous Venture which got sold out from under him and so he was also learning about investing and as he was learning about investing he was teaching me about investing what he learned he passed on to me and he told me about the great investors and buffing a monger were um certainly a big part of that um but there were also um other uh people who um influenced his investing philosophy as well including some in Canada who he introduced me to so here I had started off as a venture capitalist so I was very Tech oriented very much into science and suddenly the person who has become the most important Mentor in my life has sort of hauled me over to starting to think about really great business models and investing and so I was pivoting and then looking back through the portfolio Adventures West for these really great business models I realized that a couple of the vertical Market software things that we'd done were ideal except they were small they weren't ever going to be big businesses that warranted significant capital and could be um a big enough canvas on which to work so I came up with the idea of creating a holding company for such businesses if they were great small medium-sized businesses why not own a bunch of them and that was the Genesis of constellation now when you took this idea back to the partners at ventures West did they look at you like you had three heads or how did they you know what did they what did they perceive of your idea it's interesting they as I mentioned a really smart driven people and nearly all of them have this large um total available Market mindset um so big winner kind of approach to the thinking it's what's taught in the Venture Capital business but at the same time they knew that what we were doing in Canada wasn't working particularly well and and so it was important to experiment and try other things um and they enabled me to work on the idea and then when we funded it also provided some of the capital personally as individuals then when we took it public many of them um I think all of them um became shareholders in the IPO as well okay actually I didn't I was not aware of that okay interesting so why then so as we're talking about you know going public and and maybe just a bit pre-public so why did you pick almost and so for those listening uh omers is the Ontario Municipal employment retirement savings plan I think I got that right as a partner as a shareholder so this is sort of the pre-public time why did you why did you think they were a good partner like what what was it you thought they brought to the table that you you did not have or could not get on your own so I I went out initially to um a number of our entrepreneurial limited partners and to um some high net worth individuals that I knew to raise capital and I got some nibbles um and then I went to Omas who was our biggest limited partner at benches West and talked to them and they were interested um but not on conventional Venture Capital tombs and not on terms that were very attractive to any other investor so to speak so I had a difficult choice I could um go the Oma's route and have my fundraising done um alongside the money that the ventures West Partners were going to put in or I could spend a considerable amount of time trying to drum up sufficient Capital elsewhere and probably not have Oma's play because they had already dictated the terms on which they would play and so I took the easy way out I took the Oma's money which was enabled us to get to 25 million Canadian and launched the business and got on with it okay interesting all right so well there is one other thing that's probably relevant to your audience and that's Adamas um the person in charge of the group that invested in constellation with someone I knew from business school and so frequently you'll find that your acquaintances your network are important and he knew me really well um and um I knew him really well and we trusted each other and liked each other now that worked out great except that at some stage he became aware of um some problems inside of armors and tried to get them sorted and that put him politically in a difficult position and he ended up leaving and the people we ended up working with within omers were not a trusted relationship the senior people and and so that's the reason why we sought another large investor so you can have a good relationship with a single person inside of a large institution whether it be a customer or a supplier or in this case a provider of capital and if you lose that single point of contact you really can be in a difficult position so one of the things I did was diversify our sources of capital and managed to get TD capital in who later became Birch Hill as there are other major shareholder private Equity shareholder so if you look back on uh first partnering with omers so do you think you would have done it if you didn't have the trusted relationship with uh with the first individual you had met at Business School I don't think Omas would have done it yeah and would I have done it but I mean I I was probably naive enough to have taken the check irrespective of the fact that uh um I didn't know who I would have been taking it from at that stage right the so Bernie uh Andrew is our chief investment officer and his employee number uh number one or he's number one or number two um how did you and Bernie meet uh and build a relationship that has survived 25 years which I would say is you know fairly unheard of uh these days I think it's just a great story foreign I'm trying to think back to the exact circumstances of uh how we met firstly Bernie was employee number two um I am employed employee number one because Ventures West leaned on me and said you should have a CFO and so I went out and got one um and and that by the way is a good lesson also um if you lean on people to do something um they generally comply without doing it um the way they would want to do it and so employee number one ended up leaving us um fairly quickly um bunny was an analyst for us and I hired him um into Ventures West because that was a whole lot easier to do than hiring into a software curl which was not a household name at the time um and Adventures West was a reasonably well-known Venture group and Bernie was a new grad from insead um or relatively new grad from inside um he was obviously very bright he had a technical background International experience and like most hires it's a crap shoot um you know when we hire from the outside into senior roles I think we've around a 50 success rate so it's it's not easy in this particular instance um you know I work closely with Bernie and um you're either going to end up um developing respect or indifference or contempt for the person and we were lucky we ended up respecting each other and it's been a great relationship the whole way through um literally I can't think of any major arguments we've had along the way and we've I think thoroughly enjoyed working together no it is a it is a great story that I think you know I think we anybody again who works with people uh uh that you know that closely I think would you know would cherish the opportunity to have built such a a great relationship so you we took or you took a constellation public in 2006 why why take the company public the capital was raised in 95 didn't really have a ticking clock on it because it was from a pension fund um but the capital we raised from Birch Hill um definitely had a ticking clock on it their fund was a 10-year fund or at least I assume it was most of the Venture funds were and so I knew I had to find them an exit at one stage and what tends to happen um with private Equity firms is if you don't find them in exit they find themselves an exit and that usually involves whistling in some ibankers to dress you up for sale and then running an auction um so going public um was one of the routes to get an exit and so we explored it and executed it um it wasn't particularly tough um we had a reasonable story to tell we weren't raising a lot of capital I guess the only peculiarity was the capital we did raise we raised by selling shares on behalf of omers and Birch Hill yeah meaning the constellation did not raise any Equity itself that went into the company it was it was just for the sell and shareholder yes exactly it was totally for liquidity for those shareholders yeah any regrets uh having gone Publix obviously like to your point you know you felt it was something you had to do uh given the capital structure but now you know you can reflect back and you know it's been uh you know at 14 years I mean any regrets on on being oh you know on that decision no no I mean the one thing I would counsel anyone who's taking a company public and um we are going to be um spinning out a company shortly from within constellation um the only advice I give you is uh um to pick your shareholders if you can and uh to work at um attracting those shareholders that you think you'd like to be associated with for the long term did you find that more difficult now I think I think you know if you look before I think you used to publish in some of the shareholders like I had gone back and and uh read a bunch before in preparation for uh for this uh this chat um you know and you talked about sort of you know the what started off as relatively low turnover in our shares so you know people were not buying and selling uh shares in constellation very often and that number was sort of creeping and creeping and creeping I haven't seen the latest number but so are you still happy with it you know the the cohort of our major shareholders today you know um we have some uh shareholders who are um long-term shareholders but that cohort is much smaller than it ever was and increasingly the index funds have become a big and important part of what we do um here at constellation yeah I would definitely that uh that you said like and the bigger we get I think the more the more that tends to happen right because now we actually are are in the are on the radar or in the requirements for you know many many different uh different funds for sure so I wanted to go back to a comment you had you had touched briefly on this sort of hiring from within when we were talking about uh when I had asked you the question about Bernie and so I think to your point I think you know our success rate of bringing in certainly senior leaders uh from uh from outside of constellation uh I think as you put it you know that is about a 50 50 uh hit rate or or success rate which is you know not really great when you're thinking about you know the impact and how long we want to have you know employees with us but you know not a great track record and he said I mean your sense of though whether we should continue to focus on just creating better paths for people within constellation to move up to uh more and more senior levels or try and understand and be better at bringing in external people for some of the benefits that they would bring when they come it's a tough one it's um I would rather hire high quality Talent with a long Runway and then develop them internally and give them a rapid development path then try and go outside and bring in people who are ready to slot into some relatively senior role and that's partly because I think what we do is different I think we're very unusual firstly you don't get many vertical Market software companies that are of scale um and the play in multiple verticals and that do what we do um that are very investment Savvy and return on Capital employed oriented while at the same time thinking about the very long term um and so I'd much rather get someone who's smart has had a job or two knows what working is like and knows something good when they see it and then introduce them to Constellation and hopefully they find what they're looking for in a place like constellation yeah I know you're saying it's definitely a tough one I think when you sort of you know look at again our lack of success but then you also I think you know one of the things I've been struggling with lately is you know infusing existing thinking and ways of doing things uh with new and different thinking because I find a lot of times we just you know we've we've convinced ourselves we tell ourselves the same narrative the same story and we believe it and you know over time it's not that you know the story might change totally but it definitely changes and I think sometimes you know we're not as quick or as fast as we need to be to you know to adjust and I think sometimes balancing you know the individuals that you describe with again bringing in some other people I think would just dig in different ways of looking at things different ways of thinking um I think it's strike a nice balance between us you know Finding finding ways to be more successful with the you know the businesses that we uh that we own I'm doing some work now with a company outside of constellation and they have a metric I haven't quite figured out again how well they scored this metric uh but they look for 25 of their leaders now again this is again we didn't I didn't Define you know what leader meant but they either want new promotions from within or people brought in from the outside they want 25 of their leaders to be different uh on uh on each in each year and the idea behind it uh is really to again Drive different thinking bring a sort of you know a a different focus a different drive and momentum to keep moving forward which I thought was an interesting way to to looking at it versus sort of always being sort of you know doing the same old thing the same old way just because that's how we've always done it so it's an interesting interesting concept for sure yeah it reminds me of General Electric where you knew you had your job for 3.7 years and you were always thinking about what that next job was and in your 3.7 years you were Keen to you know hit all your objectives make your boss happy have good reviews and get a better next job and that led to tremendous success for General Electric the everyone was on the same bus but I think it also led to a lot of short-term thinking and over optimization and eventually I think it led to book cooking and unethical behavior that got them into trouble and um that's one of the fears of not living with the results of the decisions you make today and their implications for five to ten years down the road in the software businesses we all know the Investments you make in r d and sales and marketing today in new initiatives probably aren't going to pay off for that seven to ten years I think this is probably an area where you and I are probably not as not as aligned as we might be on some some other topic so how then do you like how do you think about uh you know individuals as they come up wanting to do more and different things being able to do those things that might require them to be separated from some of these decisions so the the way I've handled that is that I don't take table out of a position where they own something I just create situations where they own more stuff and so you were responsible for Harris and you're now responsible for Harris the original utility business you're now responsible for so much more and that only works if the people have the capacity to keep on going but if I'd taken you and convince you to go off and run Gary Jonas when I needed managers there and to leave Harris behind I think we would have lost something that intimate knowledge that you built up of the people the customers the products within the utility space um which I believe would have been a loss for the Harris operating group now one of the things that I believe is that ideas and practices travel in people absolutely and so new people can bring new ideas but I also believe that there's a group of people and it's not everyone who are natural consumers and adopters and observers of new ideas and if you have enough of those you don't need to bring in people from the outside now I have no objection to Bringing people in from the outside but I prefer to bring in doers as opposed to managers so to speak people who install processes or um help those things happen rather than people who hire fire um set incentive compensation things of that nature and what I find is when people talk about hiring Outsiders they're rarely talking about people who bring Pareto processes or um digital marketing processes or whatever process it is they're really talking about bringing in technical specialists in particular Realms they're usually talking about bringing in general managers no that's very true the so switching topics a little bit to I think what I would consider to be sort of the one of the foundations of the constellation and the Harris business model which really is you know decentralization autonomy and control I typically at the business unit levels or being core to our DNA obviously this this originated with you where like what experience in your life or in your your work experience like where did this come from economy as a concept yeah and sort of I would say what I mean a lot of people I think when we when we talk I find you know if they find our level of decentralization and control that we put out our business unit levels almost to be extreme and and don't really understand why we don't you know focus on synergies and trying to do a lot more things right so I I would say that the model that we follow is not very common or well understood when we try and explain it so you it starts with a personal preference I don't like anyone telling me what to do can do I I love being convinced I love changing my mind it's the neatest feeling in the world to have someone take you from a position in which you're entrenched and believe that you understand your position and have you convinced be convinced otherwise through a rational process I get a little tingle when that happens it's wonderful but I don't like anyone saying I am an authority figure and you will do it this way I can barely think of anything that annoys me more and that's just upbringing you know I grew up I got strapped by the principal I challenged teachers I left home early I had a bootleg radio license uh I built a flamethrower you know you I did things that weren't acceptable to lots of people and that ability to choose what I think is right and to defend that position if I can is something a prize highly I love those license plates Live Free or Die um and and so I hope that we've been able to attract people who feel similarly I certainly see an incredible sense of Independence amongst the people with whom I work directly um I don't know if you feel there's a lot of sycophants around that management table Jeff but I certainly don't think so no I think I mean obviously you know when you describe uh I think sort of why you believe what you do and I think people like have a hard time understanding that you truly do uh live that I think you know I I can't I can't remember we've worked together for 20 years and again I don't think I could I'd have to think really hard and I think even if I did I don't think I'd come up with anything where you actually told me to do something you have often tried to persuade me you have often provided you know evidence and suggestions and recommended you know conversations with others to try to your point to to get me to see things differently or to to you know use a different lens for sure but I mean I'm not sure I could ever tell you a time where you know you told me to do something um and that's you know when we were a small business or now you know that we are the size that we are I think though when I reflect though and I guess my question for you then is does it upset you though that I probably don't live it the same way that you do right but I well I I do try and you know I'm sorry I do believe in autonomy and decentralization and I do try and Empower our leaders uh to do uh you know to make their own decisions and and to learn and even often you know sometimes let them you know fail and you'll learn from mistakes but there there will be an occasion where I will step in uh and probably require them to do something or perhaps they would feel that I am I am not giving them an alternative well I might or maybe maybe I'm pretending that I am but I'm not does it bother you that I don't always live it the same way you do not at all and that's self-serving on my part so if you do something different and Mac Miller does something different and dexa does something different we're always in a position where if it works we're all gonna know you're gonna share that right yeah and that experimental approach to life is one that makes for a much healthier whole evolution is a natural process some things are going to work some aren't if you're not experimenting if you're not trying to do things differently um we aren't going to discover the Right Way Forward so it's I'm delighted that you are trying different things and you don't necessarily um sign up for um the whole package I was gonna say I was going to transition it actually into experimentation and and best practices and I think you know we look across you know one of our core strengths is our ability to to share best practices not only with you know the businesses within you know within a Harris group across Harris but also across CSI and I think you know despite the fact that when it comes to deploying our Capital there's definitely a level of competition amongst the operating groups when it comes to that I think we've still done a really good job of still sharing our best practices of you know to your point what works what doesn't work I think that's been when one of our our core strengths and something that I you know that I I keep fighting to make sure that we keep we keep doing but do you I mean do you think we do a good job at sharing best practices like you know when you stand back and you look at what we're actually doing you believe we're still doing it like we used to so firstly the um the nature of our best practices is really important when Newton discovered physical laws those could be replicated everywhere in every geography and every time but when we discover best practices when we try to replicate them in a different geography or a different time or a different industry they don't always work you can't always replicate them much of what we do is context sensitive it doesn't apply it may send you off in the right direction but you can't apply it like a law and so our best practices are vague and fuzzy recipes that send you in a particular direction you can't put them in a three-ring binder and ship them off to Brazil and hence I'd much rather they traveled in the form of why don't you talk to so and so over at this business unit about that particular thing and so some of my time is spent with Robin saying you know we got approached by A supplier he wants to put up the prices by 10 times for this software component that we use how do we handle that who should we talk to and I'll reach out to some people and try and find someone for him Often by phoning you who in turn say well why didn't you talk to someone Etc so that sort of organic have you seen a situation like this before it looks like this here's someone to talk with is how we often share best practices and it's because of the nature of the best practices we're sharing no does that get harder as you get bigger absolutely and so do you need to invest ever more in um providing Network and contacts and institutional knowledge to people yeah now the fact that I can't connect um Robin's person who has this issue down in one of his business units directly to um someone inside of Dexter's unit that has this issue doesn't bother me hugely because I know that um within Robin's unit there'll be some advice from some business unit that will help that person and so the fact that the network gets a bit frail as you get a bit bigger doesn't mean that the units inside of TSS Robin's unit um aren't as strong as they were inside of all of constellation 10 years ago so I still think we can have robust best practice activities in our smaller portfolios or operating groups that are as good as they ever were and the the things that filter through you and me Jeff would just be fewer and hopefully there'll be bigger issues and more important things that we can actually help with the uh I do spend you know my time it actually is on connecting people like you said you know talk to so and so have you seen so and so it really actually is I find I spend more time there than I probably have have in the past if I find I find actually quite rewarding when you when you link the people together and then you follow up on the conversations it's uh it can be quite impactful for sure so you've done a bunch of research which you've shared with certainly uh myself and my peers and also also with the constellation board of directors on hpcs or high performance conglomerates sort of looking at what can we learn from others who sort of at least have the organizational structure uh that we have so why why bother studying what others have done if they actually aren't in vertical markets on one in all cases and the um around a dozen of the performance conglomerates and the neat thing is that uh one of them was a vertical Market software company it was Jack Henry still is and uh the other one Roper was busy becoming a vertical Market software company so you know to have the 12 best high performance conglomerates in the world two of them end up as vertical Market software companies is pretty damn remarkable um and sort of speaks to the fact that it is an inherently good business um that said you know the other debt 10 or so uh were not high performance uh vertical Market software conglomerates they were just in other Industries and businesses and the reason to study them is to try and figure out how we use constellation are going to evolve if it was an obvious group of companies that I could look to that showed the way and that had many many Acquisitions that had continued to be successful over time um I would have gone to them this was just sort of where I ended up when I couldn't find anyone who looked more like us within our industry was there a learning that sort of crosses many of them that surprised you most it's not something that is unique to them but it's the sort of reversion to the mean um thing this is a concept that people talk about all the time whenever you get exceptional performance it tends to diminish over time towards mean performance and we certainly saw that in all of the high performance conglomerates they all started out with extraordinary Returns on Capital once they figured out what they were doing and then gradually over time for instance the Returns on Capital started to diminish and you so you mentioned Jack Henry what is it about them that impresses you the most I remember actually when I first uh joined Harris you were talking about you know Jack Henry which is you know that's a it's a long long time ago yeah in fact Bernie wrote a piece on Jack Henry way back when uh when you joined that we uh we still have lying around which is kind of fun to go back and look at I um went on a road trip at one stage and met Jack um as he was a very old and sick man and had the opportunity to have dinner with him at his house um and he was a character and um very kind to you know see me when he was in such a state um the thing I loved about Jack Henry and his stockling even today is that they compete in an industry where the customer base has become much much less over time that probably half the number of small financial institutions in the United States now that there were when we first looked at them and um despite that they have grown their revenues profits earnings per share um shareholder value um at a remarkable rate for um since the 80s early 80s I believe when they went public you know so that's that's an incredible track record they typically do or they I think they maybe have done a better job than we have is sort of using their Channel their existing customers to basically then purchase add-on products or even potentially uh service offerings and then take that back into their uh into their existing customer base if we we talk about that I mean certainly at that I mean my comment here might be more error specific we haven't done that as often uh as I think I would like to see us do like any sort of census do you think why we don't do that more often like it seems like you know from a a return perspective it seems like something where we should be spending more time in any any sense as to why you think we might struggle with with doing that I'm thinking that you could identify right now three or four companies in the utility software space that you would like to own if price were no object yeah and I don't think Jack Henry let price be an object so they paid up for the Acquisitions that they bought and because they paid up they had to have synergies they had to do cross-selling they had to achieve some things with those assets that when we take on Capital and go out and invest in some new vertical that isn't utilities we don't have to do and if you look at constellation as results we generate a higher return on our Capital than Jack Henry does now if we were seeing lower rates of return across the board or if we use the lower hurdle rate I believe we would own more utility software businesses because they think you would have stretched and found a way and driven for synergies and done cross-selling and all those other things to enable you to be more strategic about what you do as opposed to opportunistic about what you do you would have ended up in less verticals you would have had lower Returns on Capital but you probably would have built within utilities a higher market share business with a larger mode around it than your existing businesses which are still pretty extraordinary businesses do you think that's a fair reflection yeah obviously I'm sitting here thinking so I think the answer is yes but so but then would you do you consider then Jack Henry to be less disciplined employers of capital than we are I guess when you look at pure return I guess the answer is simple the answer is yes but the question is who's created more value well I I think we've created more value Yeah by a long shot but they have created astonishing amounts of value returned a lot of capital to shareholders we haven't returned a huge amount of capital to shareholders I mean it's not trivial but uh We've redeployed more capital yeah no it's interesting this concept of you know what what would the businesses look like how deep were the moat would the moats actually be if we were you know if we had you said a different uh a different approach and I do think I I do agree with you that they would be uh much deeper more Diversified uh but likely you're right the the consequence the second order third order consequences the returns what would likely also be uh be lower no it's it's a it's a very interesting way to uh to look at it that's probably actually a good segue into uh which I think will be of interest to a lot of our uh businesses which is this sort of this profitability organic growth uh trade-off that's something that we often uh speak to you've written before I think it's a quote from one of the uh the shareholders letters that you know that you believe organic growth is the toughest management challenge in software so why why do you believe that why do you believe that uh organic growth is the toughest management Challenge and software it started out with my experience in the Venture business where we were looking to create new businesses new markets new products and um it proved incredibly difficult um and we then inside of constellation um did a long empirical study of our own initiatives over a five-year period and demonstrated to ourselves that we too were doing a poor job of deploying capital in new initiatives and I knew it was tough but it wasn't until I came across Philip tetlox research that I understood why it was tough so tetlock is the most famous researcher in the area of forecasting and wrote a book and I hate the name of the book because it sounds like hype called super forecasters yeah but I love his research which I had come across before the book um and his original PhD took forever because he followed a series of gurus and forecasters and people who claim to be Visionaries and know the future who were making statements publicly that he could then track um as to the accuracy of their forecasts and visions and these were economists they were political analysts there were all kinds of people and eventually when he managed to compile all the research he published uh an article that got a fair amount of press and um along with him his PhD um that the average Guru was no better than a dart throwing chimp at forecasting in the future and as his profile and people got to know him the US government took an interest in his research and provided him with significant funding to extend his work on forecasting which he did and which led to a lot of the work in the super forecasters book and the outcome of that is that there are it turns out a tiny group of people who are capable of good forecasts now it's important to understand what tetlog means by a good forecast um and the kind of people that are good forecasters and I won't go into that here but if you're tempted it's definitely a good book to read and you can also find some articles that encapsulate what's in the book um but the the main finding that you won't find advertised in a whole lot of places because it isn't really the thesis of his book but has tremendous relevance for us is that even the best forecasters his super forecasters can do a good job out maybe two years maybe three years but there are no super forecasters who can forecast five years and ten years they don't exist so Visionaries are people who either say a lot of different things and one of them works out and then they get known for it or they're the person who says something outlandish and we happen to end up with an outlandish event and then they become known as being a Visionary so unless you have this ability to see far out into the future how do you make long-term Investments well it's incredibly difficult stuff and the most obvious way you can do it is by listening really closely to your customers so instead of you making forecasts you let your customers be your code developers and it's one of the ways that we've been able to improve what we do on the initiative side and we have a variety of techniques that we use for doing so one of the high performance conglomerates that we study studies Illinois tool works and it took co-development to the extreme working with clients to actually get patents jointly that were owned by ITW Illinois toolworks and the client um so co-development is one of the great ways to develop products that you know will have a market rather than just forecasting that there will be demand for them and do you think there's a reason why or do you think there's something we could do better to support our leaders and our businesses to be to be willing I guess to to take more risk to to find these potential ways to drive organic growth you know realizing sort of again that it's not going to be you know decision today growth tomorrow uh scenarios I struggled with trying to get them to you know people to think a bit more longer term and being willing to make some of the the shorter term trade-offs um to to be able to drive it I just think it it gets harder and harder um I find as the businesses uh grow and even uh you know realize a little bit of success they become less risky I find it become more risk-averse yeah and you and I and various other people and Mark Millers had a big hand in this um have come up with some rules of thumb one is that you need a full-time Champion for a particular initiative it can't be something that people do in their part-time otherwise you know making the week making the quarter becomes the overriding priority and you never get around to working on the initiative and I'm as guilty of this as anyone I have a dozen initiatives running personally and I always get roped into the treadmill of uh cordless stuff um so having dedicated Champions and ideally dedicated teams is uh your best way to go about this and then separating the financials for those dedicated initiatives from your core business so that your core profitability is still obvious and is still the everyday concern of whoever is running those core activities um is an important part of what we do and try to do now one of the problems is that initiatives that are small don't easily fall into that Paradigm of a full-time initiative champion and a separate team who can work on the initiative and so I think there's a certain minimum scale that you need to make this kind of approach work well the idea of trying to run initiatives with five percent of your time or ten percent of your time or 20 of your time and you know this is Friday therefore I work on initiatives I haven't seen it work anywhere I've heard people talk about it but I haven't um heard that it is a permanent and um satisfactory process no I would agree with you I think you know we call it the grinder to get the grind of the business we'll just we'll suck all the way or suck away most of that uh that oxygen for for any of those types of things if you're not uh if you're not you know when you you know I often talk to our leaders uh and employees about you know when you wake up in the morning you know you're going to be a lot more successful if you know exactly what you're focused on so I think you know that applies to to initiatives as well as opposed to waking up in the morning trying to saying you know what is it I'm supposed to do today you know that you know can be a much less effective way to go about doing things if you're trying to achieve something you know something specific or something that definitely takes more than a few cycles of uh of time for sure um I think it'll be fascinating to observe topicus the company that TSS is just buying this is a company that has over a thousand employees that has grown organically without outside capital largely through initiatives um and so trying to understand it better um is one of my uh High priorities over the course of the integration period the next year or two and share some of those best practices if possible and encourage some of their key managers to contribute ideas and approaches to the rest of constellation no I think that I think you know having Robin and his team who I think have done you know in a relatively short period of time I guess it's not that short anymore they've been around for a while but I I've always been so impressed by his willingness to embrace uh best practices and share them even to this day I would say they they still I think do the probably one of the best jobs across constellation of you know sharing best practices having their leaders attend you know uh and interact with other businesses and and do that they've been actually very helpful for us as we've been sort of digging into some of our m a business development functions they've been you know more than willing to share and you know what you know what they're doing what's working more importantly you know what what hasn't worked you you might not want to do this because we tried it it didn't work they've uh they've been great so I think if anybody can grab that that value which would be tremendously value for all of us I do think Robin and his team are a great uh a great group to uh to do that and actually speaking of Robin and his team and I would also say Mark and his team at Volaris so one of these other things I think that you talk about uh where again you know you and I may not always um uh be fully aligned is so while you'll readily admit um that the data does doesn't fully support smaller size businesses so basically this means a business unit um that keeps its scale uh somewhat reduced and therefore potentially then you need to consider breaking up larger business units into um a number sorry into one or two or several smaller business units versus the opposite of folding larger ones in why do you believe that's so important and again I my my thought here was obviously that I think market valeris and both Robin at TSS uh have done uh some some really good uh things with breaking up some of their smaller sorry some of their larger businesses into smaller businesses and seeing some good results so why do you like what's your your sort of your your sense as to why small is better than large my early experiences in the Venture business were sort of part and parcel of that and if you go back even further it relates to um my experiences playing team sports I adore team sports to me it was um a um it was life changing um when I got to uh school and started playing team sports um I love that environment I love the level of intensity that came out of it I love great coaches who could extract incredible performances from you know a bunch of um relatively inept uh players such as myself um and when I got into the Venture business it was almost expected that people would be investing themselves into their job at a level of energy and enthusiasm that you just don't see inside of your average Corporation accepting in a few highly motivated ambitious General generally manages those sales people so that sort of all hands on deck the whole team trying to help things succeed that you see in the average Venture Bank company I saw in the in some of the early businesses at constellation and trapeze for instance was like that and I no longer see that at any of our businesses I um told the story of turning up for an early meeting at one of our businesses and getting in there and sitting in the carols waiting for the managers to arrive and listening to the chat amongst the employees as they drifted in and they weren't coming in early and they weren't buckling down and they weren't excited excited about work but I certainly got to hear a lot about their personal lives and it was just so different than the early days of Volaris of trapeze um and the intensity was so diminished I was so disappointed and I'm convinced that it's a function of size it's you know a reversion to the mean you're not going to have those high performance teams when you get extremely large now those are personal observations and there is some really good research so when you want to look at high output teams there's been research done since the 1800s on this topic I'm talking about scholarly research and um what you'll see is that as you add people to a team a small team you get diminishing output per person and there are terms for this like social slacking and things of that nature and when you have complex work activities that require coordination between teams there are other factors that diminish output per team member and communication overhead is one example it's an N minus one factorial where n is the number of nodes in a network the amount of communication overhead builds close to geometrically as you add people to a team and from what we can see over time technology has not been particularly good at making team size increase effectively then there are sort of empirical observations on efficient team size if you look at agile teams in the software world what you'll find is team sizes from six to nine maybe five to ten um are most common and that seems to be the right sort of span for teams now you can obviously stack five to ten person teams one over and over and have one person from the team above oversee the team below etc etc etc and that that for sure works but what happens is the distance from the top of the stack to the bottom of the stack becomes increasingly large and so the knowledge of what's happening in the field becomes increasingly distant and the empathy with the field person and the person at the top of the stack becomes increasingly distant and I just feel that if you get much beyond that sort of 50 to 100 level you start substituting systems for knowledge and systems for empathy and systems by their very nature tend to be bureaucratic and one size fits all and so you start not looking for and working with the slightly warped and stunted but enthusiastic and perhaps brilliant average employee and start working instead with the ideal employee who is a figment of your imagination because they don't exist and you end up with a sort of lowest common denominator ideal employee which leaves an awful lot of untapped resource in the organization so once again this isn't particularly um research back but I'm personally willing to trade off the inefficiencies of not having larger scale for the autonomy of a small tight agile team I don't know if this is an instance where I have confirmation bias but I have a feeling that within topic is what we're going to find is a lot of the initiatives that have been the drivers of success of the growth of that business have been relatively small teams that eventually over time end up growing to become big to take advantage of the opportunity but in the early throes of the opportunity development um had a few Extraordinary People on a small team so is the trade-off then Mark when you talk about sort of the efficiency you think is it is it profitability that you're trading off or like what or just overall Market size market share like what like what is is that like what's the trade-off you think what what is the inefficiency the uh inefficiency is probably both Market size for a particular well here's an example of how I would take a market of excise if you ran it with one bu I think you would probably get higher margins and higher revenues per person and the market would grow at X rate if you took that same market and addressed it with three bu's my gut feeling is that you'd get lower margins but you'd eventually end up addressing more needs of the marketplace and so you'd end up with gross revenues that were higher you'd have lower revenues per person and lower margins but I think you grow faster you'd build a bigger moat and you'd have more long-term revenues yeah that's a that's a very interesting actually comes to Mike is actually we just we just uh Jerry actually just did something with one of uh one of our larger Healthcare businesses where we broke actually we broke two pieces of it off and actually brought in um a new EVP to create to create a new business but like you said the the short-term consequences is certainly the profitability but I think the long term is um you know giving this this new business you know the oxygen and the ability to to grow and to try and do something and not be weighted down by by the larger a larger business for sure so I think with that I'm going to to wrap it up and thank you very much uh for uh so much of your time today I really appreciate it uh that thank you for your very thoughtful and uh and considered answers and um thank you very much has great to do it Jeff and always look forward to talking admittedly in directly indirectly with your employees and uh encourage any of the managers who report up to you to reach out to me if um you'd like to have a similar sort of conversation about any topic really thanks okay cheers bye