Episode Description
Tom Hardwick and Mike McGrath discussed their experiences in career development and entrepreneurship. Tom shared his journey from law and investment banking to founding Coogee Capital, emphasising the importance of taking risks and having a go-getter spirit. Mike provided insightful questions and comments, highlighting key points and themes in Tom’s story. Speakers also discussed their experiences with private equity firms investing in their businesses, emphasizing the potential for dilution of equity and the importance of finding the right balance between private equity involvement and the company’s vision and strategy. Finally, the speakers shared their insights on entrepreneurship, emphasizing the importance of mentorship, education, and community in fostering an entrepreneurial mindset.
About Tom
Contact Tom https://www.linkedin.com/in/tom-hardwick-2aa81943/?originalSubdomain=au
Tom started his professional life as a lawyer with Corrs Chambers Westgarth, before moving into investment banking in Sydney with Burdett Buckeridge Young and Paterson Ord Minnett.
Tom then joined Abacus Property Group as Director of Funds Management, before leaving to become CEO of Guardian Early Learning Group, a childcare business he co-founded in 2004.
During his eight years with Guardian, Tom grew it into a $500m+ business with more than 100 locations across Australia, employing 3000 staff to care for and educate more than 15,000 children each week.
The business sourced its initial capital from a public company investor and then moved through three rounds of private equity, partnered by a number of banking syndicates.
Tom serves on the Board of Directors of RediMed, TA Fields & Sons and Aplant Hire & Lite Industries.
Points of Interest
Investment banking challenges 15:10
Transition to Guardian Early Learning Group 16:35
Strategy and Private Equity 19:23
Career Psychologist 45:11
Tom’s Wine Bar Venture 46:36
Transition from Guardian 48:43
Starting Coogee Capital 49:15
Transcript
Note: This has been automatically transcribed so is likely to have errors! It may however help you navigate the points of interest.
Mike: 00:00
Mike, welcome to the troubleshooters podcast with me. Your host, Mike McGrath, now Today’s guest has a fascinating story. Tom Hardwick, initially practiced law before moving into investment banking. Eventually, his entrepreneurial itch needed scratching. He jumped from the corporate ship to start his own childcare business, eventually building it to 500 million in revenue through three rounds of private equity employing 3000 staff. Tom epitomizes the have a go spirit needed to succeed in business. So sit back as I drill into Tom’s story. Tom Hardwick, welcome to the troll shoes podcast.
Tom Hardwick 00:47
Thanks Great to be here.
Mike: 00:49
Our CEO, Don Hunton at Oasis, connected us, so I’m very glad he did. You’re the founder of Kuji capital, and you’re effectively running your own sort of equity fund with a partner of yours at the moment, right? But let’s get to that, but, but let’s go back a bit. So Yahoo from Victoria, yes, yeah. And I understand mom was a teacher and dad was a suburban accountant, yes. So tell us a bit about your upbringing.
Tom Hardwick 01:19
Oh, look, I grew up in a nice family environment in suburban Melbourne, a place called Essendon, and later in life, I did some career sort of counseling when I was contemplating whether to stay in the law firm or not. And one of the things I learned from that is I actually grew up in a reasonably entrepreneurial family in terms of uncles and grandfathers, etc. And you know, you don’t really think about what shapes your life too much, but that was quite a pivotal moment in my life that counseling around Do you stay in professional services, or do you back yourself into something that eventually will lead to this entrepreneurial endeavor? And so looking back on our life and sort of how we grew up, you know, it was a reasonably entrepreneurial family, you know, some accountants, some butchers and funeral directors, etc. And so, you know, went to local Catholic boys school, and then, lucky enough, got into Melbourne Uni, did law commerce there, and I sort of quite liked the business and accounting side more than the legal side, but I thought if I’ve done a law degree, I should at least go and practice it. So I was lucky enough to get a job at cause chambers Westgarth did did a few years there. Then I won this Fulbright scholarship to go to the US, and it was really to study workplace relations and how restructuring was taking place, as in unionized workplaces, as opposed to non unionized and so I spent as part of a year in the US.
Mike: 02:48
So when was that? What year was that? It was probably 2006
Tom Hardwick 02:53
Sorry 96 and 97 was then, and which was, yeah, I was a great experience. I worked for a consulting firm for a few months. I traveled around the country for three months and visited, you know, the nabiscos and sat and motor companies, all those things, and then came back to Australia to stay in the US. Oh, it was, yeah, it was, it was pretty tempting. But the group we were working with in the US wanted to set up in Australia in partnership with cause, and so we basically took what we learned in the US and came back and set it up in Australia. And I did that for a few years. So it was good because I was getting a bit tired of the legal side, and so I did this consulting work, and that was good fun, but it was very much in the weeds of implementing organizational change, which you need to be that actually get stuff done. McKinsey’s provide a nice report, but someone’s actually got to make it happen. But I got a bit sick of that after a while, and then so went back to the law and then it was like, Oh, gee, I don’t know if I want to be a partner in a law firm for the rest of my days. And that was this sort of moment of getting a bit of help to think about where to, where to with my career.
Mike: 04:02
Yeah, I understand that you consulted a career psychologist. So before we get into that, because I’m very interested in that, I think, I think that’s an area that’s so underdone career advice. Yeah, like, I just can’t even believe it. I most of people I speak to, they’re just stumbling through, you know, trying to make it up as they go along. And I think that sounded like a very useful intervention for you at that point, quite enlightened. I think to think like that. Who suggested it to you?
Tom Hardwick 04:29
I had a mate who was doing, you know, recruitment, and what’s the word when they do outplacement, okay? And I was just talking to him one night. He said, Look, there’s this, there’s this woman who who specializes in this work. Once you think about having a chat to her, and it was, you know, she interviewed, interviewed me for a few hours, did the whole family history, then did a whole batter of tests around, what do you like? What are your strengths, etc. And at the time it was, look, you’re very good technically. As a lawyer, you sort of quite clear on your communication. Mission. But if you want to be an entrepreneur, you know, in when your 40s or 50s be investing in companies or running something, etc, you probably need to work on your persuasion skills. You need to maybe show a bit more emotion and passion. And you know, there’s one or two other things, but just a couple of things. And then out of that, I got the opportunity to come to Sydney and working invest investment banking with BBY, and that’s where you learn the art of persuasion, when, you know, basically, you you eat what you kill, and you’ve got to go and convince people to invest in companies, etc. And so that for me, that sort of couple of years in investment banking was a great opportunity to, you know, broaden the skill set.
Mike: 05:41
I mean that, let’s come on to investment banking, because she did that for quite, quite a while, didn’t you?
Tom Hardwick 05:47
Yeah, you had a couple of stints at BBY and then Patterson, yeah
Mike: 05:52
When you when you finished it, you know, when you finished at uni. So that was, what was that?
Tom Hardwick 05:57
91 I think I started work in 1992 okay, because an article Clark
Mike: 06:04
That’s interesting. So that was, I mean, I was in business at that stage. I’m quite a bit older than you, but that 1990 that was a huge I mean, in the UK, I’m sure it was not dissimilar here, but we had a massive credit squeeze on, yeah, so we kind of ran headlong it. I didn’t know what a recession was. I started my first company in 1987 and I’ve been at it for three years, and the banks are, all, you know, throwing money at us, and we were expanding and and then, and then I got schooled in those two years 1992 where I started to understand what recession was and what credit Squeeze was. And I really learned more in that too. In fact, everything I’ve done since then has really been grounded out of those two years of utter pain. Yeah,
Tom Hardwick 06:47
I was probably, you know, like the year before I started. And, you know, the law firms make these commitments. A year or two out there was probably, like 25 people who started our year. There was eight. And that was a consequence of that, consequence of that. Yeah, and, and I was probably a bit green at the time to really appreciate what was going on. I think there were two of those moments in my life where, when I left the law firm, I went and joined a client who was building a supply chain business, yes. And the day I started, the accountant resigned. And then that lesson in life, you ever joined a business and the accountant resigns? Be wary anyway, that business went broke within 12 months, and that, in some ways, was my MBA, working in a business that you had to lay 350 people off. It went into administration. Seeing all the problems across security create like seeing a business at the messy end of it really teaches a lot about how to set it up. Yeah. So that, for me was one of those, you know, moments where you learn a lot in life. And then probably the other was when I was at abacus, when the GFC hit, and, you know, the Property Groups, yeah, we were pretty levered, and that were pretty hairy times.
Mike: 07:57
It’s interesting. I left school in 1980 right? And there was a, you know, a recession on unemployment was 10% this, this is in the UK now, and, but unemployment 18 to 24 was, like, 20% that was so corrosive, yeah, like, you know, people just didn’t think they were going to get jobs. And, and that was not good. We don’t want unemployment at those levels, that’s not good for society. But so I left school in that environment where, okay, you know, what am I going to do? How do you get a job? And jobs are very difficult to come by. And then, and then the economy began to pick up. Thatcher got in, and the UK started to fix some of its kind of Industrial Relations problems, and and, and then, and then the banks. We had Reaganomics at the time. So you had the whole trickle down effect. Reagan was had bought into the whole, you know, economic paradigm, you know, less government, less regulation, the markets going to fix it. And so you had this kind of, you know, rapid, you know, money became easy to get and stuff and and then we ran into 1990 Yeah, so that’s, that’s a decade later. And then, to your point, a decade after that, we’ve got the tech bubble. Yes, that’s right. And then a decade after that, we got the GFC, and then we had and then we had covid, yeah? So every decade we’ve got some kind of, some something, something’s gonna, somebody’s gonna come along. We don’t know what it is, but that’s true. But typically, yeah, you wouldn’t have thought
Tom Hardwick 09:32
No one really saw the GFC coming, but for a few smart hedge fund managers, exactly. And no one saw covid Coming, like, Who would have thought the world would be shut down and locked down, right?
Mike: 09:40
So, so tell us. So you did that 12 months without business, and you got, you got a school there, really, in terms of what? And then you went back to law right after that, yep,
Tom Hardwick 09:52
No, sorry. When I came back from the States, I did the consulting, okay, then went back into law when I got bought. But a year later, I was like, you know. Up. I don’t think this is for me. Okay, jumped out with the client that failed. Came to Sydney and joined BBY Okay, once again in the aftermath of the tech wreck, okay? And the institutional desks used to laugh, because you’d have the trophy cabinet with all of the, you know, the plaques for the capital raising, yes. And the insto desk, whose clients had obviously lost money on all these corporate transactions. Call it the wall of shame. And here I was some industrial relations lawyer starting investment banking, you know, trying to get some sort of support for some corporate deals. Yeah. So here we are. It was a tough time in those, you know, 2001 2002 investment banking, the third, first company I raised money for was a Toronto listed uranium miner that had a uranium mine in South Australia, the honeymoon uranium mine. And I raised two and a half million dollars, and I earned a bit of kudos in the investment bank for that and Oasis history.
Mike: 10:52
So you began to kind of develop those hustle skills, I presume, at that point, how to get a deal done, how to, you know, persuade people, yeah, that this was a good idea, yeah?
Tom Hardwick 11:03
Also the financial skills, right? Because lawyers, yeah, okay, yeah, I was good at numbers and good at maths and good at Commerce, but I hadn’t really practiced, okay, but yeah, you need to know about numbers and how to, you know, value a company, yeah, model it and all that stuff.
Mike: 11:15
But your Dad was an accountant, so was some of that, did some of that rub off
Tom Hardwick 11:21
I liked numbers. And, you know, when I was at uni, I used to go up, I used to catch the tram up Sydney road to go and work in his office. My my dad was, you know, Dennis donuto was my dad, but he was an accountant, not the lawyer of Dennis donuto. So brown suits slamming photocopies worked up above a pharmacy on Sydney road. So the similarities are scary.
Mike: 11:41
It’s interesting you refer to him as a suburban accountant, and it’s interesting that, because that was the I had to learn that the hard way, I thought an accountant was a counselor. Yeah, it’s like saying a soldier is a soldier, right? So I hired accountant back in the day, did a terrible job, but I thought an accountant was a counselor. Yeah, exactly. That’s right, you know, little did I know. So, so, so you, you had, we had a little bit of an aptitude for numbers that was in eight, but that needed developing a bit, yeah, yeah. And so you, the banking career helped with that
Tom Hardwick 12:14
it was great. So, yeah, we did two years at BBY, and we just, we just weren’t, sort of loving the environment there. So the team moved across to Patterson ordinette, and that had its own challenges working for a Perth based group, yes, in Sydney, okay, but yeah. But what I did is I built the foundations of BBY, and then when I went to Paterson, I just had this sweet spot of and I’d sort of focused on income style products, primarily listed property trusts, the smaller property trusts that the big banks didn’t really pay a lot of attention to. And so probably raised four or $500 million over three years at Patterson’s, whether from IPOs or placements, etc. And so I built a bit of a franchise in the small property trust space. And then a couple of the big banks noticed it, and said, Hey, why don’t you come and join us? And it was sort of tempting to go into the big investment bank space, but I just, I’m not someone for, like, corporate politics and, you know, the big and I had it at cause, yeah. And so I went and, you know, spoke to one of my mentors at the time, Frank Wolf, who was running abacus, where he founded abacus, and said, Frank, look, I’m at this crossroads. Here’s where I am. He says, Tom, why don’t you come and work for us? You’d be great, sort of, looking after our funds management, business and investor relations. And you know, it’s one of those things. You know, the great jobs you get in your life you don’t normally apply to or to an ad or a recruiter. You sort of, it’s through your networks and, you know, discussions and, and so out of that, you know, I went and joined abacus and, yeah, it was a great two years pre GFC, you know, building their funds platform and buying some assets, and syndicating is
Mike: 13:55
again, that there was a movement. Was a bubble. Yeah, it was a bubble. But, yeah, but there was, you know, I remember the guys in London that at Oasis were saying selling a business like shooting fish in a barrel. Yeah, yeah. Boy, did it change, yeah. He never gone back, actually, no.
Tom Hardwick 14:11
It was interesting. We were so we went to Macquarie had this Global Road Show. So he went to London for a few days in the New York, and they got all these investors to hear the stories of these Australian property trusts. Yeah. And when we’re there, a few people in London were saying, Oh, are you in the US? They’re saying, Are you having trouble accessing debt yet? And say, no, what are you talking about? It’s all fine in Australia. And they were just seeing the start of the crash. And then, you know, a couple of months later, Centro couldn’t get its debt refinanced in the US and bang, it just, well, changed That was probably one of the scary times, being in a business that big, with you only had 2 billion of assets, and going, geez, where’s the cash gone? And, you know, the banks want us to deliver. And, you know, I was, that was pretty hairy.
Mike: 14:59
Who were the guys who. Investment Banking that were helping you. Like, was it? Was it sink or swim you or, in fact, you know, were you taken under anybody’s wing?
Tom Hardwick 15:10
It was so tough the investment banks were, you know, they were really focusing on the big guys. Frank, basically got an introduction to a very wealthy man in South Africa, left Australia on Christmas Eve, went and spent Christmas day with him in South Africa, and within 24 hours, basically negotiated an underwritten rights issue to, you know, restore abacus balance sheet. And, you know, basically Frank and Nate. He did it themselves, and then they bought him one of the investment banks to wrap it up a little bit, right? But no, it was Frank. Frank had to go and save his his company. And yeah, it was a public company with a board. And yeah, so the little guys were the least, the last to get any love. But you know, he got off his backside and he sold. And yes,
Mike: 15:56
yeah, no, look, that was a, that was a unique time in finance, wasn’t I mean, what was emerging of private equity, which wasn’t a lot in Australia at that point, it was very small. That just disappeared, yeah, overnight. They kind of ran for the hills. Yeah, banks started get out of the investments had made. Yeah, it was. And, funnily enough, we just started in Australia at that point, yeah. Okay, so, you know, we had two years in nothing, yeah. And so we had to get fairly creative, trust me, so that’s interesting. You you enjoyed that that time in investment banking, you were with abacus, and so you’d been in there for best part of a decade
Tom Hardwick 16:35
sort of five or six years investment banking, four years at abacus, yeah.
Mike: 16:39
you’d had maybe the best part of eight or nine years in law, yep, so, so at that stage, we’ve got, we’ve got to, you know, some skills emerging, haven’t we? Yeah, it was,
Tom Hardwick 16:51
I think, when I look back at the success of guardian, it was this sort of breadth of experiences over 20 years that I felt gave me a very good platform to be a CEO, yes. And, but it did take a bit of courage, right? Because every three or four years I’d get a bit bored, and I tended to jump into things that were quite new, yeah. And, you know, so there’s, I had a I remember talking to Greg Paramore, who was one of the great property right? You know CEOs. And he said, Listen, son, just back yourself. You know, if you think it’s a good thing, jump off the deep end and have a crack at it. And what’s the worst thing can happen? It doesn’t work. And like with the logistics business, right? Jumped out of a partnership in a law firm. It failed, but, yeah, it was a good experience, and without that, I wouldn’t have got the next opportunity
Mike: 17:42
so on that point then, so you kind of, when did you decide that you’d had enough at abacus?
Tom Hardwick 17:50
What had happened was we had started building Guardian as a bit of a side project. My wife was in childcare her whole life. Right when we came back from America, we bought our first center in nariwaring.
Mike: 18:03
So for those who don’t know, and we’ve got a few international listeners that might not know who who Guardian is. So for those two listeners, tell us what Guardian is
Tom Hardwick 18:16
So Guardian early learning group was a childcare business that we built basically started from scratch in about 2004 that, you know, I eventually joined full time in 2010 abacus into that and I’ll tell that story. And then over those years, from 2010 we essentially up until 2010 we managed other people’s assets for a fee. In 2010 we raised private equity to buy some assets that abacus had put together.
Mike: 18:49
So these are business assets, not property assets, business assets, yeah, and so they’re the Early Learning Centers themselves. They were going concerns, going concern Early Learning Centers, and you were paying a multiple of whatever they were producing.
Tom Hardwick 19:00
So in essence, over the eight years I was there, we bought 8080, centers and opened, call it, 30 Greenfield sites, okay? And you know, typically would buy a business for four to six times earnings, okay? And through that journey, raised three rounds of private equity as we got bigger and needed more capital. So that’s, that’s Guardian,
Mike: 19:23
so that they so that move you got into the hot seat effectively, so they asked you to lead at the beginning. So how did you get that gig?
Tom Hardwick 19:35
So what happened was, five of five mates said, Hey, why don’t we do something in childcare? We faffed around for a few years figuring it out we had one or two centers, you know, crappy little centers. We thought about doing a Greenfield. We decided to get into the management of childcare centers. And so over time, we sort of got to about 40 centers under management. Yeah. Well. One of the five of us was in the childcare space, and so he was running that business, and the other four of us had jobs in Sydney, and we’d meet once a month, etc. Then when I was at abacus, we built this very successful Self Storage portfolio where we owned the Self Storage property as well as the business. And Frank and David said, Hey, Tom, why don’t we do something in childcare? So we started off with this view that we could go and buy the property and the operating business, and we would scale that as a property fund. We bought 17 centers, and I sort of led that charge at abacus and raised the money, et cetera. And then what we found is we only had six freeholds and with the business. And then another 11 were just pure leasehold. So it was proving to be a challenge to do proper Yeah, together. And then the GFC hit, okay? And it was like, hang on, we got to tidy up our balance sheet. We’re in commercial property. Let’s get out of pubs, childcare, student, or any of that ancillary stuff. Just get rid of it. The problem was, in 2009 you couldn’t sell assets and get your money back and so, but the largest childcare group in the country, called ABC early learning, which had gone to the US and UK, had gone bust. So quite a lot of private equity firms had looked at it, but said, Oh, look, it’s too distressed. But they sort of saw the merit in the space. And so when we were trying to get abacus it’s money out of self, out of childcare, we came across a couple of PE firms who were quite interested. And ultimately, Wolseley private equity, a local Sydney group, yes, invested. And what the transaction was, we will buy abacus as centers, not the properties. Abacus can keep the properties and sell them, but we’ll buy the businesses and Tom you come and run it and leave abacus and help us grow this business. And so having had two great years at abacus, and then two years post GFC, where life wasn’t so much fun. It was like, You know what? This is pretty interesting. Here’s an opportunity to be a CEO. Here’s an opportunity to build something. And, you know, we were a bit passionate about childcare because of the wife’s experience, and we had three of our own senses privately as well. Okay? And so I said, look, let’s give it a crack. And so at that point, I it was probably one of the best working moments for a couple of years, because I set up an office in Bronte just next to Iggy’s and three blue darks. I’d rock up in my board shorts and thongs, and I could go and have a swim at Bronte during the day. And we worked on the strategy, on the acquisitions, and my partner, Anthony, he was in Queens and running the operations. And, you know, childcare is a very noisy business to run, and so that’s sort of how the Guardian
Mike: 22:47
so you and I mean, in a way, was a dream ticket for the PE guys, because, you know, their biggest problem is, who’s going to run something? Because they generally can’t, yeah, and so you, you had the hands on experience, and you got the smarts, you got a legal and financial background by that stage. So, so that kind of makes sense. I mean, just for context, the the child care sector in Australia is worth about 15 billion at least it was in 23 and making about 5% interesting. So not, not hugely profitable on a net profit before tax basis. But you know, your average net profit in Australia, on the million operating comes is about 9.7% Yeah, so reasonable, but not stellar. I see there was a Commission recently looking into it, yeah, because they thought it was a rule, but it’s definitely not a rules. Is it?
Tom Hardwick 23:35
Look if you’re a good private operator, you’ll be making 15 to 25% okay, yeah, there’s a lot of the
Mike: 23:48
The good operators at the top, yeah, it’s probably 80/20 isn’t it?
Tom Hardwick 23:52
Yeah? Like everything, right? It depends on the locations that you are, etc. So it’s Yeah, but it’s not. It’s a very labor intensive industry. Labor’s probably 60%
Mike: 24:04
60% wages, according to ibis, yeah, and so.
Tom Hardwick 24:07
You know, in the last few years, it’s really been, where can I find that labor Okay, and the government has quite a high quality agenda for the sector in return for the government funding, because the government funding underpins about 66 65% of the revenue, which is incredibly generous model, yeah. And so when I do, when I see people complain about the cost of childcare, and you know how outrageous it is, like Australia is one of the most generous environments for childcare support, yeah. So it’s, it’s, it’s attractive in that it’s underwritten by the federal support, but in return, you need to sign up for a quality program that says, We need these staff ratios. We need to invest in education rather than just babysitting, and that agenda is not easy to implement when it’s hard to get the staff and the qualified staff. You. There’s a lot of new migrant labor that comes into the country, and childcare is quite a safe environment for those women to work in when their language isn’t particularly strong, etc. But finding the right mix of people to deliver on the agenda, it is a challenge. But, yeah, it’s a challenge in a lot of sectors right healthcare,
Mike: 25:20
So at that point, you, like the sector private equity, have had a look at it, even though it’s probably a bit smelly with the old ABC thing. I mean, that was a phenomenon, was it didn’t they peak at about 1000 centers, 12,000 centers in Australia. So they ended up with
Tom Hardwick 25:38
At the time, there would have been less. So at the time, there was probably five or 6000 centers, okay? The some of those statistics about center numbers include before and after school programs which are not the same as, say, a long daycare, okay, but at the time, and Eddie, Eddie probably had 800 centers in Australia, because he had some in the UK and some in the US, right? And it’s the classic example of and I think, and this is why I was never interested in listing guardian. You know, when you’re in that listed space, you do a deal, you raise some money, the price goes up, then everyone comes back to you and says, Hey, Eddie, where’s your next deal. We’ve got people want to get into the stock, but, you know, they want a big raising because they’re institutional investors and only want to put 10 million to work by million dollars to work, blah, blah, blah, so then he’s got pressure to do another deal, and then pressure to do another deal. And you know, there’s this whole world of, you know, the public markets, and you know, it does blow a lot of businesses up, because it’s all about growth. And Eddie chased the growth and delivered for a while. But you can only buy, you can’t buy that many childcare centers. And when the music stops and you see what’s really happening. And since Eddie, there’s been, you know, GA there’s been affinity, there’s been numerous listed childcare groups. And it’s a lot of same with a lot of these roll ups, right? You go, and anyone can buy a business, like, Oh yeah, it’s easy to buy a business much harder to buy that business and then turn it around and make it a better business. And if you’re buying 100 a year in a very people intensive business, you can’t do
Mike: 27:10
Quality is a huge quality issues. Yeah, he just
Tom Hardwick 27:14
so he was buying centers that were going backwards by 20 or 30% because they were so focused on the next center they were buying in the next year. No one was really focusing on
Mike: 27:24
The kind of retail food Group had a similar problem as well. They just kind of grow, grow, grow, grow, and no one’s looking at the fundamentals.
Tom Hardwick 27:33
And at Guardian I real. What I really tried to do was say,
Mike: 27:38
Had you taken that lesson, you’ve done that study of that and gone we can’t do that.
Tom Hardwick 27:45
what, what shapes the strategy that you end up doing. But for, for whatever reason, I felt that you you couldn’t buy a lot of centers. And we found we bought 17 centers in that first period of time for our because, and they did go backwards, and they were our first centers. So that was our kind of it was a good lesson. That was our lesson. That was our lesson. It was a university. And after that, I said, we can improve these centers, but it does take careful management. So what, what I used to say to people is I like to buy 10 so for tell hotel hotels every year, not 50 country comfort motors. And we really focused on buying good centers and then making them great centers. And that was, you know, something, maybe 90% occupancy. Let’s try and get it to 100% or even 103% occupancy. Once we get it to that point, we can probably push the fees a little bit. We never really focus on cutting costs, because you take costs out of a childcare center, everyone, you know, freaks out because it’s about the children, so you’re not going to cut food or whatever. And you know, even if it had too much labor, we didn’t get rid of those people. But over time, there’s always natural turnover. And you know, you might not replace one or two. So we really focused on on the organic growth of what we bought. And I can tell you, when we have you had three rounds of private equity that that ability to prove that you can buy a business and improve its earnings is so valuable, right? Because a lot of business people buy businesses and their earnings flatline, and then they go, Well, I’m going to buy some more, but I need capital, right? And so you just using capital to buy more earnings, whereas if you can grow the earnings. One, that proves your management teams know what they’re doing. But two, you can use that accretion in earnings, which grows the value of the business, to help fund, you know, the ongoing expansion of the portfolio, not requiring new capital all the time. And I just think that you know now, when we look by buying businesses, want to help some of the larger PE firms look at buying businesses. They’re really looking at, can this business grow organically? And can this management team grow this business organically, without a lot of capital?
Mike: 29:50
So you, I mean, that was your opportunity to really express yourself, wasn’t it? Yes, and so that. But to give it some context of people who are listening, you grew. That business to 500 million. Yeah, yeah. And What? What? We’ll come back to some of the drivers there for you, which you’ve already said, Really, which was a quality driver. And let’s buy 10. Let’s make them better. And, and let’s not get out of control. And you, you know, you’re back to fundamentals, aren’t you? You know, what problem are we solving? How we helping people and that that focus on quality? I mean, three rounds of PE isn’t easy to do because, you know, they’re, they’re, they’re demanding, so it you’ve got to produce a return as well. Yeah, and, I mean, I presume your scale helped. As you began to scale, you got some economies, did you? I mean, there isn’t great economies in labor, is there?
Tom Hardwick 30:45
No I call it. I call it diseconomies of scale, okay? Because yeah, let’s say you go and buy a childcare center from a Mar and par operator, yeah. Now the first thing we learned was, if Mar and par are working in the center actively, that’s not a good business to buy, because the center manager is not empowered to make any decisions. And when she came into our model without Mar and PA, they’re all over it, she couldn’t survive, right? So we learned that lesson. So therefore, let’s say we buy a center. Well, all of a sudden we had to add payroll tax to the P and L. So that’s, you know, when you got 60% of your revenue, there’s another 2% of revenue.
Mike: 31:26
So payroll tax kicks in above 800,000 when
Tom Hardwick 31:30
you’re a big group, you know, kicks in then, you know, we needed an area manager to keep an eye on that center. You know, you sort of pay them about 120 100 and probably 150 grand, and they probably capable looking after eight centers plus on cost. So 200 grand divided by there’s another 20 or 30 grand that comes out of the P and L, and then everyone would just get a little bit toy when a corporate group bought a Mar and par business. So often they would go backwards five or 10% before you then bought them back out. And so, yeah, when you bought a business, you typically went backwards before you went forward. So you you really had to get on the job and try to bring this, this team, into your vision and your passion, and bring them on a journey. Yeah, and you know, we were, we were generally pretty good at doing that?
Mike: 32:22
so that the private equity guys were, were providing the capital. They in return for some equity, yeah, and they so ostensibly that that each time you went for another round, there was a dilution. But the so you guys, as founders, had a had a diminishing percentage, but overall your equity was growing in terms of value.
Tom Hardwick 32:48
We had a smaller piece of a bigger part. Okay, okay, now I’d say we had the first private equity group I thought were fantastic, very supportive, yeah, helped sort of shape us a little bit and but we basically spent all their money within the first two and a half years, and they kind of needed an exit, because they were looking at another fund, so they sold out of us. And, yeah, it’s not nothing when you know you lose nine to 12 months of your life when you do these transactions. So they are quite distracting. Now they made three times their money, and we got a nice on the uplift on our equity promote, etc. Then the second private equity firm that was a bit more of a difficult working relationship. They wanted to be a lot more involved and a bit more hands on, and a bit more influential on strategy, etc. And I sort of knew what I was doing, and so I sort of pushed back on that, and I probably pushed pretty hard there, and I think that relationship was reasonably fractured by the end. And I think they were Australian based. They’ve got an office in Australia, but primarily an Asian based P firm, and but, you know, I think they probably thought, Look, this is has gone very well. Tom’s a bit difficult to work with. Why don’t we take our money and run while we can? And, you know, they they did three times their money in two and a half years or three years. So it was a good outcome for them. And then we went with a global group as we got bigger. And, you know, that was, that was more of a challenge, I think, working with them so, so I think one, I mean,
Mike: 34:24
I’m just interested in this, because I’m sure some of our listeners will be interested in this, business owners. So that as you because you kind of move at the food chain with, yes, private equity, don’t you? So as you move at the food chain, I presume the risk, the risk appetite reduces, and they become a little bit more compliance driven, I suppose, in terms of what they want to see governance wise, is that the case?
Tom Hardwick 34:54
Yes, but I Not, not necessarily in a bad way like I think. I think having a local group is much easier than having an offshore group, okay? And I think, you know, there’s things like, they launch you to report a certain way, and they like to collate it all up. So at global, I see they can compare everything, etc, but that didn’t affect us too much. Probably, you know, at some point the business needs to become a bit more institutionalized. Like I went and met with the largest childcare company in the world. And I used to go meet with them every year in the US. And the CEO said to me, because, you know, I’m sort of pre dating, hoping that one day they might sort of invest in it. He says, Tom, you know, the best thing about Guardians, you you right across it, you’re doing great job. The worst thing about Guardians, you because if we buy into guardian, we want to sort of have an institutional management team that’s not relying on the founder. And yeah. And so as a founder, you know, quite an entrepreneurial founder. As you get bigger, the need for some of these, you know, systems, infrastructure, governance. And, you know, I sort of gets in the way of an entrepreneur a bit. So it is, I would say. And as part the reason we set up Kuji capital is it’s a dangerous game to play. As a founder private equity, particularly if you don’t have control, like if you’ve, you know, and Guardian was a business that required a lot of capital to buy all these businesses, so we never had control of it. And you are nothing more than a glorified employee and disposable at will with then quite a lot of equity tied up in a liquid business that you know, potentially you don’t have control of anymore. So, you know it is, it’s a tightrope to walk. And I would, you know, say to most founders, if I think, if you can avoid it, I would avoid it, but if you need it, it is a good source of capital, and some provided get the right group good smarts to help you grow. Like, there’s a group like 5v here, you know, I’ve done a bit with rock partners here, like they’re good guys that sort of have got a bit of experience in the in the pot that, you know, I think would be good to work with. I I call them the propeller heads, and it used to drive me crazy. But, you know, the young kids that have all spent their whole life on a spreadsheet. Maybe they’ve got an MBA, and they come in and they want to talk to everyone, want to analyze your business and come with all these hair brain ideas based off a spreadsheet analysis. And that sort of really got to me a bit. But, you know, that’s, that’s, but that’s the Yeah, the dance hall you go to, yeah, yeah, dance with private equity.
Mike: 37:39
That’s that’s interesting, I suppose. And you know, if you need capital, if you’re in one of those situations where you need capital, was a lot of that capital was you were buying businesses more than the properties that they were more interested in the businesses, yeah. But even that, you know, you, if you’re paying four or five or six times you, you know, you’re five or six years before you get your money back, and, yeah, you’re earning even 15% or 20% they’re still not gonna know.
Tom Hardwick 38:03
we had to, we had to grow. We were growing our earnings by 20% organically, and then adding to that with acquisition, okay? And then the greenfields eventually came in, because the problem with greenfields is a smash your p&l in that ramp up phase. Yeah. So it was really, when we got big enough we could do a few greenfields here and there, and it wouldn’t, didn’t hurt us too much. But, yeah, it took a while to get to that size.
Mike: 38:30
You mentioned the Self Storage market. How good is that self storage market?
Tom Hardwick 38:35
Yeah, it’s been
Mike: 38:35
a great what a business model. Great
Tom Hardwick 38:37
Great business. It’s a, not the easiest business to start up, because you got to put a lot of money down. And it and it does take those things about four years to sort of get to full occupancy, yeah, but once you get the big pieces of dirt, so great land appreciation. You know, if you can get, I said they trade on five or 6% these days, but back then, we were getting nine 10% return out of them, and was great,
Mike: 39:00
yeah. And I suppose what you were saying with the child care centers is they, you weren’t able to do that business property in the same way.
Tom Hardwick 39:08
No, no. And obviously, you know, you get a much better return on equity from just having the business side, yeah, but yeah, there’s, there’s been a lot of money left on the table by not being in the property side of childcare, yeah, and I spoke at a development conference recently. Some of the smartest people I saw in childcare were people who were building the centers, operating the businesses, and then when those businesses were at 90% occupancy, they’d sell the businesses to me, and then they take the proceeds from the sale of business, pay the debt off the property, and the next minute, they had four properties throwing out, you know, 678, 100,000 a year each in passive rental income, yeah, well, yeah, two or $3 million a year, a bit of tax benefited income. Yeah, it’s not a bad cash flow.
Mike: 39:58
So you you build that business. And clearly it was, I mean that. I mean, it’s easy to say 500 mil. It’s very difficult to pull that off.
Tom Hardwick 40:08
Bids just went in last week for the to buy Partners Group out on Guardian, and it’s, you know, it’s going to be around a billion dollars to
Mike: 40:16
Okay. And so what caused you to decide to accept, or was it the private equity guy? I mean, what was the the Genesis around? Okay, it’s time, it’s time
Tom Hardwick 40:28
it we were looking for a COO to come in to sort of be my successor, yeah. And so we’d been on this process for quality, you know, best part of a year. And I thought it would be easy to find someone with some multi side experience, with a bit of passion to lead an organization. And yeah, he wasn’t like it was, you know, I was surprised at the lack of talent. Now, maybe as a founder, you have a high bar. And so, in essence, the relationship with Partners Group break down a bit over that process, right? And then I think they felt that maybe I was a bit of a roadblock to solving this problem. And so, you know, basically they said, and time’s up. Okay. Now the idea was to stay on the board, and so I went to a few board meetings. But it’s pretty hard as a founder to sit on a board with a couple of, you know, non exec directors, and so it’s sort of paid it out, okay, yeah, and yeah, which is, you know,it wasn’t an easy pill to swallow. You founded a company, yeah, sort of kicked out of it by some people.
Mike: 41:40
You’re in good company, though, aren’t you with? Yeah, and that’s, that’s the jehos.
Tom Hardwick 41:44
That’s the dangerous line you walk in private equity without control. And, you know, I push Navis to the limit. It would have been them or me eventually, I suspect. But
Mike: 41:56
so what did they buy you out?
Tom Hardwick 41:58
So in essence, I got half of my money out at the time, okay? And I’ve still got equity in there. Okay, great. So there might be a good second, hopefully nice check coming at the end of this year. Yeah. Okay, great. And, yeah, so they were reasonable about it, okay, good, but it was time for you, yeah. And you do get to that point, and you don’t necessarily know it, where you’re working 70 or 80 hours a week, you start to get a bit sick, the stress builds up, yeah. And so it was, you know, nice, you know, it was good to get a bit of that step back, a bit of respect, a bit more time with the family. Because, you know, you just hardly hire stuff.
Mike: 42:36
And so how did you handle that post? You know, you you go from 100 miles an hour down to Okay, well, I’m not doing that anymore. Yeah. So that and that, that takes some adjustment, I imagine. So just chat to us a bit about that.
Tom Hardwick 42:52
I think the first thing I did was, um, I packed my bike in a box. I flew to Geneva airport and unpacked it out the front of the airport and road to selenia across the Italian selenium across the Italian Alps.
Mike: 43:04
And just sort of, you’re a big cycling fan.
Tom Hardwick 43:07
do a lot of riding cycle in Europe.
Mike: 43:11
did you do much of it when you were running guardian?
Tom Hardwick 43:15
It was my release. Was your release? Yeah, you need something, dang it. Yeah. And I was into it big time and, and, yeah, I was a shit husband to my wife, because, you know, I’d work all week now i i was generally home for dinner. You know, as we always got traveling, I was home for dinner. the kids remember, like, our kids are going to be entrepreneurs, and it’s because of the osmosis of the dinner table and the conversation, but yeah, come weekends, you know, the kids were doing sport and they’re doing nippers, and my poor wife was driving all over the place while I’m off on the four and five hour bike rides. But for me, it was an important release, because it enabled me to switch off. And, you know, you got to concentrate on staying alive on the bike. So you do sort of get a bit of think time, but a bit of shutdown time.
Mike: 44:03
were you conscious of that, or were you just doing it
Tom Hardwick 44:07
Look what I needed. I needed a love outside it, because I was really into guardian, right? It was everything for us. Your wife, included. She was working in there and stuff. So I did need that release. And I sort of put it down to you’ve got to have time for your partner, time with the kids, and time for yourself. And I think time with your mates suffers when you’re building a business or, you know, in that prime of your career, you do lose a bit of contact with your mates, and you have to make a bit of an effort to organize a few boys dinners and stuff like that. But for me, bike riding was more of a solitary escape and bit of downtown
Mike: 44:47
I got the same from running, which I believe, so I just jog and distance stuff, yeah, and I didn’t really know it at the time, I just kept coming back and doing it, yeah, yeah. And ostensibly, looking back, I realized now it was a kind of therapy route, yeah. It is. It just got out of my head into my body, and, yeah, so that that’s been good, yeah. I mean, I think you need something and that kind of physical physicality, it’s easy because you, you know what, running businesses, you you’re in your head, it’s all
Tom Hardwick 45:20
and it’s easy with the stress. Yeah, I was, I’ve never drunk coffee, but, you know, I when I was in America, I sort of got onto the Diet Cokes. And, you know, I used to have one a day at lunchtime, and, you know, I was all of a sudden having three a day. And you know, when you have a Diet Coke, you don’t feel like a banana or a peach, you have a muffin or a bit of banana, but it was just, you could just see the stress starting to, you know, permeate your life. And while, you know, I was pretty fit from the bike riding, Yep, yeah. So it was, it was a good opportunity to have a bit of a reset and a bit of a rethink.
Mike: 45:51
so, how did you go about? How did you tackle me? We mentioned earlier about the career psychologist. You didn’t think about going back and seeing them?
Tom Hardwick 45:59
No, no, I have sent numerous people to see her over the years. Yeah, people have come to me because there’s one thing to get a bit of mentoring from someone. It’s another to go and have it professionally, a professional really analyze you and what are your strengths weaknesses? What do you want to do? And try to, you know, do that. So, so, no, I didn’t do that. I sort of had a bit of time, and I decided, you know, I’m a big wine person. I love my wine Okay, and when I go traveling in Europe, we spend a lot of time in visiting wine bars and wineries. So I opened a wine bar in Quincy. So completely new endeavor, yeah, that was, you know, gave me something to focus on.
Mike: 46:36
And how’s it gone?
Tom Hardwick 46:38
I opened at September 19. We had a couple of good months before the bush fire smoke settled in at the end of the drought there, and then, just as a smoke listed straight into covid. So, yeah, what I’ve learned is I’m glad my wife and I aren’t running a restaurant for our livelihood, to put our kids through school, to pay the mortgage, because, by golly, it’s a hard game. But yeah, I think, I think this financial year we might go close to breaking even. Next year we might make a profit. Okay, now I look at it if I can make 10% return on my capital without it being too much trouble. Yeah, I have a lot of fun out of I have dinners and organizing. You know, I’ve got a farming business. So we do meat things there, do wine things there, do all sorts of things. And so be I’m an entrepreneur. I love starting things up and learning
Mike: 47:28
Important point, isn’t it that that that idea, and in some ways that’s a lifestyle. I mean, you it’s a lifestyle choice. And you know, I’ll do that, but you make a great point. I mean, if you were having to live out of it back in the day, when they’re putting the kids through school and god knows what else, that’s another ball game, isn’t it? Yeah, yeah. And certainly that that pandemic. I mean, there was a few things that took a wallet. I mean, the airlines can’t even believe I mean, Virgin had a billion dollars in cash on their balance sheet in that February or March, because we had a look at them, yeah, we were going to buy some stock, and then they were broke within four months, yeah? And the restaurants, bless them, yeah?
Tom Hardwick 48:11
Well, yeah, I was the government bailed out a lot of sectors
Mike: 48:14
Without a doubt, like, I mean, that was the, you know, that that was extremely helpful entirely, wasn’t it?
Tom Hardwick 48:22
but I was lucky enough that I could just shut the doors. We had a small farm in the kangaroo Valley. We just went down there and sort of went to hibernation for a couple of months. And, you know, wasn’t great for the staff, but we couldn’t. We weren’t set up to do takeaway or whatever. And luckily, the staff got the job keeper, and, yeah, yeah. We all sort of battled through and came out the other side.
Mike: 48:43
So when did you step down from Guardian? Then what?
Tom Hardwick 48:47
Yeah, I can’t even probably remember. It was 2017 I think the end of 2017 so I think 2018 was my first year of being okay, completely free.
Mike: 48:57
so you then started coogie capital in 2021 so what was the genesis of that? Well, what were you thinking about that? What got that? It was, that’s a reasonable undertaking, that isn’t it? Yeah, it was, obviously, it’s not like a wine bar, is
Tom Hardwick 49:15
No, no, no, it’s, it’s, it’s a different kettle of fish, right? So you know a good mate of mine, Dave baxby, who had just finished up working at Wesfarmers, yeah, who’s the CEO of their industrial business. And it was just before covid, and we were just sort of starting to mull around what it is we might do. And we were just sort of thinking what and in essence, it was, as a company founder, is there a better way of growing your business than relying on a private equity fund? And that sort of was the genesis of what led to, what could you and so, what could you capital is today, what we eventually. Set up was a business that says, We think in the space of businesses worth 50 million to $200 million there’s not a lot of capital in there. And private equity firms start there, but as they get successful and grow their fund size becomes bigger, and they need to write bigger checks. And so they leave that space, you know, 5v being a perfect example. Great PE fund that started there, but it as it’s got bigger, it’s grown out of it. So we, we thought in that space, or an ideal world, would be someone who’s, you know, maybe late 40s, 50s, grown a great business, thinking about maybe an exit down the track, maybe get a little bit of money off the table. But also, hey, I need a bit of help to grow my business. And you know, if it was a business that Dave and I thought, hey, this would be something interesting to lean into, maybe put a bit of our own money in. Well, why don’t we put the hat out and raise a bit of money, and, and, and sort of have this concept of private equity, yeah, and so, so that was sort of what we were thinking. And then Harris farm came on the market here, and we sort of had some connections with the Harris family through YPO and and then we sort of had an just through a little network, we put in a bid, and we we took that through pretty close to completion, and we just missed out there, which but it proved that we had something. And then the next year, we bought a medical business where this, this was a founder in his late 50s, build a successful business. Wanted to bring it to the East Coast. It was a West Australian business, so he was looking for a bit of help with connections, relationships, etc. He also was a plastic surgeon rather than a professional manager of a business. So as the business got bigger, the management of it got more complex. And so he was looking for, really a partner to help him scale his business and any I was keen to maybe take a bit of money off the table, to de risk, and so we partnered with with Han, and it was a 5050, transaction, which I think, I think it’s been good because, you know, like in any relationship, there are a few moments when it gets tricky. And if you’ve got control, the easiest thing to do is pull the trigger. But when you’re 5050 you can’t do that. You got to work through the issues. And as you know, if you work through to try to get to that consensus, you tend to get a better answer anyway, yeah. So it’s a 5050 deal, and, you know, and now we’ve got two clinics in Brisbane. We’ve just bought a business in Melbourne, and, you know, we couldn’t have done that without, you know, being together with each other. So that was, I think that’s a very good example of what we’re trying to do at Christian capital. And then last year, we bought a business that was a bit different. It had a senior partner and a junior partner. The senior partner was 76 and wanted to, you know, retire. I don’t think he really wanted to retire, but his brother had a heart attack the year before, and his wife said to him, it’s time to retire. So and so we bought out. We bought that business. The junior partner stayed in, and we have then invested the capital to grow it. Because, you know, when you’re 76 you don’t want to put a lot more money back into being. You want to take it out. Whereas that was frustrating the management team, who saw a lot of growth opportunity. So we bought that business and really backed the junior partners vision by putting a bit more capital in and creating, it’s a higher business. So it needed more product to lease out and so, and that’s been, you know, a great success, really, like, huge growth in profit very quickly. You know, growing in Queensland just opened in New South Wales last month. So, so that there was sort of backing someone’s growth plan
Mike: 53:54
So what’s the end game for the typically private sounds to me like it’s sort of flexible private equity, almost like private capital
Tom Hardwick 54:01
yeah. Both of those deals, we raised about $30 million of equity to plus the other debt refinancing. Now, in a perfect world, it’d be lovely to have a $200 million fund, right? That makes you effectively have a balance sheet. You’re very competitive in processes, etc. However, when you have a fund, it sort of burns a bit of burns a bit of a hole in your pocket. And to what extent are you forced to do transactions Yep, something that we like. But, you know, you spoke before about, why the hell would you do private equity as a business? Because, you know, you find something, you spend a few months getting to know each other, you know, putting a term sheet together, and then. So okay, well, we’ve got to raise the money, but we need to do formal due diligence. And so yeah, you’re out putting, you know, half a million bucks of your own money on the line to, you know, get all the boxes ticked, etc, hoping that you can raise the capital at the at the end of that process. So yeah, it’s a bit of a chicken and an egg. But. But I think, I think it’s, it’s a good model, because it’s a transit it’s one business, you can tell, you know, certain people like industrial businesses, certain people like this. So, you know, they get to invest in what they like. And look, I think we’ll do this for a while, and if, you know, we have a get a few runs on the board, and build the team up a bit, etc. Well, yeah, maybe we might be in a position a few years to raise a fund, but
Mike: 55:23
so the kind of growth plays, really, you’re looking for growth, organic growth, largely. I mean, you’ll do a bit of acquisition, like you do with the medical, yeah,
Tom Hardwick 55:31
yeah, we’ll do acquisition, but yeah, so it’s just finding good businesses that we like, yeah. We got to, you know, we don’t really do sort of early stage technology, your property, mining, lots of stuff. It’s more just, you know, good businesses that seem to make sense, good founders who are still passionate about what they want to do, and yeah, who are looking, yeah, looking for some people with a bit of gray hair and a bit of experience to help them. I found when I was running guardian, it’s, you know, it’s lonely at the top right. You have a lot of issues you have to deal with, and that’s where I found
Mike: 56:06
It’s interesting, because, I mean, private equity aren’t necessarily that helpful at that stuff, no? And they’re great at finance. They’re financial engineers, really
Tom Hardwick 56:14
Now there is certain within that broader context, yes, there are some people who’ve probably grown some, you know, properly grown a business rather than just engineer
Mike: 56:24
But they’re fairly unique there. Yeah, you know, more typically, you’re dealing with, I mean, the bright guys and stuff. We deal with them all the time, but, yeah, but we, we generally, they’re not, they’re not that helpful to a founder who’s wrestling with operational and organizational stuff, yeah, yeah, but, but, but, you know, as you said, you know, in terms of what they are, I mean, they’re good at what they do, yeah, yeah, no. And what they do is provide capital, yeah?
Tom Hardwick 56:56
sort of turbocharged businesses, in a sense, right? They, know how to grow a business and think about how to create real value. Yeah? And yeah, I, I’ve made more money than I than any other stage in my life working with private equity. So So parts of it are frustrated. It’s the discipline.
Mike: 57:14
They’re very disciplined, and they’re quite rigorous. Yeah, absolutely. Whereas as an owner, you own all the stock, you can kind of do what you want, really, you can get you can lack focus. I mean, you know, no doubt,
Tom Hardwick 57:29
I think it’s important for a founder that you need a network of people around you that that are outside of the business, that’s a safe space for you to go and, you know, unload your deepest thoughts and troubles and and just get that help, etc. And, you know, yeah, I think boards and in private equity firms aren’t the place to do
Mike: 57:51
No, it’s interesting. I got most of my schooling from non execs really that, so they weren’t private equity people. I mean, the first guy was sort of private capital. Put some money in years ago in England, into my first but the what I got out of it was just the coach, and every month I had to turn up and tell him what, what happened, yeah, yeah. Whereas, you know, without that, I just kind of just carried on,
Tom Hardwick 58:14
That, that accountability of it is, yeah, that process of, you know, a board report and a meeting. Yeah, it is, it is important to get that, yeah, institutionalized. The other thing I did, well, I didn’t, I didn’t do career counseling. I did, I did a bit of, sort of, it was sort of like CEO counseling with a friend of mine who was a, you know, organizational psychologist. And, okay, it was just as a CEO, you know, you’re the smartest guy in the room, but you’re trying to build a leadership team, and you need to learn to empower them. And you know, you need to think about, sort of your EQ and sort of how you present yourself. And you know, you can get a bit frustrated at times. Yeah. So I started to do a little bit of work there in the last sort of two years of guardian, just to, you know, try to, you know, there’s a point you can run a business, and you can force it through the funnel with sheer force of will, yeah. But at some point it gets big enough with an out, enough outside people that you need to sort of make that transition of, yeah, inspiring them to get it there, rather than you forcing at the end.
Mike: 59:22
And it’s not easy to do that, is it? We’re kind of, I’m on that journey. I’ve been on that journey for the last 10 years, really, which is, you know, how do you, how do you bring people through and and not express your frustration? But You’ve almost got to slow down to speed up, really, because you don’t get the buy in, yes, unless you slow down and you get everybody, everybody feels I’ve been heard. And you you’re actually clear about what it you know, I’ll leave, leave a meeting. You know, I used to leave a meeting. Think everything was so a week later, no one’s done a bloody thing.
Tom Hardwick 59:57
So it was clear we’re going to do this. For that, or they go out of the meeting and one says, Oh, this is what He wants us to do. And then the other says, This isn’t what it I mean, it’s
Mike: 1:00:06
It’s an interesting area. I mean, I’m sure that, you know, I’m sure that you’ll do fine, no doubt about that. But first, for context, there’s a million businesses in Australia that employ people, yeah, 0.4 million, according to abs, but most of them are trusts and non operating. And of those million, about 75 depending who you listen to. But 75 a minimum of 75% of them employ up to four people. So they’re kind of micro businesses. There’s probably a couple 100,000 the mid market that employ between sort of five and 200 Yep. And that’s the kind of place where we kind of play. And there’s only 3400 that employ above 200 and we think there’s probably only 1000 of those that are serial acquirers, yeah, so you’ve so you’ve actually only got 1000 now, there’s a bunch of guys overseas, but there’s definitely, that’s what’s going you’ve got 20% of that market. Yeah, it’ll baby boomers. They’re age 60, right? That’s right, yep. So in the next 15 years you’ve got, they’re all gonna have to retire, and it’s gonna need some creativity, and the free market is gonna have to start to fill the gap. Yeah? And I think we are seeing private equity get more flexible, yeah, we call it a splintering. We’re seeing a splintering. They’re starting to do, buy, hold. They never used to do that. Yeah, they’re starting to do, you know, 1 million. You know, it used to be 3 million to have a conversation now, well, 1 million, EBITDA, you know, yeah. And I think that because there’s lots of good assets there. Oh, yeah, you know, you know, businesses that have taken owners have taken 4050, years building the damn things?
Tom Hardwick 1:01:43
Some of them are a bit, sort of tucked away in factories and warehouses the back of Dan new places, right? So they’re not sexy business
Mike: 1:01:52
and some of them are doing world class so far, I visited a few years ago. I mean, we’re big in manufacturing, but I visited a guy up in Newcastle who was making submersible compression chambers for the US Navy. He’d made 150 of them, yeah. And he’s got this kind of shedding. And on his desk, he’s got a letter from the head of the US Navy saying, what an important strategic he couldn’t even get a meeting with the Aussie Defense Force. Yeah, yeah. But so, you know, it’s like, is this a shed in Newcastle supplying, and we’re seeing a lot of that niche, you know, world class stuff going on, yeah, the whole mass manufacturing that’s gone, yeah. But that niche manufacturer,
Tom Hardwick 1:02:35
There’s a book, was it? Is it called Small Giants? Or, you know about these companies that just focus on one thing, yeah, and they just become experts at it around the world. And, you know, it’s so I wish I had brought it, but I saw a slide out of a JP Morgan investing event investment deck recently, and it said that the best returns out of private equity were sort of coming out of the sub $200 million you know, growth, early stage growth companies, right? Because my experience at guarding was the same. It’s much easier to make three times your money, going from 10 million of earnings to 20 million of earnings, even up to 40 or 50 million C then when you start to get bigger, then all of a sudden there’s a lot more overhead, a lot more in all the governance, and it gets harder to move the dial because you’re further away from the coalface. And so, you know, there is, I think it’s a really interesting space, and there’s a lot of great businesses there. As you say, they are going to come out as as we go through. And you know, not all families, not the kids, don’t always want to take over the parents business.
Mike: 1:03:38
Well, I mean, rarely do they, that’s the problem, yeah? I mean, they’re all, they’ve all become, you know, I mean, the baby boomers, kids are all got degrees, and then they’re working from home, or working at their farms or holiday houses, their lawyers, you know, they’re like, What do I want to do that for? You know, widgets, yeah. So look, that’s been a great discussion. I’m very grateful Tom Look, just a few questions, right? Sure. So who were you, who were the kind of mentors, and what would your advice be around getting hold of a mentor for someone who’s thinking of following you on that kind of journey?
Tom Hardwick 1:04:10
I had two mentors that were just natural mentors, because I work for them, and I really learned to respect them. One was a guy called John Denton, who was like a senior associate when I first started at cause, he ultimately became part he was the managing partner of cause for probably 10 years. So John was a really great part of my early career. Then I think Frank Wolf at abacus. I when I was investment banking, we floated abacus, so I banked him for two years, and then worked with him for four years, one of the most astute property investors going around. And what I loved about Frank was he always looked at an asset to say, What’s in this asset? That means I’m going to preserve my capital. He wouldn’t go and buy the tax office building in Parramatta on a 20 year lease at 5% yield because he knew if interest rates were. Up cap rates up, he’d lose capital. He was looking for something had a bit of vacancy or a bit of underappreciated land value there. And so he was a hard taskmaster, but a really great mentor. So they, I think, were the two great, what I’d call career mentors, and then the other two were, I’ve got an uncle who is started big meat business in Victoria, very entrepreneurial, and so he was sort of a great influence on my early life, and to this day, we’re still good mates, and I’m great mates with his five boys, crazy entrepreneurs. And yeah, and then it’s
Mike: 1:05:32
It’s amazing how much we get in our upbringing from watching, isn’t it, yeah?
Tom Hardwick 1:05:36
Just, I just say, with my kids, it’s sort of through this osmosis of Yeah, around it.
Mike: 1:05:42
My granddad was went into business, and I was kind of working class from the Midlands, and no one I knew. You know, they all had jobs. But my granddad was sold cars, very successful. This was in the 50s and 60s where there was a lot of cars to sell. And I always remember thinking, What a great way to, you know, what a great what a great way to seem so much better to me than clocking on and clocking off. And, yeah, and he always seemed exciting, yeah, and, and I’ve loved sales really right from that, yeah, but, but no one told me about it. No one said he’s an entrepreneur, yeah, the word entrepreneur, but we couldn’t even spell it in our story
Tom Hardwick 1:06:26
was, you know, you attracted to that way of working, or the lifestyle or the your personality suits yourself, so you do sort of, that’s why you say, you know, I employed a lot of people at Guardian that didn’t work out. You know, one of the, yeah, one key to being a great CEO is how many bad hires you make and often you had to let them go, and they thought it was a, you know, some big problem or slight and I was like, I’m actually doing you a favor, because you’re coming to work, you’re in a routine, you’re not happy. You need to go and find the thing that, you know
Mike: 1:07:02
I’ve done that a lot. I mean, I had my first mentor, you know, we had to make a load of people redundant in 1990 right around that recession. And the guy that was helping me was like, I’m thinking, You know what, what are they going to do? He’s like, Get over yourself. They’re going to be fine. And they were, yeah, you know, variably, they went on, found something better, you know, he said, he said, You’re not God mate. It’s just a job.
Tom Hardwick 1:07:27
And they could take, you know, some kids come out of uni and they kind of know what they’re doing, and bang, off they go. Others, you know, float around for 10 or 15 years time
Mike: 1:07:37
what about a book? Can you recommend a book does anything you’ve read strike you that made a difference.
Tom Hardwick 1:07:43
I really like, there’s a guy in the US called Vern Harnish, and he has a methodology called habits. And I thought that was, I like his work. I’ve spent time at one of his boot camps, you know, I like his books. And, you know, we bought him the one page strategic, Yeah, isn’t that great? I just, and we’ve now, with our businesses, say this is the methodology we want the businesses to use. So while I’ve read, you know, a lot of great books, and, you know, I love the Steve Jobs book was a fantastic book. The Elon Musk books recently is pretty interesting. But I think for an entrepreneur, sort of grappling with this concept of, how do I systemize my business as it gets a bit bigger? And yeah, I think that Fern harness methodology is fantastic.
Mike: 1:08:23
We love that strategy on a page. I mean, we get all our clients, you know, getting involved in that, because there’s just nothing. It’s that ability to simplify something that’s essentially quite complex, yeah, so that everyone can kind of get hold of it.
Tom Hardwick 1:08:36
Yeah, that’s right. No, I think you’ve got your business is complicated. You need to be able to strip it back to the key, you know, tenants,
Mike: 1:08:43
yeah. And then, what about your favorite place in the world? Is it Coogee or somewhere else?
Tom Hardwick 1:08:50
Look, I do love riding around Provence, right? I think Provence is fantastic for a place to go for holiday with your bike and cruise around. Yeah, there’s lots of great places in Italy and the wine as well. Good wine, yeah, but Provence is our sort of
Mike: 1:09:05
Okay, that’s you kind of go to you and your wife, yeah, you’ve been married a long time, right? Yeah, I heard you, you, you got you got together when you were 16 or 17.
Tom Hardwick 1:09:15
We met at a guy we met at a rock on a school bus trip. I was in year 12, and Michelle was in year 11. Is that right? Then? In year 11 together ever since, three kids. And, you know, we’ve had, we’ve had a great run of it, you know, we’ve had, you know, Michelle’s parents passed away the last couple of years. Michelle’s had breast cancer this year. But, yeah, thankfully that it was a minor version of and the science and medicine. So we sort of just getting, you know, had a few more bumps in the road, that’s, you know, but when you’ve got that strong
Mike: 1:09:46
I’ve been married the six, seven years now, and five kids and yeah, I mean, it was best days work in my life, to be honest with you. So what about, What about entrepreneurs? Are they born, or are they or can we make them?
Tom Hardwick 1:10:08
I think, I think you can make them okay, yeah, I I think anyone can be an entrepreneur. I think, you know, yes, you have to work hard, etc. I think the biggest thing is having the courage to believe in yourself, to give up the security of a job while you’ve still got a mortgage and kids at school. And, you know, I think there are some people who love corporate life. Yeah, I suspect most people probably at some point in their lives would like to do their own thing, to have the freedom of doing your own thing, to have, you know, something they’re really passionate about, to drive, you know, what they do each day. And, you know, read some books, go and do some courses. You know, go and join YPO and meet some other entrepreneurs and and through that process, you know, you build a community around you and you’re into it.
Mike: 1:11:08
amazing, I mean it. You know that idea that you know, if we can coach and train and encourage entrepreneurs, how can we perhaps do more of it? Because I think the world’s going to need more more of that creativity, to be honest. I think that, you know, we’ve seen now the biggest five companies in the world at the moment, all tech companies that weren’t around four years ago. Yeah. So, you know, we’re seeing a kind of paradigm shift in the way things can happen.
Tom Hardwick 1:11:37
But I look at my kids and their mates, etc, like I think this generation is different to ours,
Mike: 1:11:44
less willing to go the corporate route.
Tom Hardwick 1:11:46
When we finished school, it was okay, you should go to uni and then you should get a good job at a big company, yeah, and I still think that is a very good path for anyone. I look back at those first three or four years of my career at cause I still miss that environment and what I learned about life, not just law, but about life. I just think it was such a valuable part of my life. I said to all my kids, I think you should try and go and work in a big company your first job. Easy to go from big company to small company. Hard to go from a small company to a big company, and give it a go. If you last, said, two years, if you last there five years, you last year, 10 years, fantastic. But, and, and so I think, if you can, I think it’s a good way to go, but, but a lot of these kids, man, they just come out. They’re working on business plans for startups. They’re, you know, freelancing and different things. They’re working from home. They’re working from home. They’re working for their company. They’re doing other stuff on the side
Mike: 1:12:44
I think there’s more freedom there, where they got access to information. Yeah, I left school and you want to, you’re they went to they the universities were the gatekeepers of knowledge. Yes, only 80% kids in my year went to uni. Yeah, right. So the the issue in I had to go to the library.
Tom Hardwick 1:12:59
Yeah it’s right, no, it’s you had to do the micro fish to find anything and like it was, yeah, we say, like dinosaurs
Mike: 1:13:07
A lot happened in the last four years. Yeah. I mean, when I started in business, even there was no omputers. I remember the first time we got a computer. We bought it from ultra and football club because they didn’t know what to do with it. And we stuck it on a desk. And then Tony, in account seemed to know more than anyone else. So we made him, we made him in charge of the computer.
Tom Hardwick 1:13:25
Well, I I think when we first started commerce at uni, we were doing lotus, 123, and then I think by about second or third year, they’d migrated to excel, amazing. And then when I started a cause, we had the Wang computer system and dinosaurs. Yeah, what’s happening?
Mike: 1:13:45
Tom fantastic discussion. Thanks for coming in today and sharing your your story, which I’m sure many people get a lot from. So thanks again. Thanks for coming in.
Tom Hardwick 1:13:55
Nice to meet you, and thanks for having me.
Mike: 1:13:57
Okay, thanks. Thanks, Michael. Well, there you have it. What a journey. How encouraging to learn what can happen if you back yourself. Tom is clearly a troubleshooter, able to navigate change and risk. If you want to learn more about Tom’s company, Coogee Capital, the details will be in the show notes. Now. A quick shout out to our sponsors, Oasis partners, if you are thinking about how best to exit your business, contact Don Hunton at Oasis, with 500 successful deals done since 1984 Don and the team know a thing or two about unlocking value. If you like this podcast, be sure to share it. Or if you’re feeling very generous, leave a like or a comment. Only good ones, please. As you know, we’re very sensitive, so until next time, stay safe.
Link to previous episodes: https://www.oasispartners.com.au/podcast/