Warren Buffett’s protege builds a mini Berkshire

Tracy Britt Cool spent a decade working for Warren Buffett. She now wants to buy the kind of companies that might have interested the famous investor 30 or 40 years ago.

These are typically founder- or family-owned businesses that have strong performance and competitive “moats” — a term Mr. Buffett favors — but aren’t big enough to attract Berkshire Hathaway. Inc.

watch out today.

“Berkshire needs multi-billion dollar acquisitions to move the needle,” Ms Cool says. “So many people who contact us or contact us would like to sell to Berkshire, but they are just too small.”

Ms Cool launched an investment company with a former colleague in 2020 called Kanbrick which aims to focus on such businesses. So far, it has acquired Thirty-One Gifts, a Columbus, Ohio company that sells tote bags, backpacks and other items through independent consultants. Kanbrick is working on investments with a home services company and consumer brands.

Choosing the right places takes time. Before buying a business, Ms. Cool said she and her team typically sit down with the founders and seek to understand not only the fundamentals of the business, but also the people who work there and the strategy, in the process. hoping to answer, “What could be the challenge here, what could be the opportunity?” she says.

To get to know the founders, Kanbrick also runs a three-month program for midsize companies that offers coaching and other forms of support; so far, Ms. Cool and her colleagues have worked with 15 companies, including a large farm in Arizona that sells cantaloupe and honeydew melons to big-box retailers.

Ms. Cool, 37, grew up on a family farm in Kansas that shipped produce across the Midwest. She attended Harvard Business School and joined Berkshire in 2009 aged 25, initially working as Mr Buffett’s financial assistant.

She later became the general manager of a Berkshire-owned cookware company, Pampered Chef, and along the way took on assignments within Berkshire to help struggling businesses. She served as president of Berkshire companies such as Benjamin Moore & Co. and Johns Manville, and served on the board of Kraft Heinz. Co.

and others.

In a 2019 interview, Mr Buffett called Ms Cool “the firefighter”, capable of helping revive businesses and taking on any mission.

Ms Cool recently spoke to The Wall Street Journal from her home office in Nashville, Tennessee. Here are edited excerpts:

WSJ: What made you say this model was necessary?

Ms Cool: Over the years I have spoken to many founders and owners, some of whom would come to Berkshire and want to sell their business; other people I have met through organizations. What I’ve found is that most midsize companies have the same issues: how to hire the right people, how to develop them, how to motivate them, how to help them grow, how to strategize. So what we’ve done is we’ve built a business system to help with those areas, and that’s really allowed us to create value with businesses.

Many families and founders don’t want to sell to traditional private equity. They don’t want to see their business bought and sold or broken up or their employees laid off. We could provide them with a longer term home and help them build in the right way.

Ms Cool, who spent a decade at Berkshire Hathaway, at the conglomerate’s 2014 shareholder meeting in Omaha, Neb.


Photo:

Daniel Acker/Bloomberg News

WSJ: What types of businesses do you focus on?

Ms Cool: We want companies that are going to be there, thriving and strong, and that have some sort of moat that allows them to have above-average returns on capital. Small businesses that cost $10 [million] to $50 million in [earnings before interest and taxes] are sort of our sweet spot in size. They’re beyond the new growth phase, but they’re not really very large companies.

They are usually family businesses, businesses owned by founders. We have a lot of conversations with families, founders who want a partner, who want a longer-term home, but don’t really think a strategic or private equity firm is the right fit for them.

WSJ: How does your approach differ from private equity?

Ms Cool: One is the length of time we hold businesses. Most private equity firms own businesses for three or four years. If you’re going to own a business for three or four years, the minute you buy it, you’re thinking about selling it, and every decision you make centers around: what am I going to do to sell this business? A lot of the investments you make in businesses don’t pay off in three or four years, and so I think having that longer-term horizon is extremely valuable.

Most people in private equity [have] financial history. My partner and I started our careers as investors, but we thought it was very important to gain operating experience.

I became the CEO of Pampered Chef, he became the CFO, really with this goal: how can we really get better at what we do? And I think that operating experience helps us make better decisions, to understand what’s possible in a business, what’s needed. And then we can connect with a founder, owner, or CEO because we’ve been in their shoes and we know businesses don’t run on spreadsheets and PowerPoints, right?

WSJ: So how do you choose your spots and what industries do you avoid?

“A lot of families and founders don’t want to sell to traditional private equity. They don’t want to see their business bought and sold or broken up or their employees laid off.


— Tracy Britt Cool, co-founder of Kanbrick

Ms Cool: There are places where we don’t play. We do not play in real estate. We do not play in financials. We do not play in biotechnology. There are just spaces where we don’t have the expertise, the insight, and we’re not going to be better than anybody else. Then there are other industries where you have a lot more experience and where things are interesting. And so those big industries are consumer services, industrial, commercial, but within those there are hundreds of sub-sectors.

So we spend time reviewing many of them and saying to ourselves: do we really think this is a great deal? Do we think this is going to continue for 10, 15, 20 years and not be disrupted by anyone else or by technology? And then, thirdly, is it a space where we can add valuable insights or perspectives?

WSJ: You focus on medium-sized businesses. How do the challenges these companies face differ from those faced by larger companies?

Ms Cool: People and culture are always, in my opinion, the number one problem for any company.

How do we attract top talent to my company? Maybe I’m based in a rural part of Minnesota or Missouri or something. How can I help people understand why they want to join my business that they’ve never heard of? Everyone has heard of P&G,

Coca Cola.

People haven’t heard of most midsize companies. Then, once I have them in the organization, how can I develop them? Because it’s not like I have, you know, hundreds of thousands of jobs; I probably have a few hundred jobs. And so I have to find the right people, but show them a career path.

WSJ: What is the long term plan for Kanbrick? Do you want to go public?

Ms Cool: We don’t have a definite outcome in terms of what we want to achieve via IPO or otherwise. It’s really: how do you build it the right way? And then how do we add value to the companies, to our team, to our investors and help everyone do it?

WSJ: How did you finance Kanbrick?

Ms Cool: It’s a combination of our capital, and then we have a select group of investors, endowments and family offices that are partners.

WSJ: There seem to be a lot of similarities between Kanbrick and Berkshire – a long-term perspective, moats, you even wrote an annual letter last year like Mr. Buffett. How is it different?

Ms Cool: Berkshire is very successful, so being similar to Berkshire is a good thing overall, in my opinion. I would say that we differ on two dimensions. The biggest is the size. We can focus on much smaller businesses that are just too small for Berkshire. I think that’s where the biggest opportunity lies and that’s why I finally left to create Kanbrick. The second differentiating factor is that we are more active. Berkshire is known to be very discreet.

WSJ: Has Mr. Buffett given any advice that interests you as you build this business?

Ms Cool: It’s hard to distill it because there are so many lessons from my time at Berkshire and working closely with Warren for 10 years. I’m just thinking about the power of the long term, the power of finding great companies, and the power of partnering with great people. When these three things are done the right way, you can build something truly amazing.

Write to Chip Cutter at [email protected]

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