Podcast: The Manager’s Handbook & David Dodson

From SMEVentures, it’s The Search Fund Podcast, a show about hungry entrepreneurs who, instead of starting a business, decide to buy one. These are their stories of success, failure, and the lessons they’ve learned.

In this episode, three-time search fund entrepreneur, 20-year search fund investor, Stanford GSB professor, and now author David Dodson joins us to discuss his new book The Manager's Handbook, which derives lessons from his life and experiences with search funds.

From his humble Colorado upbringing to unconventional early jobs to success as a CEO and investor, Dodson's journey serves as a testament to the power of ambition, collaboration, determination, and solid decision making. Don't miss this insightful episode that explores the life and accomplishments of an exceptional individual.

David: I realized that I discovered something that was maybe more important than that. Let me explain. If becoming a great leader is not about what zip code you came from, what school you went to, what you look like, but it's acquiring a set of skills, then that opens up leadership and entrepreneurship to a lot of people who might otherwise think that they were close to it.

(intro)

From SME ventures, it's The Search Fund Podcast — a show about hungry entrepreneurs who, instead of starting a business, decide to buy one. These are their stories of success, failure, and the lessons they've learned.

Jake: Hi, everyone. I'm super excited today to welcome David Dodson to the show. Many of you will already know David's story. And those of you who don't may still recognize his name, which makes sense. Because David is not only a two-time search fund entrepreneur but also a long-time search fund investor, Stanford professor, board member, politician, and now author.

In this episode, we get a rare look at what makes David tick, hear a very quick version of his life story, and discuss a new book that he's written, called The Manager's Handbook. And while the book never actually mentions search funds specifically, the observations in it are gathered directly from working with search fund entrepreneurs over the past 20 years.

(interview)

Jake: Dave, I'm so excited to talk to you today. You're a bit of a celebrity in the search fund world, and you've done a lot of exciting stuff in your life and career. I know we're only going to cover a small fraction of it, but I'm excited to do at least that. So thank you for joining the show.

David: Sure. Yeah, Jake, when somebody says they're only going to cover a small portion of my career, it just means I'm old.

Jake: Well, you've done a lot already. I know you have a lot more to come. I typically like to start at the very beginning, Dave. So could you give us a picture of early David Dodson? Where did you grow up, and what were you like as a kid?

David: Oh, boy. You mean really early?

Jake: Really early.

David: All right. So I grew up in rural Colorado, near the Wyoming border. Closest town to me had a population of about 300. It felt like the whole world was divided between ranchers and farmers. I was a bit on the farming side because my dad — although he wasn't a farmer — he manufactured and sold farm equipment. So I grew up on the weekend walking in the sugar beet fields, and horses, and cows. All that was second nature to all of us. But his business didn't do well in the end for market forces that had nothing to do with him, even though for a while it was a decent-sized business.

I went off to college with really no money or anything. So I worked my way through college at Stanford. I principally worked in a slaughterhouse. So I would take my classes in the morning, and then borrow my roommate's car and drive down to San Jose and work in a slaughterhouse in the afternoon. I did that. It was a horrible job. But I did that because I needed the money, and it paid well. The other job I had was as a maid in a hotel. I got to tell you that being a maid was a worse job than working in a slaughterhouse. But they're both pretty rough jobs. I was quite literally the guy who — I remember I went into San Francisco the first time. By the way, Jake, I did not even know where Stanford was located when I applied for college. But when I got there, I remember my first time going into San Francisco, I quite literally was the kid just like looking up at the buildings going, "Oh, my God. These buildings are so tall." I had a pretty sheltered existence. That's a little bit of an insight of what my growing up was like.

Jake: But you were presumably a good student. You went to Stanford. So was school a focus at home growing up?

David: Well, I was pretty ambitious. I was a good student because you couldn't get into Stanford otherwise. But I also wanted to be — I was student body president and junior class president. I loved all of that. All those things that come with drive and ambition, that's probably common to everybody listening on this podcast. But what might be a little bit different is that I was hyper-entrepreneurial growing up.

I remember I had this friend. Remember where I grew up, right, Jake? I was in rural Colorado farming and ranching. Well, there was this program — it might still exist — called the AFS that would bring foreign students into U.S. schools. So this guy, Sanjeev Singh, who I'm so quite good friends with, he was from India. He arrived in this small little community. Among other things, he wore a turban because that was his tradition. So you can only imagine how odd he fit into this world. But he was really smart and really interesting. We became quite good friends. But he had an aunt in India. And so we decided that we were going to import Indian jewelry.

Jake: You were how old at this point?

David: I was in high school at this point. But this was hardly the first entrepreneurial thing I did. So we would write a letter. There was no email or anything back then. We would write a letter to his aunt, send it off. Then probably like a month later, we'd get these packages that would all be wrapped all with white cloth with twine around it. We'd open it up, and it would be filled with pretty cheap jewelry. So then we would go door to door. Principally, I would go to door-to-door selling Indian jewelry. I called it Indian imports. He and I still laugh because we still have our original partnership agreement on that. I don't know how much money we made, but I was always trying to do something entrepreneurial.

Jake: What was the driver as a high school student? Was it money for you to go to the movies on the weekend, or was it just the thrill of the chase? What do you think was driving you in those early years?

David: I don't think it was money. You know, I've never been asked that question before so I'm hesitating to ask. I think it's the thrill of the chase. Because we were fine. If I wanted to go to the movie, there was a way to get there. I mean, I was broke when I went to college because that's when my dad's company fell apart. But before that, we were fine. I think I just love the thrill of the chase. I love going to somebody and laying out this jewelry on a velvet cloth. I'm sure they're rolling their eyes going, "Oh my god. This is the cheapest crap I've ever seen." They're probably just buying it out of mercy or to get me out of their house. But I just loved getting the yes, and I loved when they would hand me the money. I'd feel so good. So I think it was mostly by just winning. I was a pretty lousy athlete. So my competitiveness didn't come out on the athletic field. My competitiveness came out in the high school class president election, or how much money we could raise for the prom, or selling cheap Indian jewelry with my friend Sanjeev.

Jake: So when you dreamed about your future, you weren't thinking about becoming a professional baseball player. You were thinking about becoming what? A big businessman? President of the United States? What were you dreaming about?

David: Being a big businessman. Then like all ambitious people, I also wanted to become president of the United States. But most of us soon realizes that requires a little set of different skills, a different career trajectory. But no, I always was interested in business. I mean, when I got to Stanford, I signed up to be an Amway dealer. I was trying to sell, trying to corner the market on soap and laundry detergent so forth for everybody in my hallway. So that was just always in my DNA.

My grandfather, by the way, on my dad's side, he used to run a very large company with his brother. It was privately owned. It was among the very largest coal mining companies in the United States. It was an integrated coal mine with railroads and barges. It was a big company. It was one of the 70 largest companies in the U.S. They went completely kaput because they discovered harder, hotter, burning coal in Wyoming. And so these coal mines all just went to zero.

I had these two really important influences in my life: my dad and my grandfather. Both of them, I continue to — just like a lot of people with their parents, except my daughters, I suppose. But a lot of people think of their parents in awe. And I still do. But they were both impacted by market forces that were outside their control. My dad, it had to do with the commodity prices, with sugar prices. My grandfather, with discovery of better coal in Wyoming versus Pennsylvania. That undid all of their great management skills and expertise and so forth. I do think, though, Jake, that that sent me on a path. It kept me on an entrepreneurial path. But I didn't want to have my success or failure determined by market forces that I couldn't control. And so I've always gravitated towards businesses in industries where I felt like the market forces were minor, were a minor player in my success.

Jake: So you got your Bachelor's in Economics at Stanford. You worked for a couple of years, and then you went to business school. What did you do for those couple of years between undergrad and graduate school?

David: Yeah, I had what everybody listening would consider a really conventional path. But it wasn't conventional given where I started from. I went to work at McKinsey. The reason I went went to McKinsey is that — of course, McKinsey was much smaller back then. Stanford, I don't know if they do it anymore. But Stanford, Harvard, they would do pre-admits. So you could be admitted as a senior in college, and then either go right away or defer one, two, or three years. So if you got that, it was sort of a golden ticket for a great job.

I did get pre-admitted in January of my senior year as sort of an automatic yes from a place like McKinsey. And so I went to work there. I was really proud to go to work there. I learned a lot. It doesn't teach you a lot of skills about running a business, but it does teach you a lot of skills about being a grown-up business person, which is why I'm really glad I went there.

Jake: And so you went to Stanford Graduate School of Business to get your MBA at a pretty, pretty young age. You finished it what? 25-ish years old?

David: Yeah.

Jake: Was that pretty typical age for GSP at the time, or were you atypically young?

David: No, probably 27. Yeah, because most everybody in that class had been who was only out of undergrad two years. Now that I teach at Stanford, I'm pretty familiar with class demographics. I think a lot of people you tag on two or three extra years of work experience, but not back then. It would have been rare to have been out of undergrad for five years.

Jake: You, during that time, had the privilege of living and learning in the era of early days of the search fund at Stanford. I want to ask you what that was like. I've never heard someone answered this directly. In those early days, was the search fund pretty quickly a product or a model as it is today where you could say to someone in the Stanford community, "I'm doing a search fund," and they'll know what you're talking about? Or was it just kind of like, "Why don't we go buy a company. Here's a bit of seed money. Here's how we'll structure it. Let's go do this, you and me"?

David: Oh, now we're going in the Wayback Machine, Jake. There was no such thing as a search fund. Irv Grousbeck was teaching there for his second year. I just heard things about him. I was quite in awe of him as were the others. So I just want to take his class. And I was applying to go back to McKinsey and other places like that. But this entrepreneurial itch that you and I were talking about earlier just never went away. And so I called up the places that I was applying to work and took my name out of consideration. Then I did that first. I really felt like I needed to burn the boats. Then I went into his office, and I knocked on his office. I was really, really nervous, as you're going to discover why. He said come in. He actually has the same voice he uses whenever you knock. He was like, "Come in." So he said that, and I walked in. I said, "Professor Grousbeck, I told everybody. I've taken my name out of consideration. All I want to do is work for you. I don't care what I do. I'll wash your car. You don't even have to pay me. I just want to work for you." By the way, I had no idea who's going to pay the bills if he didn't pay me. Then he said, well—

Jake: Good pitch.

David: At that point, all of the cases at Stanford were written by Harvard. So Stanford didn't have any case writing. He said, "Well, as a matter of fact, I just got approval from the dean to hire a case writer. Do you want to be Stanford's first case writer?" Yeah, I mean, now I actually have a job that I'm going to get paid for, and I get to work for him. That was easy. So I went and took the job with a small company over the summer with another faculty member, and then arrived in the fall to write a case. He said, "Here. I want you to write the case about these guys, Kirk Riedinger and Jamie Turner. They were students of mine at Harvard. They raised some money to buy a company. It's kind of called a search fund." So I wrote the first case on the first search fund.

Jake: I did know that.

David: Yeah, Jim Southern had done some groundwork because he was a student of Irv Grousbeck as well. Jim had gone to Irv and said he's really interested in entrepreneurship. Irv said, "Well, why don't you office at this friend's place, this venture capital firm?" Irv introduced him to a company that he knew that was selling a company. Jim bought the company and ran it very successfully. By the way, Jim has been a really important person in my life. But Kirk Riedinger and Jamie Turner were the first one to actually go raise a fund and use that to search to buy a company. So I'm working on this case. I'm about a third of the way through the case, and it's like, tada, I know what I want to do with my life. I always want to be an entrepreneur. I didn't have any money. I didn't have any idea. We talked about how I didn't want to be invent something that was subject to market forces. So I went into Irv's office now, later, obviously, half a year later. I told him I wanted to raise a search fund. He seemed to be pleased with that. Then I asked him if he'd be an investor. I was sort of trembling in my shoes.

Jake: Terrified, yeah.

David: I don't know why he would possibly want to invest in me. I mean, I'm no Kirk Riedinger and Jamie Turner. I'm writing a case about him. I'm in awe of them. He said, no surprise. Knowing how things turn out, he said yes. And so he was my first investor. By the way, Jim Southern was my second investor. Back then, it took months to raise a search fund. You could only really raise it from people who just felt sorry for you or had invested in Kirk Riedinger and Jamie Turner's search fund. Many of my investors were the same industry as his.

Jake: I'm sure you're underselling yourself.

David: No.

Jake: For sure, it was a no-brainer to back you.

David: Yeah, but I mean I don't want to come off as sort of like falsely humble or anything. That's how I felt at the time. I really, truly did feel that way, that I didn't belong in that category. Now, of course, we know a lot more about what makes for a good entrepreneur and a good search fund entrepreneur. But back then, I had a lot of insecurities about whether I could get the job done. But I had more confidence than insecurity, so I was still willing to do it.

Now, you asked about whether it was known or not. When I announced to my classmates that I was going to go be a case writer at Stanford, they almost did an intervention which seemed like so stupid to do. Then the search fund, very frequently, people would say the equivalent of, "That is the craziest, dumbest thing I've ever heard of. People are going to pay you to go look to buy a company?" Because there was no track record. I mean, all there was were Kirk Riedinger and Jamie Turner. We didn't even know at that point whether they were going to be successful or not.

Jake: Yeah, as you might know, a lot of our listeners are outside of the U.S. and many in markets that are new to search funds. So they're encountering those reactions even today as they introduce the search fund model to new markets. Well, it clearly worked. You bought Smith Alarm Systems and ran it for about four years. Quickly, could you tell us what did Smith Alarm Systems do? What was the core business?

David: Smith Alarm Systems was a great classic recurring revenue business. It was a fire and burglar alarm business. About a third of our business was residential. A third was commercial, kind of what you would expect at a bank or a dry cleaner. Then a third was very large scale. So big department of defense security. Basically, you installed an alarm. You generally lost money when you install the alarm. Then you collected $25 a month or $125 a month from then on out.

Jake: And you did well with that. IRR net worth of 40%, which is what every searcher dreams of accomplishing. I think it was doing about 11 million when you bought it. Did you enjoy those four years as CEO of Smith Alarm Systems?

David: I loved it. I'm not going to say that every day was great. I mean, I had bad days and good days or bad days and great days. But overall, I just loved it. I was doing what I was put on this earth to do, which is to run an organization and to lead it. It was a family company that had been around for three generations. It was 90 years old. I did feel some responsibility not to screw up a 90-year-old family company. I had days of absolute terror, where I thought maybe I was taking 90 years of hard work and destroying it in a few months. But the advantage of buying a recurring revenue business that fits the search fund model, having a great group of investors, a great board of directors, is that there's a lot of infrastructure around you that support you while you learn the business.

One thing that was different back then, by the way, Jake, is that as the investor world has changed and has become more institutionalized — which on balance, is way better — kind of the high touch norms of the investor and entrepreneur are not quite the same. I talked to one of my investors every single week about some problems, some questions, some worry. And so the aperture was much wider back then. By the way, I think a lot of investors would prefer that because they enjoy the interaction. They know what's important. But I think there's a little bit of institutionalization among search fund entrepreneurs that feel like, "I've got my board. I've got my investors. I need to go through channels and so forth," which is not how investors perceive it. But it's how a lot of entrepreneurs do.

Jake: Yeah, interesting. So you performed very well. You got four years. I was reading one of the case studies written on your experience there. I found a quote that stood out to me regarding your decision to exit that business. You said, "There was no challenge at all left in the business for me." You went on to say that even if you pursued various growth initiatives, they would occupy you for six months but then you'd be back to working part time again. I found that really interesting.

Now that you've been on the other side of it for awhile, being a search fund investor for 20 plus years, how common do you think it is for a searcher to feel that way a few years post-acquisition? Was it specific to this opportunity and this company or specific to you? Or do you think there's something inherent to the entrepreneurship, through acquisition process that leaves the entrepreneur like yourself feeling that way for years?

David: Yeah, first of all, I was wrong. So I'm really glad you raised that. I haven't heard that for a long, long time. But as you were reading it off to me, it was definitely familiar. I was wrong. So let me explain. I think it's common for a search fund entrepreneur who's bought a good, solid, steady business to have a few years of learning and, as I said before, terror. The curve is really steep. Then all of a sudden, you're walking in the morning and you're saying, I kind of got it figured out. Let's say you're in your fours. It's not in month four, but it might be in year four. I kind of got it figured out. The financiers are coming in. The KPIs make sense. I've got a good management team. My customers are happy. All of a sudden, it's five o'clock. And you're thinking, "5 PM used to be kind of the midpoint of my day. And I kind of have things done." Then you make the mistake sometimes of feeling a little bored like I did, and thinking, "Okay. I got it figured out. I want to go do it again."

The mistake that I made, Jake, was not understanding that I had positioned myself to then build a much, much bigger company. That was this own set of challenges. I didn't really understand that until I was on the board of this company Asurion, which Kevin Taweel and Jim Ellis started. I was one of their original investors. Because back then, it was hard to get investors. I was on their board. They reached a similar point. I remember talking to Kevin one day. We had a chance to sell the company. It was going to be like a four-year 35% IRR. I remember telling Kevin, I was saying, you have to think twice about turning your back on something like that. It's a good health on the wall. Put some money in your bank.

But Kevin and Jim, with the guidance of their board — which included Irv Grousbeck, and Billy Gunn, and Joel Peterson — they saw the seeds of a much bigger company here. They guided Kevin and Jim on making that leap that I didn't make. Of course, for all sorts of reasons, thankfully, they didn't sell the company. Then I watched the challenges that they had of building an organization when I was on the board, the challenges of building an organization that was set to become so much bigger. I had envy at the time. I still have an envy at the time, not that in any way that I was going to transform our company into a company as large and as successful as Kevin and Jim's company. But I did miss the chance to build a much bigger company as a result because I got a little restless.

Jake: Interesting. You did also mention in that case that you wanted to try your hands at buying and operating something bigger. And so you did. You went on to buy Auto Palace, an auto parts retailer that was doing net worth of $100 million in turnover by the time you bought it, I think, being divested by Rite Aid, for I think it ended up being about $65-million purchase price. Materially larger acquisition, materially larger operation, which is what you wanted. Was running that size business as different from running the 11-plus-million-dollar business, or was there more overlap than you expect it?

David: No, there were some overlaps. But I'm not sure that in the time that I had it, I was good at sorting out where there are similarities, and I should do what worked at the Smith Alarm Systems, and where there were dissimilarities in how I had to manage. I think part of it was because I didn't walk up every stair. So just to stay with the example of Kevin and Jim's company. They went up step by step by step, whereas I kind of took this a leap up from a company with 100 employees, or whatever it was at the time when we sold it, to a company with 1,200 employees in five states. You manage differently.

That was a big leap. At the same time, it was really fun and it was really, really challenging. But I kind of had the search fund experience over again because of that terror. Because I had made this leap and all of a sudden, I had 1,200 employees. I mean, I think it might have been at the time though, in terms of number of employees, it was probably the largest search fund acquired company at the time. I'm almost certain that would be at that point.

Jake: Dave, I'm now going to fast forward a bit because I want to get to your book. At this point in your career, you've bought and exited two companies. You spend the next chunk of your career doing a bunch of other cool stuff. You are a well-known professor at Stanford GSB that everyone talks about and loves. You've been investing in search funds for over 20 years and served on the board of over 40 public and private companies. I remember when I was running my search, I communicated with you at your Project Healthy Children email address. I always wanted to ask you more about that, so I'm going to take that opportunity now. Can you tell us about Project Healthy Children?

David: Now it's called Sanku. We renamed it. It was inspired by some events that happened while I was running Smith Alarm Systems. I was down in Honduras with my wife, who was on the board of a nonprofit. We saw these children with neural tube defects, which are some common examples of the spina bifida, for example. Realizing that they're largely preventable if you get a certain amount of vitamin B early on in your pregnancy, that's why food is fortified in the US for your cereal, or your bread. Salt has iodine in it. It's a way to put vitamins and minerals into food that are staple foods that you eat anyway. But that's not available to many people in different parts of the world. So we got very interested in food fortification as a way to prevent bad healthcare outcomes. That eventually evolved to realizing that it wasn't just about vitamin B; it was about lots of different vitamins and minerals like iron and iodine and so forth, and that we needed to have a program to create national fortification strategies in countries that were being overlooked.

So we ended up focusing in East Africa and a little bit in West Africa, with the goal of putting in food fortification programs in seven countries over seven years covering 70 million people. Obviously, the average countryside was around 10 million. And we did that. That was very successful. Vitamin mineral deficiency, for example, is the leading cause of mental retardation. It's a leading cause of death during childbirth. It's the leading cause of preventable blindness. I mean, a lot of really bad things happen when you eat calories but you don't get the right kinds of food.

We felt good about that. But along the way, we realized, wait a minute. There's about a third of the country's population that are not eating centrally processed foods. So we can put all these rules in place and laws and so forth. But they're eating flour or staple products that come from somebody growing some corn, and taking the corn to a local miller, which is a local miller fits into basically the space of a two-car garage. And there's no way to fortify the food. So that was the second reboot. That's why the big pivot of Project Healthy Children to Sanku. We're with an engineering team at Stanford. We invented a way to fortify food in these small rural mills, which, by the way, people have tried for 50 years to do so. These engineers at Stanford came up with some really fascinating blinding insights on how we could do it. Then we had to come up with a way to make it scalable and a way to make it sustainable through a pretty unique economic model that we have. We just hit the 7-million-person mark last week, Jake, in terms of people that are now eating fortified—

Jake: 7 million? That's amazing.

David: Well, our goal is to hit 100 million. I know that might seem like what is the sky on right now. But there's a billion people who are not getting fortified food. So I think a target of hitting 10% of them is almost a weak target. But I do think we're going to hit that along the way. By the way, we are on our way to a sustainable business model where we do take contributions, obviously. Or not obviously. But we do take contributions. It's a nonprofit. But we believe that we are well on the way to a sustainable business model that will not rely on charity at all.

Jake: Amazing. I would love to do a whole episode on that someday, but we have a lot to cover. Because then I want to mention, when I was cruising social media about five years ago, I saw Dave Dodson running for US Senate, which is amazing. What sparked that desire?

David: It was inspired by a common worry. I don't think it's unique to me but, in any respect, about what's happening to our country. When I was in high school — excuse me. Between when I was born and when I went to high school, those first 18 years, we were a country that accomplished a lot. We accomplished it together. Issues with the Vietnam War were largely behind us. We were on our way to a more diverse and equal society. We had a long way to go, but at least we were pointed in the right direction. We were doing things like the Clean Water Act, and the Clean Air Act, and Medicare, and Medicaid. These were really complex policies, programs that require bipartisan effort and working together, and honest people disagreeing on exactly how to do it. But we're getting stuff done.

We disagreed partly as a country, but we were always Americans first. That was so radically changed in the 2018 election. It was upsetting to see. So I raised my hand and said, "I'd like to try to make a change." That's when I ran for Senate. Obviously, I lost. I lost the election, but I'm really, really glad I did it. I kind of won the effort, in the sense that I spent seven months with my wife and our team basically talking to people in Wyoming. A lot of people think about Wyoming as Yellowstone and Jackson Hole. It's scary and stuff. But most of Wyoming is very, very different than that. Wyoming, depending upon the metric, is almost always one of the five poorest states in the country. So most of my time was in trailer parks and was around abandoned coal mines and agricultural areas that were really, really hard hit. Your job is just to listen. I listened to plenty of people who did not share the same values I had and plenty that did. But the whole time, I had to listen and learn. I came to really understand better country and what the challenges were along the way. So I'm glad I did it. I'm very glad I did it.

Jake: And here we are, June 2023. You're about to release your new book entitled The Manager's Handbook: Five Simple Steps to Build a Team, Stay Focused, Make Better Decisions, and Crush Your Competition. First, tell me what's the genesis of this book. Why did you write it? Was it, I've been a professor for a while so I should probably write a book? Or was it something more than that?

David: Jake, it was almost the opposite of that. I wrote The Manager's Handbook by accident. I became really interested in what are the characteristics that make a successful search fund entrepreneur, because that was kind of my world. Part of it is curiosity. Part of it is maybe there's some way to form that. And part of it is just as an investor, selecting people who are going to be successful. Along the way, I realized that all of the most common way to think about it, I call it the attribute theory, which is wrong. There were just as many people who were introverts as extroverts. Some people were bipolar. Some people were great athletes, and some people — I said this isn't it. It's something else.

I started thinking about: there are people who are search fund entrepreneurs who are in perfectly good industries, but some are just so much better at getting stuff done. So then I expanded it. I started looking at — I don't want to say larger than life, because they're not. But they're really impressive people like Sam Walton and Steve Jobs and so forth. I said, okay, what are the common characteristics of these people? What I discovered, they shared five skill attributes, or five skills were common among all of them. There were no exceptions. I didn't look to find five. I didn't look to write a book. I wasn't trying to create some unifying theory. I was just curious. And so I discovered this, and I thought, all right, well, I'll write it up as a white paper for search fund entrepreneurs and maybe talk about it in class. But then I realized that I discovered something that was maybe more important than that, which is that — let me explain.

If becoming a great leader is not about what zip code you came from, what school you went to, what you look like, but it's acquiring a set of skills, then that opens up leadership and entrepreneurship to a lot of people who might otherwise think that they were close to it. And that this was a way to open doors to people who wanted to lead an organization. And that I don't want to say I had an obligation to write a book. But I had a responsibility, I thought, to write a book. That's when I got thinking about it.

But the next real challenge, Jake, was how do you take these five skill areas and not just sort of talk about them in a PowerPoint presentation or something that makes you feel good while you're reading, and then you go back to doing what you did the next day? But how do you put it in a form where people read the chapter or read the section and they say, "Oh, I can do that. In fact, I'm going to do that tomorrow"? And so I wanted to write a how-to book. I was always saying this is not a book to read; it's a book to use.

Then I had the third to last insight, which was the skill. One of them, for example, is the ability to create a great team. Of course, if I said to you, "Hey, Jake, every search fund entrepreneur needs to build a great team," all your listeners will go, "Yeah, I know. I need to build a great team." Then at the end of the podcast, they'll go, "Well, okay. But I'm not exactly sure how I'm supposed to do that." So I took that skill of building a great team, and I realized that it actually was broken down into multiple parts. Each one of those parts were frankly quite easy to learn. An example might be being able to do a good exit interview and have an organization do a good exit interview. So I broke it down into these sub skills.

The idea is if you learn these sub skills, then you learn the master skill, if you will. It's no different than learning to play the piano. If I said to you, "Hey, Jake, go learn to play the piano. Here's some music, and here's a piano," you'll be helpless. But if I said, "I want to first start by showing you how to sit in front of a piano. Then I'm going to show you how to hold your hand over 88 keys. Then I'm going to teach you what's a sharp and a flat. Each one of those we'll call them sub skills," you'd say, "All right. I can learn the difference between a sharp and a flat." It's exactly the same phenomenon, whether it's a sport or music or whatever. It's learning these five skills of good managers. So that was the inspiration for the book and why I was really driven to write it. If I had known it was going to take so long and requires so much research, I don't think I would have done it. So kind of like running for US Senate, I'm kind of glad I didn't know what was involved when I got started.

Jake: Well, I've really enjoyed it. It's a great read. I think I'm guilty of falling short in all five areas. So I have some takeaways that I need to work on. One thing that I see a lot of new CEOs struggle with is figuring out to your point about building a good team, figuring out when to invest in developing a team member, and when to focus time and resources elsewhere. You have some interesting thoughts on that. Would you mind sharing a bit there?

David: Yeah, I don't know if these are necessarily what you had in mind. But yeah, I kind of. I didn't mean it as sort of a teaser when I said it was the third to last or second to last insight. But after I'd written the book, one of my business writing mentors is Michael Porter, who teaches at Harvard. Of course, most people have heard of Michael Porter. He'd read early drafts of the book and helped me think it through. He, of course, had his five forces that was around strategy. I had the number five, too, but that was just coincidence. But he did say this. He said, "You're thinking about this all wrong. You've positioned this book like a menu that people can pick and choose off of. And as a result, your readers are going to just pick the easy things and the things that they want to do. They're going to not do the other stuff, figuring they can get, let's say, 80% of the value for 30% of the work." He said, "But what you have actually is a unifying theory."

What I mean by that, Jake, is that we just talked about the commitment to building a team. But another one of the five skills is learning how to set and adhere to priorities. What Professor Porter said is that you can't do a good job of setting and adhering to priorities if you don't have the right people. He also said you won't be able to keep the right people if you're running an organization that doesn't set and adhere to priorities. And so he went in with he's multiple examples. What I realized is that all of these have to come together. And when they come together, it is extraordinary power. It's Sam Walton's and Steve Jobs' power.

So to your question about when do you start working on the team, it does take time. And to get your arms around all five of these skills and have an organization that's operating in that way, it takes several years to do. You do have to triage things. And so maybe the first thing you do is let's do start doing exit interviews on day one. But you have to have a plan in place to acquire all of these skills, master them, and then push them into the organization.

For example, there's a chapter on how to run a meeting. What I noticed is, among best leaders — people that are noteworthy leaders, founders of companies like Amazon, for example, or Bill Gates — is that they were all very, very serious about how meetings were run. But when I looked at how they did it, they all ran them differently. I thought, okay, well, this isn't going to be very useful to have a chapter and say, "Well, this is how this guy runs it. This is how this woman runs it." So I tried to harmonize them into how you should run a successful meeting. By the way, interesting statistic. We spend about 23 hours a week in meetings. In a manager self-report, that half of those meetings are not actionable or useful, which means that we are wasting 12 hours a week. I want to say this is not like a little nit picky thing. I mean, 12 hours a week of wasted time, not just your own but your whole management team is wasted. That's a big thing.

The point I'm trying to make is that it's one thing for you as the search fund entrepreneur or the leader to run good meetings. But think about it as it's transformative when your entire company runs great meetings. And so that's the second sort of Michael Porter insight. It's that you can't just pick and choose. Then you have to transform your organization. You have to get your whole organization around these five skill areas. Not just the CEO. So I ended up adjusting the book. By the way, the book doesn't even mention the word search fund in it. Obviously, that's an audience for the book. But the audience is much broader than that. But what I really want is I want someone to say, "Hey, I'm going to buy this book for all five of my direct reports, because we're going to transform our organization." But only if you move beyond your own self-improvement and say, "I'm a leader. My job is to make the whole team skillful in these five areas," well, boy, then you're going to crush your competition, which is why in the subtitle of the book, I say crush your competition because it works.

Sam Walton — who, by the way, totally embraces these five things or did when he started — he didn't invent retail. He didn't invent the department store. He didn't invent anything, right? Meanwhile, he was surrounded by Kmart, Target and JCPenneys. He annihilated them. Those companies basically don't even exist anymore. But what he was fantastic about was execution. That's why he and his family, if he were alive today, he would be the richest man in the world. It would not be Jeff Bezos; it would be Sam Walton.

Jake: Yeah, fascinating. I think one of the really special parts of this book is how much you highlight the importance of not only receiving but also seeking advice. It's something I talk about a lot with my searchers. Indeed, almost your entire foreword is a list of names of people that have helped you on your journey. So I imagine you've been skilled at seeking and receiving advice. Many searchers are highly-driven MBA entrepreneurs who are rarely accused of being too humble. So this ability to actively seek out people who will provide honest feedback and guidance is always rarely a given in this little universe of ours. But if we take you as an example and inspiring an example, you've accomplished quite a lot in your career, how do you go about seeking advice? Do you put structure on that? Do you have a system or go-to people for different subject matters? How do you think about seeking advice at this stage in your career?

David: Well, my reality is I'm more on the other side now. I'm giving advice rather than seeking it. It doesn't mean that I only occasionally seek advice, but I'm more on the other side of it. And so I've had a chance to observe less how I did it and more how other people seek and take advice from me and others.

Just by way of example, and this is laid out in the book pretty carefully, is I saw a lot of wasted time. Someone would call me up and they'd say, "Okay. I need your advice on something." Then let's say we have 20 minutes for the call, and spend about 15 minutes telling me a long story. Then at the end, telling me what the question was, well, I was thinking the question was something completely different. Then I start to give some thoughts, and then they want to answer that and talk about it. And I would quite literally realize that I had been on a 20-minute call, and I had given maybe four or five minutes of advice. The rest of time, I was listening to grant information.

Now, I don't care. I'm happy. It's 20 minutes away from me, but I want to add value. I want to help the other person. And so giving and taking advice, while there's a chapter on how to find a mentor. There's also a chapter on how to ask advice. It goes basically like this: start right away with what is the problem you're trying to solve or the opportunity you want to take advantage of. The second is, with notes in front of you — they can be handwritten notes on a card. They don't have to be involved. But you target the least amount of data that you think is required for the person to help you because you don't want — the less you're talking, the more they can talk. So you're just using up your own time.

Then the second step is: what is the minimum amount of data that I need to give this person for them to be able to answer my question? Then the third is: I open it up for clarifying questions. Because they'll know what questions where they need to fill in a few blanks along the way. That can all happen in the first five minutes. But if somebody asked me or if I asked the person, okay, just tell me who does Margaret report to, you answer that with Bill or Sam. I don't need to know the whole organizational structure. I don't know when she was hired and the relation. I just asked him what that person was because I'm staring at the organization chart. As you're doing these clarifying questions, make sure to listen to the question and just answer the question. Because you're using your own time. Then you sit back and you're quiet. You absorb the information.

Now, there are some situations where you might want to say, "I'm kind of thinking about going in this direction." You might want to offer a solution that helps you with your own pattern recognition. But it's not required. Then you take notes. Then at the end, after you're done with the 20 minutes, you're getting 15 minutes of advice, not five minutes of advice. You do two things. One, you make sure that you say thank you to the person. By the way, I don't want anyone to misinterpret that as, "I need people to thank me." It's just a good way to cultivate — but it's just common sense way to cultivate these relationships. Then do what almost nobody does. It's after you decide what to do with their advice, follow up. Just a quick email saying it turned out that I didn't let Mary go even though that was your advice. The reason I didn't let Mary Go is blah, blah, blah, blah, whatever. Because it's just interesting for the person on the other end.

What that means is that when you call them up two weeks later with another problem, what they're remembering is, "Oh, when Jake called me up, that was a really productive call. I added some value. He let me know how things turned out. He was really gracious. I can't wait to talk to Jake again." As opposed to, when so and so calls me up, I go, "Oh my god. I'm going to spend 28 minutes listening to him telling a story." They really don't want my advice. They just think company. And so the best people that you want advice from are really busy people. Not just in their work life but they've got grandkids, or they've got their own companies to run. They want to give back, but they want to give back in ways where at the end of the phone call or at the end of the Zoom, they feel like, "You know what? I helped this person out. I added some value."

One of the themes that I hope comes out of this example, Jake, is that it's a formula. Almost every chapter, I sort of broke it into a formula. If you're giving performance feedback, go A, B, C, D. Because these sort of frameworks and formulas allow you to fast forward your path towards becoming a great manager. Eventually, they become part of your muscle memory. If you're a golfer and you go up to golf, okay, I'll put the ball on the tee. Okay. I'll put my feet here, watch where my toes are. Hold the golf club. So you just do it naturally. But you had to go through all of those seven steps over and over over again before it just became a habit. Well, the same thing is true with these five skills and all the sub skills. But you do have to practice them almost in a checklist way first.

Jake: Yeah, fantastic tool to have in an operator's tool belt. I have to ask. Were you always skilled in each of these five areas? Or if you look back at 25-, 30-year-old David Dodson, were you really bad at any of them, and you actually acquired these skills over time?

David: I was bad at all of them. 100% of them. I'm not trying to be modest. I was bad at all of them. Nobody taught me this. At McKinsey, you think they teach you how to give a good performance review? Working in a slaughterhouse, I obviously got some values and so forth. But no, zero. By the way, plenty of these I never did. Since we just happened to be talking about it, I'll come back to it. I never did exit interviews when I was a manager ever, ever, ever. Now, part of it was it wasn't quite as well-known at the time. This book is not even close to, "Hey, run a company like Dave Dodson." No, I was the curator of observations that I made among people like Jeff Bezos, and Sam Walton, and Steve Jobs and search fund entrepreneurs like Kevin Tweel who I looked at. I said, wait. Those guys are doing things that the rest of us are not doing. What are they doing? The rest of us includes me, by the way. What are they doing? Is there some kind of unifying theory around it?

Another example would be 360 reviews, which you need to do especially in this hybrid work environment. I never did a 360 review. Well, I did one that was pretty lame. I did it poorly because I was insecure about the results of a 360 review. This is way, way back. So what did I do when I wanted to learn how to do exit interviews with 360 reviews? I searched for who are the very best people, and what are the very best practices. I interviewed, and I talked to people. I read, and I researched. Then I came back and said, okay, now I have 250 pages worth of stuff here. My readers don't have time to read 250 pages of stuff. So I'm going to get it down to 20 pages. I get it down to 20 pages. Because my reader, the person who buys The Manager's Handbook, they don't have time to read seven books on hiring and three books on delegation. They want to read one book, one chapter on how to do it right. So this is not the gospel according to David Dodson. This is the gospel that David wrote according to all the people who are fantastic.

Jake: Your honesty and candor is refreshing, Dave. You're a well-known guy in the search fund space. Many of our listeners will know who you are already, but I suspect that some of our listeners don't fully appreciate that you're also pretty well-known outside of the search fund ecosystem with all your operational and board roles, teaching positions, experience in politics, and now as an author. You're pretty prominent, dude. I imagine you'll spend the next year or two on this book release. After that, what can we expect next from David Dodson?

David: I have a fund. We do search fund investing out of food partners. I want to build capability within the people that work in the fund. So I'm very focused on practicing what I preach, and building what I hope is not a big but is an enduring investment fund that is not about me but is institutionalized. So that's one thing I'm pretty excited about.

There are other aspects that came out of the book that I'm quite interested in. I don't know whether that leads to another book or not. But I do love to write. I really think the next chapter in my life is going to be one of reflection and mentorship. There's a wonderful book called Strength to Strength written by a guy named Brooks. It's mostly read by probably 16, 17-year-olds but really should be read by 30- and 40-year-olds. It talks about how your mind changes from being plastic, and you're learning and creative too as you get older. Changes in your value to society becomes taking all of that knowledge and muscle memory and using it to help others. I want to make that transition really successfully.

Jake: I love that. Many of our listeners are prospective search fund entrepreneurs dispersed throughout the world. Many really digging in and figuring out whether this search fund path is the right one for them. With that audience in mind, what's one key insight or piece of advice that you would like to take with them from this episode, from this conversation, from your experience, or from your book?

David: Well, I am guessing that what they hear about, not necessarily on their podcast but what they hear in general is, "Go do it. You can do it," all that almost be cheerleading thing. A lot of that, I do buy into. But I'm trying to think of what might be more practical. I think what might be a more practical and useful Monday morning advice, which is that leading an organization, you have to learn it. Whether it's the piano or golf that we talked about before, it's the same thing as leadership. It's a myth to think that leaders just are born a certain way, and it all comes by naturally.

The best leaders all learned skills along the way, and they were patient about it. They also enjoyed it. And so when you raise your search fund and when you buy your company, and when you walk into the office, and you feel massive impostor syndrome, that's all natural. But once you finally settle in, say, "You know what? I'm going to enjoy this five-year journey of learning how to be a really, really great leader, that's when I would say take your time and enjoy it. Then when you have a great company, don't get bored.

Jake: Thank you so much for those words of advice, for your time today, and for putting so much thought and effort into condensing years of learning and observation and experience and wisdom into The Manager's Handbook. It's coming out in—

David: Well, actually, you can buy it now. So it ships on the 14th, but you can buy it now. It just means there’s days left and wait a couple of days. But order it now.

Jake: Great. Thanks, Dave.

David: All right.

Jake: Let's speak soon.

David: All right, Jake. Bye.

Jake: So there you have it. If you've ever wondered what happens after the search fund, David's story is an awesome example. His book is available on Amazon. Go check it out.

(outro)

Thanks so much for listening to this episode. If you enjoyed it, you can find more at the searchfundblog.com or wherever you listen to podcasts. I'm Jake Nicholson of SME ventures, and you're listening to The Search Fund Podcast.