In Episode 6 of Diners and Deals, host Seth Deutsch sits down with Matt Schachman, co-founder of Cold Bore Capital Management. From leading troops in Iraq and Afghanistan to investment banking and now running a thriving private equity firm, Matt’s career path is anything but typical.
At Cold Bore, Matt and his team specialize in buy-and-build strategies in the micro-cap and lower middle market. But what truly sets them apart is their hands-on approach—applying military-grade leadership, discipline, and execution to scaling businesses.
This episode dives deep into the mindset, strategies, and operational rigor required to succeed in private equity. Whether you’re an entrepreneur, investor, or business leader, Matt’s insights on scaling, leadership, and long-term value creation are invaluable.
What You’ll Learn in This Episode:
✅ The entrepreneurial leap—how Matt transitioned from investment banking to private equity
✅ Why execution is everything when scaling in the lower middle market
✅ How Cold Bore identifies, integrates, and scales businesses for long-term success
✅ Their mission to help transitioning veterans build careers in private equity and portfolio companies
✅ The critical role of finance and accounting in buy-and-build strategies—and why founders often underestimate it
Matt is a sharp, disciplined thinker whose perspective on leadership, execution, and relationship-building offers a masterclass in long-term business success.
Watch on YouTube!
Prefer video? Watch the full conversation on YouTube here to see Seth and Matt discuss the strategies that drive Cold Bore Capital’s success.
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Tune in Now!
Listen to the full episode on Spotify and hear how Matt applies battlefield-tested leadership to the world of private equity.
Episode Transcript
Seth Deutsch: All right, Matt. Hi. Welcome to the Diners and Deals podcast. How you doing, man?
Matt Schachman: Seth, happy to be here.
Seth Deutsch: I am so happy you are here. It’s been too long. Has it been- this might be the longest that we have gone without seeing each other in person since COVID. It’s been like two or three weeks. I don’t like it.
Matt Schachman: We’ll fix it.
Seth Deutsch: Yeah, and we usually do this at S&G Diner on 3000 North Lincoln Avenue in Lincoln Park at the S&G Diner, which is the best diner in the world, but just the sound issues, we just couldn’t do it there anymore, so we’re here. And we’re here at the Vokal Offices in Chicago, and I love shooting it here. They’re great hosts.
Matt Schachman: Good, they’re great people.
Seth Deutsch: Yeah, they certainly are, and their episode will be out soon, and I am so excited to have you here. We met, oh my gosh, how many years ago is it now? Is it five or six?
Matt Schachman: Yeah, somewhere in there, 2018, 2019.
Seth Deutsch: Yeah, and 2018, 2019 Cold Bore Capital, where was Cold Bore in its evolution as a fund at that point in time?
Matt Schachman: We were looking for platforms for a fund two that we were about to start raising for and trying to deploy out of.
Seth Deutsch: Man, and so much has happened. So let’s start with where you are today. Tell us about Cold Bore Capital.
Matt Schachman: Sure. Cold Boar Capital, we’re a micro-cap, lower-middle market, buy and build firm. So, we invest in services businesses that are 500,000 of EBITDA to 5 million of EBITDA in recession-resilient niches where there’s lots of fragmentation. We think there’s great growth opportunities both on the organic side and then also through acquisitions.
Seth Deutsch: So, tell me about some of the portfolio companies that you’re really excited about today.
Matt Schachman: Yeah, so we sold the landscaping business last year out of fund two, have a veterinarian platform and a physical security platform that we still own from fund two. And then as we’re looking forward, I kind of broadly break things up into two main categories. For B2B services, white collar, love the shared service suite where the end market client is a small to medium-sized business. So finance accounting, data analytics, IT, human capital, or marketing and sales. Then, on the blue collar side, route based services businesses with a blue collar workforce, like the landscaping and physical security platforms, both those spaces. I think one thing, if you’re not talking about AI a little bit, you’re walking around with your head in the sand. But if you’re not an AI expert, you can get out in front of your skis pretending like more than you do, and even the experts probably, the people who know the most know that it’s very hard to predict how fast it’ll happen. And so, part of the reason that we- we’re very thematically driven, and part of the reasons we landed on those two niches is we think for very different reasons, they’re very AI resilient if things go kind of really, really fast.
Seth Deutsch: And I play in many of those spaces and have, so I agree 100% with you. Now, like me, perhaps, I don’t know, because where I grew up and the way I grew up, I did not understand, I never envisioned being in the world that I am in now. I mean, I did start my career as a basketball coach, and it’s all I really conceived of doing. Thank goodness I had some backup plans to that.
Matt Schachman: I think you would have been an awesome- you’d be coaching college or MBA by now as a head coach.
Seth Deutsch: Yeah, yeah, yeah. I still think in retirement, I’m going to definitely coach the middle schoolers, for sure, because they really want to get better. I like that age bracket. But I cannot imagine that if you look back, which I want to talk about, I want to understand how you grew up, where you grew up, what your influences were. I’m curious to know when the thought of entering private equity, as we kind of go through that, what you were exposed to and where that notion of entering the private equity markets, like when did that enter your life? So, let’s start at the beginning. Tell us about how you grew up, where you grew up, and what your influences were that kind of led you to become an entrepreneur.
Matt Schachman: Yeah, so I grew up in the suburbs of Chicago, so north side, so Cubs fan, not Sox fan. And I was a slow, undersized defenseman that blocked shots and played penalty kill, so I think that kind of tells you what you need to know about my personality, and I guess my heart, head, and grit got me like two levels further in hockey then my God-given talent probably.
Seth Deutsch: I was the same but in basketball.
Matt Schachman: And I’d also say just as like a hockey plug, I think there’s 20 people who suit up for a game, one of them’s the backup goalie. Everyone on the team that’s suited up for the game plays in the game and impacts the game, hopefully minus your backup goalie because your starting goalie doesn’t get hurt. And I think that kind of mindset of like everybody is contributing every single day on the ice in the game, there’s lots of sports where people are contributing in practice, scout team, et cetera, but they’re not on the field when the lights are on or in the arena when the lights are on. I think that that’s definitely kind of shaped the way I think about teams and also the fact that I was kind of like low man on the totem pole versus the cool guy goal scorer. It definitely gave me a different perspective there.
Seth Deutsch: So, at some point in time, as you were developing as an athlete, you had options, I assume, on where to go to college.
Matt Schachman: Yeah, so I’m pretty competitive, and when I was in second grade, I was at Yoast Arena, which is the University of Michigan’s ice rink, and counted all the different years until I got to when I was going to be a freshman in college and said, that’s what I’m playing, college hockey. At the time, I didn’t know that pretty much everyone from the state of Illinois that played college hockey either went and did a PG or a prep school or played junior hockey. And at the time, I thought I was going to be 6’2″, so the fact that Division I defensemen were all over 6 feet tall at Michigan and most D1 schools also wasn’t an issue. So when I was a sophomore, I stopped growing. And this is like there’s internet, but there’s not Google. So like Netscape or something. And I went and just started researching Division I college hockey teams that had defensemen under six feet tall. And so this place called Army popped up. I’m like, army, the army has a hockey team? Knew nothing. Clicked on the link. And it said something, for the school, and it said something to the extent of we teach history about those whom we’ve taught. I’ve also been a history nerd my whole life, read Killer Angels in fifth grade and Joshua Lawrence Chamberlain has been my hero ever since. So that kind of clicked as okay, well, that’s interesting. And ended up applying, got in to West Point kind of regular way in high school and looked back and said, like, well, do I want to go here because I’m stubborn and competitive and I could walk onto the hockey team and say I achieved my goal of playing Division I college hockey, or do I actually want to be in the army? And decided I don’t really know the answer to that and decided to play junior hockey in order to see exactly kind of athletically where I could get. And 9/11 happened after that and just I got a lot more mature. I matured a lot living away from home but also not being in college full-time and ultimately made the decision that that’s what I wanted to do for my 20s, at least, was be an officer in the Army.
Seth Deutsch: How did West Point shape you?
Matt Schachman: I think, I’m trying to- So I guess, one, I went in a 20-year-old man instead of an 18-year-old boy. So, I think it really, it accentuated strengths and mitigated my weaknesses more than it like completely transformed me. Like, it was the right fit for me. So, I think, look, you get 30 hours of stuff to do, and every single day, everything is graded. Your grades impact the job you get and where you get to go do your job. But ultimately, you can never get to everything. So, I think it’s like the ultimate prioritization machine on planet Earth, and I just put in a plug for the closest thing to a pure meritocracy I’ve ever seen in my entire life.
Seth Deutsch: I can imagine.
Matt Schachman: But yeah, so I think number one, it’s just like hey, how do you prioritize and look at multiple different layers of happiness, sleep, nutrition, ranking, etc., and figure out like what do I spend time on and when do I just go to bed?
Seth Deutsch: There’s something, yes, and there’s something there I do want to come back to. I want to talk, if you’re willing to, I want to talk about your service.
Matt Schachman: Yeah, absolutely.
Seth Deutsch: I want to talk about your transition, and I want to also make sure we talk about at Cold Bore the opportunities that you’re providing to transitioning veterans, both in the fund and in your portfolio companies. And I do want to really hone in on coming from a meritocracy to the world of work outside of the armed forces or outside of athletics and how people make that transition because the world outside of that is so different and making that transition can be difficult. I want to hear more about that. Let’s talk about your service.
Matt Schachman: Yeah. So I graduated West Point, got married two weeks later, did infantry school, ranger school, airborne school, so I spent about a year in the training pipeline, went to Hawaii, got a platoon, and then a couple months later, deployed to Iraq. I was in charge of an area geographically of almost the size of Rhode Island with a 41-ish person infantry platoon. And they said, fix the economy, fix the government, have a safe provincial election, let us know what you need. By the way, there’s Sunni, Shia, Kurds, and Turkmen all in your area of operation and like get them to all play nice in the sandbox with the security forces and everybody else.
Seth Deutsch: That’s all. That’s it? That’s all they ask?
Matt Schachman: So I mean, there’s obviously like the IED bullets like life and death stuff, but from like a stimulating, important mission that really requires everything on the courage, physicality, mental spectrum, I don’t know how I could have gotten a more rewarding, compelling, hard assignment, but also I had like five years to mentally and physically prepare for that between West Point and the year of training and mentorship from tons of awesome people along the way.
Seth Deutsch: Amazing. At what point in time did you make the decision to transition out, or did you already know going into service that this was not forever, or was that something that you, was that a decision point that you had to come to later?
Matt Schachman: Great question. I mean, I think, people talk about it, even a saying in school is like, all the people that say they’re going to get out are going to stay in, and all the people that say they’re staying in are going to end up getting out. I think I have no actual like good data set for you there, but I think anecdotally, I’d say that’s probably more true than not. Me personally, I just said like I’m going to be leading soldiers in combat. Whether I decide to stay in or get out, like putting all my time, energy, and focus into that task is, that is my only job. So, I’d say like, I made the conscious decision to really not think about it at all one way or the other until after the first deployment. And then kind of made the decision, without getting into the weeds too much, kind of like I could have left my unit and gone to the captain’s career course and decided to, basically made the decision like, hey, I’m going to stay, I want to do the Afghanistan deployment, but also, I’m going to get out after that. So, I’d say like kind of between deployments, talked to my wife and made that decision and also decided like to finish my time by doing the Afghanistan deployment instead of going to do something, yeah, I could have done like a training mission or something else and gotten out along the same timeline.
Seth Deutsch: So, when did you ultimately transition out, and as you were doing that, what was the first step that you made into the world outside of that ecosystem?
Matt Schachman: So I guess, I had no idea what I wanted to do. But I was like, well, grad school is, just kind of what are people doing, like lots of people go to grad school and that’s like not a bad thing and buys you some time in order to kind of figure out what’s next. And so, my dad was a lawyer, so thought about law school, thought about business school, and I guess, actually, the honest answer is I looked at the law school application and the business school application. The law school application was, again, it was a long time ago, so don’t- hopefully the lawyers don’t get mad at me if I’m saying it wrong. My recollection, what I recall, from the difference in the applications was law school was like, what’s your LSAT, what’s your GPA? In business school, they actually cared about what kind of leadership potential do you have, more other things than just academics. And also, almost no one goes straight to a two-year MBA from undergrad because they want everyone to have some kind of real-world experience. Lots of people go to law school straight from undergrad. So just, it was more like, all right, they care about more of the hockey player, platoon leader, infantryman part of me. And that is a real part of who I am, so it’ll probably be a better fit. So I don’t know if you want to think that was really crappy analysis or really good, but that’s the honest answer.
Seth Deutsch: There you go. And you went to Kellogg?
Matt Schachman: Yeah.
Seth Deutsch: And when you were there, again, when you went in, did you have any- you said not sure exactly what you want to do. As you were there, did you develop any type of hypothesis about how you were going to then leverage everything you had done and learned into the world of work? What was the first step you took?
Matt Schachman: Well, I think it’s important not to have too much, like hindsight is 20/20. The real answer is you show up, got plugged in with the veterans’ group at the school and pretty early, it’s okay, are you going to recruit for investment banking consulting or figure out something else to do? And there are a lot- and again, same kind of process. I looked at the process for investment banking versus the process for consulting, and the consulting process was honestly probably more of a pure point in time meritocracy where the case study was how well do you know business, how well can you do a case study, period, full stop. Whether you spent five years doing case studies in businesses before or you’d been an artist or a professional athlete or a veteran. And so, whereas the investment banking process seemed like they were much more about projecting you into the future. And also just like the grit aspect of it. Like everyone’s- I think there’s probably, I’m trying to think like what was I actually thinking at the time, the other part is just like everyone’s like, oh, that’s the most miserable thing on the planet, why would you want to do that? Which kind of made me want to do it. So yeah, that was- and I guess from a game theory perspective, I was also like, if I do an investment banking internship, earn a full-time offer, and recruit as a second year for consulting with an investment banking internship offer under my belt, I’m way more differentiated and competitive versus being one of the gajillion people competing as a first year. So, yeah, that’s how I decided to recruit for banking, picked it as the internship, but also, I’d say by the second half of my first year, I was pretty interested in search funds, trying to do something more entrepreneurial. So then went to the office every day for 10 weeks during the internship, and instead of the 4th of July, I was at the end of the old school banking world, which was fine. I joked like 18 hours a day, six days a week is a lot less and no one’s shooting at me. So like, don’t have a problem. Neither does my wife. Like, this is fine. And then, yeah, and then had to kind of make a decision to get the major sign on bonus, and did some stuff with search funders to help them. And at the end of the day, just got advice from mentors, some of the same ones that said go do finance because you’ve got to understand finance if you want to be in the business world eventually. They also said, look, translate your skills, prove you can translate your skills, and then you’re going to have, you can figure out what you want to do later.
Seth Deutsch: Makes sense. So that’s where you started. And how long did you stay?
Matt Schachman: Did that for, I guess, had the internship in the summer of 2013 and left in the summer of 2016.
Seth Deutsch: And what drove you to say investment- I’m not going to stay in investment banking, there’s something else, there’s another place for me in the world of work?
Matt Schachman: Yeah, I mean, I think, look, at the number one, two, and three is what are your non-negotiables from a personal perspective? And those give you, those eliminate courses of action, which make things clearer. And so, I just felt like, to maximize, to maximize my personal and professional utility, I had to try doing something entrepreneurial because that had the most ultimate upside for what I could professionally enjoy and kind of create the kind of personal all in life with friends, family, et cetera, that I wanted to have. And so, I just said like, look, I’m going to have a lot of capacity on all my credit cards. I’ve established a really, really good reputation here. I’ll try it for 12 months. If it doesn’t work, I’ll come crawling back, and they’ll know that they had me for life.
Seth Deutsch: How many kids at this point in time too?
Matt Schachman: I had just had my fourth kid. Yeah.
Seth Deutsch: But it was in you. You just had, you had at that point in time, you had to go be an entrepreneur.
Matt Schachman: Yeah. And I also think like part of the reason I picked banking was I felt like I could build a little bit of a financial cushion to take a shot much faster. And I knew, I was highly confident that my best case scenario was not being a banker, consultant, or corporate general manager for the next 30 years by the time I finished business school. Yeah, walked in and told everybody I was quitting to start my own human capital staffing and placement company, and I think for a second, they paused because they weren’t sure if I was messing around with them or if I was serious. But everybody was super, super supportive and great about it. Whether it’s that or all the different B2B services firms that we help today, I think the client service that I learned in investment banking is one of the biggest things that no one talked about ahead of time or even while I was doing it that in hindsight has really helped me professionally. I was at a bulge bracket firm, so the head people that are competing to get Fortune 500 relationships with all the other bulge bracket banks that have pretty much the same services, even though they have their schticks about how different they are, and there are some real differences, but at the end of the day, it’s like your ability to drive a relationship and understand your counterpart, CFO, CEO, board member, whatever, and what makes them tick was really the thing that separated the ones that were successful and the ones that weren’t, and I got a lot of exposure to some really successful ones, so definitely picked up a lot there.
Seth Deutsch: So, let’s talk about that transition, and then as you’re talking about that, that then led you to what you do today.
Matt Schachman: Yeah, so that’s the way of trying to say like make this one a little faster.
Seth Deutsch: No, no, no, it’s not.
Matt Schachman: He’s good at keeping me on track there. See, the problem is when you tap into the entrepreneurial side of people, they go visionary and like give every little detail because they’re giving like how did I think about it, which is a lot different than like the structured kind of top-down way of thinking.
Seth Deutsch: Which is really important. I got to tell you, well, by the time people listen to this podcast, hopefully they would have listened to the podcast with Reid. We’re in his office today and Steve Carroll. And Steve runs Kelso Industries now. It’s a billion dollar company that he started three and a half years ago with his partner that he knew since grade school. And Steve didn’t necessarily know that he was going to be an entrepreneur either. And it was his time at Walmart that gave him the confidence to do that. And he also then knew it’s what he had to do versus Reid who was born an entrepreneur. This journey is different for everyone. And I think for our young listeners or our listeners who are within corporations today wondering if they want to make this leap to entrepreneurship or this leap to private equity, there’s not one path. There are very few that we come across where the narrative is so scripted or they just knew from the beginning. But this path to entrepreneurship, I think, is just very different for all of us. And it comes to us in different ways at different times. And so, I think it’s really important that people understand there’s no one path that leads you here as much as the books might tell you there is.
Matt Schachman: Great, great point. I will say like I watched Shark Tank for a lot of years before doing it, and ultimately it’s just kind of like, hey, lots of people, if I just fast forward to 20 years from now and I haven’t done it, is that going to be a material regret that will like really make me an unhappy person, and the answer to that was yes. And then the flip side was, okay, am I financially in a place where my kids can eat, excuse me, and if it doesn’t work out, because there’s no guarantee it will, I’ve got enough of a way to recover. And like what those lines are, I think, for every person are different. I make no judgment on what people say those lines were, but I was pretty deliberate in my planning to create the opportunity so that like if the right thing came, I couldn’t kind of convince myself that I couldn’t do it, if that makes sense.
Seth Deutsch: It does. Let’s talk about one other thing there. And I know you’re a little tired and run down because of the loss that your Georgia Bulldogs suffered over the weekend. I know how much that’s taken out of you.
Matt Schachman: I was not at the game, so this has nothing to do with me being up too late on Saturday night, just for the record. Yeah, anyway, keep going.
Seth Deutsch: We understand that, a whole bunch of new platforms as well, but I had to get that in there. And let’s talk about one other thing before we make the transition. Let’s talk about the alignment at home with your partner. As you get ready to leave the bulge bracket investment bank and go start your own business with four children, and you’re going to go take this leap. What does that look like in terms of speaking to your life partner about this?
Matt Schachman: Okay, well… No, no, this is great, this is great. So, I’m going to give you like, I’m going to have to give a little history lesson. So, when we first met, I fell in love basically first sight. It sounds cliche, but it was real. And I was very concerned that my now wife, mother of our four kids just was not going to want to do the army thing. And I had no choice in that. Like, that was a decision I had already made. So the first movie we ever watched, this is 100% serious, was We Were Soldiers Once… and Young, because the new second lieutenant goes to Vietnam with the baby and gets killed. And like my goal was to scare her away from the journey that I was on to save me the heartache of getting further down the path and then having her figure out that wasn’t for her. So, I would say like I give myself a, I rarely give myself As, I’d give myself an A plus for expectation management on that one. Then, when I got into business school, I completely inaccurately thought that getting in-
Seth Deutsch: We’re going to back up. So, I’m going to scare- I’m going to be her. You’re going to scare me off. What did she come back to you with?
Matt Schachman: I want to live a- that doesn’t scare me at all, I love you too. We’ll do whatever we need to do.
Seth Deutsch: Lovely, keep going. Yeah. That’s amazing.
Matt Schachman: So, I’m sorry, Lori, I’m sure it was much more beautiful than that in the way that you said it, but Seth put me on the spot there.
Seth Deutsch: Lori, that’s enough. Those words say it all.
Matt Schachman: So then, on the opposite, I give myself an F for expectation management for business school. So, I get back from my Afghanistan deployment, we’re in Hawaii, I get into a great business school, and I naively think that’s like closer to the end of the journey of figuring out what I’m going to do after graduate school versus being like the top of the first inning. And so, set pretty horrible expectations for the amount of time it would take to take advantage of the social part of business school and get to know as many people as possible, don’t know the difference between an income statement and balance sheet and learn finance, accounting, and everything about business and get good grades and recruit for investment banking. All while we had two small kids and she was pregnant with our third. So I would say those are really the bookends on the A and the F for expectation management. And ever since, so those bookends kind of informed the next few years of consistent conversations about what do these different things mean and how do we prepare for that. So I think, I spend a lot of time, we spend a lot of time talking together about the puts and the takes of staying where I’m at versus jumping and trying to start something and what does that mean for vacation or what house we’re in and all kinds of other things and frankly just from a time perspective. I will say like the one, I probably- I got to B I think on that one. But the one thing I would say to those people thinking about doing it, one of the hardest things about entrepreneurship is ultimately no one else is telling you what to do with your time. That’s the feature and the bug. And so, the direct answer to any question from your spouse on like can you do X, like the technical answer is yes because there’s no boss that’s going to tell you you don’t have to. But if you answer that question technically correct every single time, you’re never going to get anything done. And so how do you figure out the way that you guys are going to operate and communicate in order to deal with that? I think it’s something that, hindsight, I could have been, we could have been even more explicit and direct there, but figured it out.
Seth Deutsch: You figured it out. That’s an art form. So let’s talk about the firm and then what led you to also co-founding Cold Bore.
Matt Schachman: Yeah. So, when I was in business school, first, really got into the recruiting process with the investment banks, then tried to pay it forward, helping other people both figure out like what did they want to recruit for and then how did they position themselves in their interviews and all that kind of stuff, and people literally say, this is in like myopic business school blinder world, huh, it’s too bad there’s not like a job you could get where you help people do this. This is literally like a direct quote. And so, a whole bunch of different things came together, had an opportunity to basically try and start a human capital staffing and placement company, which inartfully, I’d just call like, get people jobs. Well, what do you explain to your three-year-old that do you do? I help people get jobs. And so I was like, oh, well, all these people thought I should figure out a way to do this, and this kind of is one. And the initial opportunity was much more on like the staffing side. So that was, I kind of viewed that as the original analog gig economy. And way back when, when we were starting this, like the gig economy was just starting to become a thing. And then I guess maybe the last piece of the pie, the puzzle for me was, one option in starting things is like go in your basement or your garage and try and come up with a big, disruptive way of changing everything. This was more like I had a vision for how I thought human capital, the human capital world would evolve, but this was like establishing a toehold by scaling something to profitability really fast in a more mature part of the market. And so, I thought, one, just from a learning from clients, you could have faster OODA loops by actually kind of being in the field, reacting to the way clients were actually reacting. And then also just from like a personal mitigation perspective, it was like, all right, if I can scale something to profitability, if I hate it or the prospects are horrible, I can sell it. And then I’ve really increased my long-term human capital through that, so that was kind of the game theory on like here’s the big strategic vision that gets me excited to do this for 40 years, but also, here are a bunch of different off-ramps, depending on how things go, because the military saying is like, the enemy has a vote too, or no plans to rise first contact.
Seth Deutsch: Yep, very true. And so, as you’re scaling the business, you meet Sergio.
Matt Schachman: Yeah. So I think, I guess this is both the reality of being an entrepreneur and maybe how do you do things a little bit faster than me so you don’t get pure luck. But like 10 different people had told me in the Chicagoland area, hey, you should really meet this guy Sergio. And I didn’t ignore them like I’m smarter than you. I was just like in the grind, in being focused on trying to build the business. So, the truth’s probably somewhere, I guess, how do you have a deliberate amount of time that you block off every month that you’re doing for this kind of stuff? Because maybe the-
Seth Deutsch: I think it’s tough. Listen, I just made a new connection over LinkedIn, and I put it off for a long time because the last 10 times someone had reached out to me over LinkedIn and I said yes, I’m like, I’m wasting- I have to focus. I love helping people, as you know, or people say, you’ve got to meet this person, you got to meet that person. And like so many of them go nowhere, but then you have- but you have to always kind of let it in. But there are times when you’re just so focused on building the business, you don’t have the capacity to make new connections, but really to build new relationships. That’s very different than taking a 15 minute phone call. But I think, we’re sitting in a place today, here at Vokal Studios, where Reid reached out to me, and then I saw our degrees of interconnectedness, but it’s also to those out there that like to reach out to people on LinkedIn, it was the quality of Reid’s reach out and how well he had researched me and what he was asking that made me respond immediately and say, yes, I will absolutely sit down with you. But you had all these degrees of connectivity saying you have got to make time for this. So you finally did.
Matt Schachman: And so, yeah. But again, pure- I guess, maybe chance favors the well-prepared, maybe just pure luck. But I don’t- active in the Chicagoland area veteran community. So maybe that’s like the, at least kind of being in it, being around ecosystems with shared values and spending time doing that, I’d say is like what’s something you can take away. Like everybody can have different versions of that. If you’re spending no time doing that, it’s wrong. And so just standing in this, one of those little circles you do when you’re meeting people, and somebody said, oh, this is Sergio. I said, oh, I had a bunch of people say I should meet you. And he goes, you’re Matt? And he literally had, it was probably six of the same people and then a couple of different people who had said the same thing to him. And so, we talked for like 10 minutes, but you’re doing like the roundabout stuff. It’s like, all right, let’s just go grab lunch. So we went to Bobby’s in Deerfield, and talked for an hour and 15 minutes. And I think, I guess we went pretty darn fast pretty quickly there. The aspects of the background that are shared certainly helps kind of accelerate that process. But I guess I felt like I knew myself really well and I also knew like from a skill set and personality perspective, what’s the complimentary skill set and personality. So, there’s another guy who I always thought I would end up doing something with who was at West Point. We were in Hawaii together in the army, same values, kind of opposite personality and complementary skills. But so anyway, I had like the archetype in my head and just put this other name on it, and then met Sergio, it’s like oh, no, like he’s all those. He’s like this other guy.
Seth Deutsch: So what was that vision? And what did you all- and you set out to create it, and here we are 20 years later.
Matt Schachman: So, nine, eight, seven, we’ll call it almost a decade. Or closer to a decade than half a decade, that’s for sure. I think we met in 2017, 2018, 2017. So I think, look, in the world of private equity and investing, going back to my history, it starts in the early 80s, taking big, inefficient public companies private and doing financial engineering and incentive alignment in order to create value. That relatively quickly flows all the way from what is now called kind of like mega cap down to what I’d call like middle market, lower middle market. But it never really went into the micro cap space. Search funds have been around 30 years. I’m familiar with search funds because we – like we talked about before, I thought about just trying to do a search fund out of business school and like skipping the whole work a regular job thing. That asset class has been around forever going at the micro cap space. My observations there were one person is probably not the best person to both find a business, structure a deal, and then run it.
Seth Deutsch: It’s rare. It’s rare.
Matt Schachman: But because of the lack of liquidity in the market, if you’re really good at one of those things and not bad at the other ones, you can have a really, really nice outcome, which is why the search fund asset class has been a good asset class for investors that have gone into it. And so, all that’s swirling around, Sergio’s perspective was, after business school, went into private equity, tried to convince his firm to buy a bunch of small businesses at lower multiples versus the traditional middle market one. And I think another good kind of mentor advice was like if no one else is doing something, your knee-jerk reaction shouldn’t be you’re smarter than everybody else. It’s why is no one else doing it? And so I think, really there it was, well, the quantum and quality of boots on ground human capital that you need in order to put a bunch of small businesses together to make a middle market platform is just a material step function change more than at any other part of the value of the size chain from microcap all the way up to mega cap and public company. Now, people matter at every single stage. So, period, leadership matters at every single stage. But just the pace of change and the quantum and quality needed relative to the total size of the organization is just wildly different in this micro cap space than everywhere else. And so that plus most people-
Seth Deutsch: Let’s just slow down there for a second. There’s a bunch of shit that needs to get done to professionalize and institutionalize and pull together a number of small entrepreneurial businesses to basically transform them into an investable platform. It’s just a lot of work, systems, process, people, technology, pricing, go-to-market motion, sales, execution. There’s a lot. You can create a tremendous asset, but what you have to bring to that asset, you have to be geared differently to create the value.
Matt Schachman: Yeah, organizing a team around de-risking small business cash flows and scaling to a middle market platform is just a huge market opportunity in the number of those businesses. But the reason regular private equity didn’t scale down is the normal private equity structure, which is the majority of the human capital and physical capital in traditional private equity is focused on the investing team and the deal. That relative weighting works kind of, pretty much from middle- or had worked for a very long time, I don’t want to get into like what’s the new world, from middle market all the way through mega cap, but not in the micro cap space. You just have to be- so anyway, that’s, yeah. I mean that’s-
Seth Deutsch: You’re showing up more and more in the middle market. Correct. So that was the thesis, was to go after that market. And so, how did you need to build Cold Bore differently than a traditional middle market private equity firm to go create that value?
Matt Schachman: So I think to the entrepreneur’s thing about should I go do something, from a framework perspective, it hit the two most important things. It’s like a why that I’m pumped and excited about and I think I’ve got an edge to mitigate a risk better than most other people. And so that, we knew, okay, so if you believe the quantum of quality boots on ground, human capital is going to define winning or losing, we also had all of our experiences from the military, and then I had understood all the different credentialing issues that any- the credentialing things of coming from the military and not having normal experiences. Like you can take that credentialing and a bunch of- there’s all kinds of groups that don’t have credentialing because of the way life works. But at the end of the day, the core things that made you good, like Kellogg didn’t make me a good investment banker. It gave me a credential so that the investment bank would feel safe hiring me. And so, I think that kind of mindset and framework really shaped thinking about, well, we can source, screen, and deploy SEALs, Rangers, Green Berets, pilots, super high execution, problem solving, grit people from the military in a way that most of the business world doesn’t understand how to do. And look, like there’s some- so anyway, so that was really the thesis was, okay, not only do we understand what the problem is, we’ve got a solution here that we think we’ve got an edge in attracting and retaining, attracting, screening, deploying and retaining that human capital to go do that work. And oh, by the way, the most important thing I ever did professionally was lead soldiers in combat, period, full stop. But helping people get jobs has real meaning for them. And being able to do that plus also specifically helping the veteran community today, transitioning or transition, find a form of employment that is closer to maximizing their actual skill set is something that can get me excited in the morning and also deliver risk adjusted returns.
Seth Deutsch: Absolutely. So, let’s talk about how you functionalize that and how you think about, and if you want to use a case study from one of the portfolio companies or if you just want to talk about generally how you all have functionalized this from the fund out.
Matt Schachman: So again, I think I’ll frame it in investment banking parlance. So, like at a bulge bracket bank, there’s coverage groups and product groups. The coverage groups have industry expertise and cover specific clients. They’re generalists across all the different products. Then when you identify a specific need, from time to time, you’re bringing in a specific product expert. So, I think, I don’t think we like sat on a whiteboard and like explained it like that or thought about it like that, but where we ended up was functional expertise in the shared service suite, finance accounting, data analytics, IT, human capital, performance management, sales and marketing. Those are all functional things that small businesses need to continue to do well, but the way they have to do it as a middle market platform needs to be materially different as the small business that they are today. But you need boots on ground kind of embedded with the team permanently in order to drive execution and just react to how fast things are changing on the ground and frankly just identify which one of those other- when does it make sense to bring in those different product groups and functional stuff. So that we call CXOs and RXOs, stands for chief execution officer, regional execution officers. I think in kind of like civilian parlance, I’d call that like a hybrid of a COO, a chief of staff, a special projects team, and an M&A integration team. And you can scale that up or down. You can have three or four of those, one CXO and then multiple RXOs doing multiple different things, depending on where the platform is there. There’s also a little bit, now there’s kind of like this CXO thing is like a more common business parlance, but I would say in my mind, it was 100% just a play on words of military, because in the military, there’s the commander and the executive officer and then the first sergeant. But anyway, the XO’s job from the officer side of the house is to do whatever the commander doesn’t want to do, isn’t good at, or isn’t the highest and best use of their time. And so, our CXOs and RXOs functionally are doing that inside of the portfolio companies based on the management team that’s in there at the time – what are they best at, what’s the highest and best use of their time, and how do we take the rest of it off their plate?
Seth Deutsch: And had listeners been listening to this five years ago, this would have sounded like a completely divergent strategy in a way. If you fast forward to today, when we take a look at pervasively the middle market, many middle market private equity firms are having to, over the last two years and going forward, have had to basically start to replicate this model within their funds because cash is no longer free because of inflation, because we now have to do real things and drive real value creation within these companies as hold periods have extended, as assets and cash has become more expensive. And so, the things that you all were pioneering have really started to become almost necessary in the middle market. You should feel really good about having developed that edge.
Matt Schachman: Yeah, I think, thanks. I guess I’ll feel good about it in like 40 years. But if you don’t keep innovating faster than everybody else, then you get caught. But I think the philosophy, I think the philosophical difference with our backgrounds is just starting something kind of like thinking about the people and the team. We’re going to get leverage by scaling teams versus scaling some incredibly smart, hardworking people by writing checks. And frankly, the jobs to be done in the, again, it’s kind of like in the middle market, you need to do it to differentiate once you’ve paid the really high multiple that we get for selling it to the middle market. But for us, to have a platform that is sellable, it’s table stakes. And less of our total value creation was coming from the traditional financial engineering of leverage to begin with. So those changes I think, while it impacts everybody, kind of impact us a little bit less.
Seth Deutsch: Yeah. Let’s talk about for a moment within that middle office stack in the CXOs and the RXOs, your approach to, what you mentioned, to finance and accounting and how every single one of your portfolio companies of your platforms that you’re building is going to need that support because most of them don’t come with a CFO, have never necessarily had debts, don’t have investor reporting to do. There are all these other things that come with any form of private equity that also show up in any buy and build. And so, what has your approach been to that? And how do you also leverage inside and outside resources as you’re building that function?
Matt Schachman: Sure. So I think first, I kind of look at it, since now we’re talking finance, I’ll be very structured. There’s three legs to the stool. Backwards looking, in a buy and build, it’s accurate backwards looking information, actionable forward looking projections, and then being able to- so that’s a regular business. Then the third leg of the stool, which I think deserves its own leg, is being able to continue to do those two things while you keep buying other businesses. And so, I think that really you need finance and accounting expertise, because one, you’re going from cash accounting in QuickBooks to like a real ERP and accruals. But you need integration with data and IT. And so, when finance and IT are siloed, they end up blaming each other for everything, instead of figuring out how to work together to produce the right result. And then, there are the, from a hierarchy of needs perspective, as soon as you’ve got a lender, there’s a higher standard on the backwards looking accuracy of the controllership function. And so, then level two is now how do we, once we have that actionable observation from backwards, how do we orient the side act and put that into both projecting the future and then understanding the newest closed time period, how did that relate to what we thought was going to happen and then use that to drive better insights moving forward. And so I’d say yeah, you need alignment and collaboration between the executive team, the people, process, and technology that is running the business, and then the experts within finance accounting and data IT in order to move that all in the right direction. And the reality on the ground is there’s a hundred priorities all the time, and the academic answer, like here’s everything we want to do, I mean, I guess it’s relatively easy. I think that the hard part is when and how much time and effort are you deploying to getting things better and what order you do it in.
Seth Deutsch: Any lessons learned there in terms of prioritizing, getting the right systems in, getting the right CFO in, getting the right controller? And these are big investments that demand the timing and the sequencing of those things as you execute a serial buy and build. Any major lessons learned there?
Matt Schachman: Yeah, I know you don’t want to go another 45 minutes on that one. Look, I’d say first, okay, we talked about controller, CFO, and systems. Let’s just, I’ll start with systems. Picking a system too early means you end up picking multiple systems. Picking a system too late slows you down from scaling your business fast enough. And so, if you’re humble enough to think about those two bookends, I would say this is one where waiting a little too long is better than waiting a little too early. There’s other things where you say, oh, most people look at a people decision and say they waited too long to make it. I would say kind of take the opposite kind of framework on the system. Like, if I don’t really, really know the nuances of the business, the nuance of the business today, the nuance of the business for where do I want it to be in three to five years, and what’s the next person going to care about, those are the three main variables. Odds of you knowing all that on the front end with high confidence, pretty low. Then I’d say for the CFO controller, okay, if you only remember one thing, it’s like, does this business warrant having a real strategic CFO? If you don’t have the controllership function absolutely on lockdown, then that’s not in your hierarchy of needs. Which is a very different way of looking at the world than middle market, private equity and up. They already have a much- like you can’t not have a CFO there. The job to be done of a CFO can be shared through the investing team and other people on the ops team, but you have to have accurate backwards looking information first, period, full stop. And if you find an amazing CFO from the platform that’s got realized results for the platform you want to be in three years, they’re going to, if everybody comes in with good intentions but doesn’t really figure out your controllership issues, they’re going to end up being really unhappy and so are you. Because they don’t have the info that they need. I like to call it like the instrumentation. When you get the higher, for these, for the people that you want to really make the thing go, they need a level of instrumentation that does not exist when you’re starting. So, make sure you’ve got basic implementation, then is it the right system, then you can add that strategic person to really make it go.
Seth Deutsch: That makes sense to me. That makes sense to me. In the time we have left, let’s talk about what’s really exciting you about the next five years. As you get up every day, what are the big motivators for you that just propel you forward?
Matt Schachman: Okay, well, I will interpret that. I guess I’ll give you my honest, like the number one thing that motivates me is is probably like setting a good example for my kids. So I think, and I’ve got a group of people, we get together once a month and then get in person once a year, like internal kind of board team. And when I decided to get out of the army, a part of the thought process there was I got to figure out a way to, not the same kind of impact, but still be impactful in a different way. And so, when I look back at every five years and kind of say where would I be in a garrison army situation, how can I come within a country mile of having the same kind of impact in the private sector plus charity plus family and stuff like that. So, I mean, that’s kind of the honest, that’s like the honest, like 50,000 foot answer. What does that mean kind of on the ground with what we’re doing today? Look, I think to your point, I’ll go hockey on you, like the puck is kind of moving to where we are as it relates to holistic value creation. And more and more- and then even specifically in understanding execution, grit, problem solving that a strong minority of people from the communities I was talking about before have that can translate that into the private sector, but professional athletes, immigrants, all kinds of other nontraditionally credentialed people, I think as things keep getting more competitive, people start getting outside their comfort zone in order to figure out how to get an edge. And so part of my big why was not only like having this be successful for me and us, but those opportunities more broadly. So, I look at the people that have already been at CBC and moved on to CEO jobs and think about like that’s not- I got to be careful on the way I say that so it doesn’t get misinterpreted. Like we provided Kellogg level credentialing. They were those, just like I could have been an investment banker without going to Kellogg for two years, but the credentialing and the extra experience and the time kind of helped me get what is my vision for what I want to do, how do I go action it, I think their time with CBC helped them, I’m sure, both in what do they want to do and what are the things they think they can do better.
Seth Deutsch: But the leaders that you’re creating, the opportunity you’re providing, and the leaders that you’re creating, the companies that you’re building, but the people, the lives you’re impacting still is a major part of what gets up and motivates you and the ability to do more and more of that will just continue to compound the more success you have.
Matt Schachman: Exactly, and this market is huge. And there’s a trillion dollars in baby boomer businesses and I think 60% of them don’t have a succession plan. So do we have a differentiated way to win in a large growing market? I think the answer is to all those things are yes, so there’s still still a ton of work to do, but we’ve picked pretty good ground to be on.
Seth Deutsch: Yeah, it’s exciting. Any other final thoughts that you’d like to leave with the audience until we bring you back next time?
Matt Schachman: Yeah, I mean, I’m never going to miss an opportunity to say something. But I guess what are- what do you think the audience is looking for?
Seth Deutsch: We don’t really know who our audience is yet. But my objective, as you know, is to give back. And so, it could just be anything that’s top of mind for you. I think that, I’m hoping a few things as people listen to this, those who are in the trenches don’t feel so alone because we’re all going through the same things. And especially first time CEOs of private equity backed portfolio companies, if they have never done it in a private equity environment before, it’s a big change depending on what you came from. Or those thinking about moving into this space, or those people thinking about starting their own business, or those people that are sitting in college today wanting to be the next you, because they actually know about private equity. But I know that in your heart as well and in the work you do, you want to help others. So it could be anything that’s top of mind impression for you, something you’re living through right now that you just want to share with others in terms of something, some perspective to think about that they can’t read about, that no one’s going to write about that you think is going to help others in executing on their vision.
Matt Schachman: Sure. I guess I’d say, one, I’m sure there are things that I said that are slightly inaccurate, or when I hear it, I’ll wish I had said it differently. So trying to be open and honest and vulnerable by not just saying safe talking point things. I guess I’d ask for the audience’s grace on whichever things I screwed up and haven’t realized until I listen to this later.
Seth Deutsch: Which you forget, the whole point of this is to forget that you’re even doing a podcast. It’s just sitting down and chit-chatting.
Matt Schachman: So, I think, I’d say generally being in environments where you can be like that, I think there’s obviously risks, but I think the upside is is probably higher so hopefully that continues to be true for me and for you. And then, look, I’d say what’s one thing I’d leave you with, there’s a lot you do. It’s human nature to do pattern recognition, so you look for people that have been in similar positions as you, what did they go do, and then you like try and go replicate those things to learn by doing. Or when you’re listening to this or talking to someone that gives you response on LinkedIn or whatever, generally people are going to think whatever they did was smart. So, let me say it this way. If they’re willing to talk to you about their life choices, it’s usually because they’re happy with where they’re at. And so, there’s some kind of like survivorship bias there. But more importantly, their personal situation is, I’m sure it’s not the same as yours and there’s likely material differences. And so, I think like really trying to understand people’s whys a lot more than their whats. That’s like my pithy little saying. But I really think it’s true because you can learn about somebody, learning about someone’s whys I think helps you make the right decision for you and your family and friends and the people that you care about. Because ultimately, when you’re chasing other people’s whats and other people’s whys, you’re not going to reach kind of like the highest- there’s no chance for you to reach your highest level of satisfaction and happiness. So, yeah, and also, don’t worry, wherever you are in that journey, your answer five years from now will be different. So, just, I think, yeah, that’s it. Whys not whats.
Seth Deutsch: I think the whys are important. I was having this conversation earlier today on understanding seller motivation and a target and all these other things. And my response to the founder was, we need to understand this because we don’t want to write checks that we can’t cash. We have to absolutely have full emotional, spiritual understanding, financial, all of the connections, all of the things where we really want to go, we have to really understand if that person wants to come along on that journey, why that person wants to come along on that journey. We cannot rush into these things without full understanding, and we have to really invest in building that relationship to find out. And so, I think the whys are everything.
Matt Schachman: Yeah, I guess, figure out how you can watch We Were Soldiers Once… and Young figuratively in whatever kind of process you’re going through. Because that’s about the back casting of thinking about end state five years from now, look backwards and say, why did it not work? And then how do you go about figuring out that number one thing that would keep it from working earlier in the process versus later. And you’re ultimately doing yourself and the person on the other end of the table a favor. And frankly, you’re going to build better relationships whether that thing happens or not because the authenticity and legitimate desire for a win-win versus a transaction, I think comes through. And so maybe that’s the last part, get yourself in situations where you can be 10, 15, 20 year relationship driven in the way you think about things. I guess that’s a part of my why. I guess, I just don’t want to do a winner, loser; I want to beat you if I play poker against you or a sport, but if we’re going to- I don’t want to win a transaction for a small business. I want to create a true win-win in that business marriage in the same way I think about building relationships in my personal life.
Seth Deutsch: That’s right. Thank you so much for being here. I really appreciate it. I know our audience will as well. This is Seth Deutsch checking out from Diners and Deals. Hope you enjoyed this and hope you learned something and get some insight. Matt, thank you so much for being here.
Matt Schachman: Thanks for having me, Seth.