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Navigating Growth and Partnership at Shore Capital | Brad Morehead

Brad Morehead is a Partner at Shore Capital, where he is responsible for Business Services investment sourcing and valuation, transaction structuring, and corporate development. He also sits on the board of three Shore healthcare companies and is a former Shore portfolio CEO. In this episode, Brad shares insights into Shore’s approach to partnership from his unique perspective.

Transcript

Introduction

Michael Burcham: Welcome to Microcap Moments, a podcast from Shore Capital Partners that highlights the stories of founders, investors, and leaders who have taken on the challenge of transforming ideas and small companies into high growth organizations. The journey of building and scaling a business takes one down many unexpected pathways.

It's a journey where we learn from our mistakes fall down often, but have the entrepreneurial grit to pick ourselves up and persevere. Within this series, we will share these stories of success and failure of the challenges and their rewards faced by those who dare to dream big. And through their lessons learned, we hope to inspire others who are on a similar journey of becoming, growing, and leading.

In this episode, I am talking to Brad Moorehead, a partner at Shore Capital. As the leader of Business Services Investing, Brad is responsible for sourcing and valuation, transaction structuring, and corporate development. Prior to becoming a partner, Brad was the CEO of Assembly Health, a Shore portfolio company.

Prior to Assembly, Brad was in the C-suite of several companies he helped launch, including CEO of Live Watch and CFO of Field Co Factory Direct. Before joining Field Co. Brad worked with a San Francisco based private equity firm and in investment banking with Goldman Sachs. Brad is originally from Huntsville, Alabama.

He played football at Indiana University. Brad enjoys coaching flag football for his children, fishing, playing golf, and anything that takes him near the water.

Brad, what was it about Shore Capital that caused you to want to join the firm?

Joining Shore

Brad Morehead: I remember the exact moment, I decided I not only could join Shore, but wanted to join Shore and it was, uh, a board meeting that Justin asked me to attend when I wasn't sure about being part of the Shore team.

He said, why don't you come to a board meeting and just see what it's like? And I went to a Shore board meeting. And I'd been to other board meetings when I worked in private equity or when I was a board member at other companies, or even when I was at Goldman Investment Banking. And all those board meetings, when times are good, things are great and everybody's happy, but when something goes wrong in those board meetings, what I found was there was a lot of finger pointing.

This board meeting I went to with Shore was different. It was a company that was a great company and was having a quarter where they had some challenges.

And right then as I was sitting at the board meeting, I expected the finger pointing to start, the blame to start. And instead what I heard was a totally, totally different moment. And it was Shore saying, did we do what we plan to do? Did we execute the way that we thought we should? And the answer was yes, yes.

Then it just didn't work out. And the question was, do we think that those were still the right things to do? And the answer was yes. And then the response, instead of being blamed, instead of being finger pointing, the response was then how do we do it again? And how do we go bigger? How do we place another bet?

Because if we made the right decision with the right analysis, then we shouldn't stop just cause the outcome at this point in time wasn't what we needed it to be. We should keep doubling down and keep placing those same bets, becasue over time, that's what leads to the right outcome. And for me as an entrepreneur, as a CEO, that's kind of how I thought about business.

And I think that's how a lot of entrepreneurs think about businesses. I don't always know what's gonna happen. The bets I'm making, they're inherently risky. That's part of the definition of being an entrepreneur. And what I heard at that moment in time, from Shore, from Justin, from that board was the closest thing I've ever heard from a private equity firm to how I think about business as an entrepreneur.

And at that moment I knew I could join Shore because these were people that thought about business in a way that I understood, in a language I spoke. I think one thing that stands out from Shore as well is how we construct our boards. So many other private equity firms, you ask them about their board. And they say, huh, what are you talking about?

Right? We have maybe one outsider on the board. We have two private equity guys and we talk about spreadsheets the whole time where you go to a public company and you ask them about their board, and it's all about governance and it's all about compliance. And look, we do focus on governance. We focus on compliance.

But Shore boards are way more about growth than just governance, and they're way more about culture than just compliance. Shore boards are filled with entrepreneurs. There are usually two entrepreneurs that know the industry or know similar industries for every finance person sitting in the room. We might have 4, 5, 6 entrepreneurs on the board who have the battle scars to show for it.

They've been through it. They've been on that entrepreneurial journey, and I think that's a big thing that sets Shore apart that most people probably don't realize is when you're sitting in that board meeting after you've partnered with or sold your business, you can be sitting there not just with finance people, but you can be sitting there with entrepreneurs that understand the importance of culture, understand the importance of growth, and know how hard it is to achieve it.

And that is something I really value and in Shore is the entrepreneur's voice is the loudest in the room in board meetings.

A True Partnership

Michael Burcham: So Brad, what you're describing is a true partnership.

Brad Morehead: Absolutely. We talk about our investments, our portfolio companies, our deals at Shore, we talk about 'em as partnerships, but I think it comes from the fact that we really view them as partnerships.

We view the transactions we work on as the foundation for future friendships based on the business partnership that we are entering. You learn more about someone and your partner in particular in challenging times than in good times. When the market was great before COVID, when I was a Shore CEO, and things were humming along, of course, everyone's patting each other on the back. Of course, everyone's high fiving.

But when COVID, hits revenue drops, you can't see patients. Doctors can't see patients. You can't build patients. I think hard times are when you really learn who your partner is and what your partner is all about. And as I went through that with Shore, I saw what Shore was all about and I saw how Shore stepped up for the team.

Even though we were facing massive challenges of the portco I was running at the time, what I heard from Shore is, let's think for the long term, let's make sure we retain employees. Let's find ways to get through this together so that we're not being short sighted. I think the quote was, this will pass and we want to be focused on the long term.

And it wasn't just saying it. But it was being a partner that truly put their money where their mouth is and that's when I feel like I really learned what Shore was all about. It wasn't just the good times, it's not just when you're acquiring businesses or hiring people or having great exits. It's when times are tough.

And what I can say as a Shore CEO, they stuck by me and what I think is one of the hardest times in the history of business and the history of private equity. And they were side by side saying, how can I help? And they were pointing thumbs saying, what can we do for you? Not pointing fingers and telling me what the problems were.

That is true partnership for me. And that's what you learn about someone in the hard times.

Michael Burcham: I would imagine that with that kind of support from Shore to you as a CEO, it actually helped you managing a team who was likely, quite afraid of what was going on in the market and even for their own livelihood at times.

Brad Morehead: Absolutely, and I think a lot of times I thought back to when Brad was a CEO on his own without a private equity firm like Shore behind him, right? When Brad was a CFO, without any kind of firm behind him. I think in those situations, I don't know what I would've done. I don't know what would've had to do, but that showcased to me the value of having a private equity firm, an entrepreneurial minded private equity firm by your side, and it allowed us to do things and be better positioned when the market came back to retain people to do the right thing for our clients that I wouldn't have been able to do on my own.

And you certainly, or I certainly wouldn't have been able to do with the wrong private equity partner.

CEO to Partner

Michael Burcham: You transitioned from the role of CEO to a partner at Shore Capital. What has been your biggest lessons learned in that transition?

Brad Morehead: As I made the transition from Shore portfolio company CEO over to Shore Partner, the biggest thing I learned is how authentic, what Shore says is with what Shore does. And a lot of times as the CEO of any company, private equity backed, venture backed, you don't know what's happening behind the curtain, behind the scenes of the private equity firms, four walls. And you might think that they're saying one thing but doing another. And in a lot of firms, they probably are.

But what I found with Shore is that when they said something, they didn't just talk the talk, but they walked the walk. They didn't just say they cared about employees or say they cared about companies or say they cared about their partner shareholders and founder sellers, they really do.

Michael Burcham: Brad became a partner at Shore Capital to establish our investment team in business services.

This is one of the first industry sectors outside of healthcare that Shore has chosen to invest in. I asked Brad to share his thoughts on how this compares to Shore's other investments.

Brad Morehead: Every sector we go into presents new opportunities, but also new challenges when we enter a new sector like business services, the great opportunity that we have is to look for patterns that we've seen in healthcare and food and beverage that we think may play out in business services in the same way.

And so those patterns, whether it's around being a serial acquirer of businesses or whether it's around the best way to integrate new systems or to build a sales team, I think we could learn a lot from other businesses where we've done it in healthcare, in food and beverage. And as I've gone through and grown and been a part of growing other businesses, what I've found is the growing pains of businesses from $5 to $10 to $50 million in revenue are very similar in a lot of ways, no matter what industry you're in.

It doesn't matter if you're in healthcare or if you're in business services or food and beverage, but the pain of hiring your first salesperson, the pain of implementing a new IT system, the pain of having to open in a new geography, it's way more similar between companies of the same size, whether they're in food and bev, business services or healthcare than it is from a company that's $10 million in revenue in healthcare, up to a billion dollars in revenue in healthcare. So those similarities in age and stage of company are much greater in many cases than the similarities of a company just because it's in the same industry as a company that's 10 or a hundred times the size of that business.

Benefits of Microcap

Michael Burcham: Shore Capital is a microcap investor. What does that mean for business services?

Brad Morehead: What I love about working in the microcap is we get to work with the entrepreneurs, the founders, the people who actually have started the business, or maybe it's second generation or third generation in some cases, but they're the people that have built that business. From my experience in building and growing businesses, growth in business is not this smooth line that just goes up and to the right, it looks more like a rollercoaster. And in fact, when you actually zoom in a little bit more to that growth line for these businesses, you find it's a step function and for one reason or another in the microcap, a lot of what we find is a business has been built to the level that that entrepreneur, founder, owner either can build it, or in a lot of cases, decides that he or she wants to build it and they might say, hey, this is good enough for me.

But in certain circumstances they say, while it's good enough for me, there's a much bigger opportunity here for my company, for my employees, for my customers, if I partner with someone that can take it up that next step or two steps in the step function of growth. And I think that's where we come in.

When a founder has a bigger vision than what they can achieve or what they want to achieve, and they want to bring on a partner to help them take it to that next level.

Michael Burcham: Microcap investing requires what we think of as a continuous learning loop of lessons that we can apply as we invest and grow. What are some of these early lessons for you in business services?

Brad Morehead: Business services, I think we've seen the importance of the founders that we partner with and that first founder, that first company, that initial partner. If they're aligned with our vision and views for the growth opportunities for that company and in that industry. And if we're aligned with their vision and their views of the growth opportunities, then I think that's where you really capture lightning in a bottle.

So looking for that fit with the entrepreneur, seller, founder, and I think that's underestimated by a lot of business owners and entrepreneurs and sellers. They look at the numbers, they look at the enterprise value, but they don't think about the fit. For me, when you're pursuing a transaction to sell your business, it's more like a marriage than a real estate transaction.

And a real estate transaction, you're done after you sell the business, right? You're out the door. You hand over the keys. You sell a car, you make the transaction, you hand over the keys. When you sell a business, it's different. It's more like a marriage. It's more like moving in together and you have to make sure that that fit is there.

And I've heard from so many sellers that say they wish they had known that going into the conversation that there's way more to it than just price or just terms. It's so much more about the fit with the party that you're selecting, but also what is your fit, and what is the alignment for your goals and your vision for what the company can become?

Building Trust

Michael Burcham: In this next segment of our discussion, I asked Brad about his thoughts on building trust and how that factors into the relationships he builds with the founders and business owners with whom he partners. He shares a quote that I thought really captures the essence of trust and business relationships.

Brad Morehead: One of my favorite quotes about trust came from a prior partner at another private equity firm when I was a really junior team member. And his, uh, quote is, we were looking at this partnership and we were talking about this deal, but it was a deal where someone said, I don't know that I trust the other side on this deal.

And this partner stood up and said, never do a deal with someone you don't trust. And that quote has just stuck with me for such a long time and I've seen it play out time and time again. And to me it just shows the importance of trust. And I really try and live by that and abide by that and think about it as a two-way street.

Never do a deal with someone you don't trust. But to your question, I also think it's important to make sure that I and others at Shore are building trust with the other side because they're gonna become our partners too. How do you build trust? I think it's like building a foundation for a house, and I think that's an appropriate analogy because you build it one brick at a time and certainly it only takes one wrecking ball to come in and demolish that foundation and knock it all down.

So you have to be careful that you stack those bricks one at a time. I think it takes time, it takes casual interactions where you're just breaking bread and maybe going out to dinner, and then more formal interactions where you continue to deliver on what you say you're going to do. One thing I even talk to my kids a lot about is do what you say and say what you do, and if you can do that time and time again, I think over time you build trust with the other side of that, cause they see that when you say something, you're actually going to execute on it.

Entrepreneurs Supporting Entrepreneurs

Michael Burcham: Shore Capital has been consistently named one of the country's most founder-friendly firms. I asked Brad why he felt that was such a strong part of Shore's brand. His answer really summarized one of the key points of difference for the organization. Entrepreneurs supporting entrepreneurs.

Brad Morehead: I think a big part of Shore's reputation as being a founder-friendly firm comes from the fact that so many of the partners at Shore have in some form or another been an entrepreneur. They've been a founder, whether it's founded a private equity firm or being a part of founding other enterprises, I've run my own business and founded my own business. I've taught entrepreneurship at Kellogg in Northwestern, and I think the ability to have been there as a founder, been there as an entrepreneur, and to empathize with the journey of an entrepreneur and of a founder goes a long way to helping us be founder friendly, because we have been there when it's tough to make payroll. We've been there when you lose a client that you didn't want to lose, or when a customer tells you that you didn't do a good enough job on one of their projects.

And so I think that for us, the ability to empathize with founders, empathize with sellers, and understand that journey has been a big part of us being recognized as a founder friendly firm.

Michael Burcham: Shore Capital has grown significantly over the past decade, and part of that growth is providing additional operating support to those who partner with us.

How has that impacted you and the business services team?

Brad Morehead: I think it's been a huge impact, not just for us, but also for our portfolio companies, our partners, because they can get better answers faster. And for me, when I was an entrepreneur, when I was a CEO when I was running a business, I could usually over time get to the right answer, but it might take me five mistakes.

It might take talking to 10 people, it might take me three months. With Shore, what I found as a CEO, as a partner, as a board member, is that the amount of resources in the network that we bring allows our portfolio companies, our partners to get better answers faster. Instead of talking to five people, we are two phone calls away from the right answer.

Anybody you want to talk to is one phone call away. The answer you need is one email away. And instead of it taking three months to get to the right answer, with Shore's resources, it takes one week. And for me as an entrepreneur and operator, we don't have a lot of advantages when we're building, growing and running small businesses.

Our biggest advantage is our ability to be fast and be nimble. And to do that you need fast, nimble resources. And I think Shore brings that to the table across the board in recruiting, in sales, in operational excellence, and in so many other areas with technology. So enhancing that one core advantage we have as entrepreneurs and small business owners and operators of being fast and being nimble is a catalyst for even better growth.

Future for Business Services

Michael Burcham: Brad, how do you see the outlook for business services investing over the next several years?

Brad Morehead: I think the outlook for business services investing is great. Business continues to get more complex. It requires greater specialization. There are greater cost pressures, there's more competition, and all of that leads business owners, business leaders of companies, big and small to need partners.

Right now, if you want to run a business, if you want to grow a business, if you want to be competitive, it takes a village. You can't do it on your own. If you want to build and grow a business, you need someone to help out with HR needs. You need someone to help out with your technology needs. You need someone to help out with your supply chain.

And now we've already made investments in those areas and we can see that from small to medium sized businesses that are asking for those services. Because you can't run a company in a vacuum. If you wanted to go hire an HR person, a technology person, or a supply chain person, they can't possibly know everything that our companies know, they can't possibly have all the resources that we have access to. So instead of hiring one person, you outsource that component of your business to another company that can give you more resources for less money with faster response time. And I think you're seeing that over and over again.

New industries continue to emerge in business services because of those reasons, and that's what allows us to continue to grow and invest in the business services space.

Michael Burcham: You know what I hear you saying is that as you build this business services portfolio, any core employer can look to your team for a variety of outsource partnerships that helps them stay focused on their primary business objective.

Without having to create expertise in all these other areas.

Brad Morehead: Absolutely. And if I think back on some of my experiences when I was a CEO when I first started, you would have an IT guy down the hall and he would plug in wires for you and he would configure your computer.

Michael Burcham: I had one of those. Yeah.

Brad Morehead: And, and he would probably know something about Microsoft and he would know something about maybe a phone system, but he wasn't an expert on cybersecurity. He wasn't an expert on payments. Now you can't have that one person doing all of these things for you. It's gotten too complicated to manage the technology.

So instead of hiring the one IT guy down the hall, you hire an IT firm and they can bring all those areas of expertise to your company. And that's happening over and over again in multiple areas of running and owning a business. And that's a benefit, that's the tailwind that we're riding with the business services fund.

Michael Burcham: It seems like also by you're doing this as their partner, they get best talent wherever that talent happens to be in the country without it having to be down the hall or in their town, right?

Brad Morehead: Absolutely. We like complexity in a sense for industries that we're looking to invest in. We like regulation in a sense. We want to find areas where we can make things simple for our clients.

We want to find industries where we can invest. And there's a founder, seller, operator, entrepreneur, who has created a solution that makes things simple for his clients in highly regulated, highly complex industries. And if we can do that, and if we can find that entrepreneur and operator, and he has a great company that's doing something a hundred times or a thousand times, a year, our goal is to help him do it a hundred thousand times a year.

And that's where we bring resources to the table to help him take it to the next level or her to take it to the next level and scale it and do it a hundred thousand times for the clients.

Advice for Business Owners

Michael Burcham: What advice would you offer any founder or business owner looking for a private equity partner?

Brad Morehead: People will come to me and say, oh, I've, I've talked to private equity before. I don't need to talk to private equity again. I want to sell to private equity, or I don't want to sell to private equity. What I've found, if you've talked to one private equity firm, as they say, you've talked to one private equity firm, there are so many different kinds of private equity.

I think our style of entrepreneurial private equity is a great fit where it's a great fit. And I think what we found is when it's not a great fit, we'll tell you, hey, someone else may be a better fit. But you have to have the conversation. You have to be able to gauge fit, you have to be able to gauge culture.

So what I would tell someone is if you think you want to pursue a transaction, you want to pursue a partnership, have a conversation with private equity, with the actual firm, you want to talk to the actual partners you're going to work with and then see if that's a fit. Because that's how you know it's not a blanket statement about private equity, it's really about that exact marriage, that exact partnership that you're getting into with those people, and that's how you gauge whether it's the right fit or not.

Michael Burcham: In the following segment, Brad speaks about the builder's mindset and how that mindset is the right match for a Shore partnership.

Brad Morehead: One thing I've found in business is that there are generally different mindsets around the type of business people that certain folks are.

There's some people that love to maintain business, they're maintainers, and there's some people that are turnaround people and they like to rebuild business. They have, they have to demolish something, so then go in and rebuild it. That's just a different mindset. And then there's others that are pure startup mindset.

They like to start from scratch. They like to start from clay, and there's others, and they're builders, right? Give them the pieces of the puzzle, give them the Legos, give them the building blocks and they will build you a masterpiece. But for the type of private equity that likes to build, for the type of founders, the type of entrepreneurs that like to build, that builder mindset is something that I've found permeates Shore, it permeates our boards. It permeates our management teams because we love to build, we love to help companies take things to the next level.

Michael Burcham: One of the areas of our conversation that most resonated with me was Brad's comment that Shore Capital has the capacity to think big, but the ability to start small.

 

His remarks here really capture the essence of the firm.

Brad Morehead: So we have the capacity to think big, but the ability to start small. If you only are allowed to invest in larger companies, that reduces the universe that you can invest in. If you're only allowed to invest in startups, it reduces the universe that you can potentially invest in.

But we get to go with companies of almost any size, and we can think big. We can think about what does a billion, what does $2 billion in revenue look like? But we can start with a company with $5 million in revenue or $10 million in revenue. And that flexibility, I think, really allows us to seize on market opportunities, market trends, and build the right company in the right way, at the right time, in a manner that really no other firm can do with the amount of resources we bring to the table.

Michael Burcham: This podcast was produced by Shore Capital Partners with story and narration by Michael Burcham. Recording and editing by Andrew Malone. Editing by Reel Audiobooks. Sound design, mixing and mastering by Mark Galup of Reel Audiobooks.

 

Special thanks to Brad Morehead for this interview.

This podcast is the Property of Shore Capital Partners, LLC. None of the content herein is investment advice, an offer of investment advisory services, nor a recommendation or offer relating to any security. See the terms of use page on the Shore Capital website for other important information.

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