Investing in the hospitality industry with Nate Edgerly

In this insightful episode, Nate Edgerly, CEO of Enzo Group Inc., discusses his journey from CPA at PricewaterhouseCoopers to a seasoned private equity investor and executive leader in the hospitality industry. Nate shares valuable insights on leadership, long-term investing, and what makes hospitality businesses thrive or fail.

Key Takeaways:

• Nate’s journey from CPA to CEO, highlighting his pivotal experiences in private equity and operating roles.
• Lessons learned from running a business, enhancing empathy, and effectively partnering with leadership teams.
• What separates exceptional CEOs: empathy, people-focus, and creating a supportive culture.
• Common private equity mistakes: prioritizing short-term gains over long-term strategic growth and cultural investment.
• The decision behind Enzo Group's unique approach to raising capital—democratizing access beyond institutional investors.

Notable Mentions:

• Book Recommendations:
  • Unreasonable Hospitality by Will Guidara
  • Warren Buffett’s investor letters
  • Leadership insights by Simon Sinek, Daniel Pink, John Maxwell
  • Mastery by Robert Greene
• Brands Admired:
  • Ladybird Taco, Original Chop Shop, Cava, McDonald’s, Chipotle, Golden Corral

Timestamps:

• 00:00 – Introduction to Nate Edgley
• 02:30 – Nate’s early career and transition to private equity
• 06:10 – What Nate learned from operating roles
• 10:00 – Qualities of exceptional CEOs
• 13:15 – Mistakes private equity firms make and Nate's long-term investment philosophy
• 17:20 – Enzo Group’s unique capital-raising strategy
• 21:45 – Why choose the volatile hospitality industry?
• 27:30 – Critical success factors for restaurant businesses
• 32:00 – Brands admired by Nate and reasons behind their success
• 38:00 – Nate's insights on executive search firms
• 42:00 – Influences, recommended readings, and learning resources
• 45:20 – How to connect with Nate Edgley

Raw Selection partners with Private Equity firms and their portfolio companies to secure exceptional executive talent. We focus on de-risking executive recruitment through meticulous search and selection processes, ensuring top-tier performance and long-term success.

🔗 Connect with Alex Rawlings on LinkedIn https://www.linkedin.com/in/alexrawlings/
🌐 Visit Raw Selection www.raw-selection.com

Transcript

 Welcome back to the Royal Selection Private Equity Podcast. Joining us today is Nate Edgley, CEO of Enzo Group Inc, an investment firm with a private equity lens investing in the hospitality industry. Nate, if you can give us a brief insight into your place. Sure. Yeah. So I've had a multi-decade long career. working with private investment companies. started, I'm a CPA by training. I started with PricewaterhouseCoopers back in the early 2000s when private equity and hedge funds were really starting to take hold and proliferate. I found those clients were awesome to work with and I quickly concluded that I wanted to be on that side of the table. I enjoyed the transactional work. enjoyed the, you know, looking at different businesses and business models. So I joined with a private equity group based in Raleigh called Morehead Capital, where I was the COO and CFO for about six years. And over the life of that fund, very successful experience, awesome experience working with private companies. Um, we were focused primarily on hospitality in that, in that fund. Um, and then, uh, we merged with our largest investor and the team for more had took over leadership of the large kind of holding company that, um, had a diversified portfolio of, companies. Um, and that was a very large enterprise. went from being, you know, middle market, lower middle market to like large private equity, uh, style. businesses. So I had a lot of experience working with a variety of different businesses and I loved working with executives and I had the opportunity when I was there to get involved with a lot of the businesses in leadership roles. So I actually served as chief executive for one of the businesses for a turnaround situation, which was an awesome experience. I learned a ton about, you know, what it actually means to run a business. which I think has given me a lot of insight into the challenges that, you know, executives face in, in true operating businesses on a day to day basis. We navigated a lot of crises like COVID. That was a heck of an experience. And so anyways, I've learned a ton through that process and I've really enjoyed working with people. I think of myself as much of a, as much as of an operator. as I do an investor. And I think, you know, one of the things I really enjoy is connecting with executives to sort of understand their challenges and opportunities and help them navigate, you know, what are often very difficult circumstances. anyways, that's a brief history of my time in the industry. And so, yeah, that's me in a nutshell. What did you learn from the running of a business that you now leverage as an investor? Oh yeah. I it's huge. Like my ability to relate to CEOs and leadership teams and what they have to do in a business and grow a business is so much better than what it was before. I took a lot of things for granted. Uh, you know, as an investor, uh, mean, I kind of knew, you know, kind of theoretically and intellectually that leadership was really important and, know, strategy development and, you know, execution and those sorts of things were, were critical. Um, and you wanted, you know, I knew you wanted to have the best executive you could possibly have and, and on that team, you know, but now I really feel like I understand what it takes, um, to be a really good leader. of a business and I can relate to those people a lot better. can empathize with them. can understand their challenges and I can help solve problems much, much more effectively than I could when I was young and kind of ignorant. um, you know, I've had the good fortune to work with some outstanding CEOs, uh, in my career. Um, and you know, it's hard not to learn from that kind of talent. Uh, and that's, you know, that's the advantage that it's given me. Um, I think I'm a better partner to, uh, to the business leaders and founders, especially, um, understanding their challenges. So what is it you said you've worked with some fantastic CEOs? What is it that those CEOs did that made them exceptional, fantastic, whatever buzzword we want to put on top of it? Yeah. Um, it all comes down to, to people. and how they relate to people and how they support people. You know, that's probably the deepest insight I've had into leadership of an organization that executive leadership is really about service to others. And first and foremost, the coworkers in the business. So that, you you support them and create an environment for them where they can thrive and excel and have a great experience. And that drives great results with customers. know, it's, it's, if you can, if you can train people, support people, empower them, they'll surprise you with what they can accomplish. And, you know, a lot of people talk about culture and, know, leadership establishes culture and values. And, and it's really true. It's, it's one of the most important things I've seen in business and the great leaders. are incredibly empathic, service minded, and support their people. What's one of the mistakes that you see either private equity firms or portfolio companies making and what would you suggest to correct them? know, private equity, I have deep respect for private equity. mean, it's part of my DNA and, you know, traditional private equity is designed, engineered, tooled to do some very specific things and everything from the metrics that are applied to traditional private equity, IRR-based metrics, the short-term hold periods, relatively short-term hold periods, are designed to achieve a very specific outcome. I wouldn't say it's a mistake, because they're good at what they do, and they... drive financial results for kind of passive alternative investment investors. But philosophically, what I've learned over the years is the businesses that I personally enjoy working with and the best financial outcomes are derived from a long-term perspective. and not a short-term earnings rally and a lot of financial engineering. Many of those things are cyclical and that's why private equity has vintage funds, right? Like there's the Fund One, Fund Two, and they're associated with particular years and the performance of those funds is highly correlated with the economic cycles and the capital flows that occur during those windows. You know, they're subject to the vicissitudes of the marketplace in contrast with something that has a longer term perspective and kind of not a situation that's not a forced sale situation. business leaders are able to make good long-term investments in the business, which can build a stronger, less risky business. That's more profitable over the long run. And I, and you know, my experience has been that. that the best time to sell a company, I never like a forced sale that's timeline driven. That's a, you know, you can only achieve a certain desired result in the context of a forced transaction. I really like to wait for when the market and the capital washes through a particular industry or business model and Mr. Tavaro from Buffett, you know, presents an irrational valuation. And that's the point at which you sit down with your partners and you say, Hey, maybe now is the right time to, to sell this business. And if you, if you're opportunistic, if, if you, if you aren't hemmed in by a particular timeframe and you have the ability to be opportunistic, I think you generate much better results over the longterm and you can have a much stronger, more profitable, uh, durable business, um, with oftentimes much happier leadership and a stronger culture in the business, which I think is a real strategic asset. mean, I'm one of those believers in culture strategy, and I think it's a differentiator. And private equity doesn't really have an opportunity to invest in culture. They bring strong transactional leaders into the fold, and those are incredibly valuable executives. But they know what they're there to do, right? They're there for a short period of time, and they need to get really big time results in that window and they're gonna take the steps necessary, whether they're the right long-term steps is really less of a concern. So, yeah, so for that reason, I'm biased to structures that afford us the flexibility and investors the flexibility to manage those different variables. more effectively. So I suppose then there's all sorts of different elements that will come that will be benefits and drawbacks of that. One of which is your, I'd like to dive into the kind of capital raise process. We go on your website, it's not typical from a private equity firm. You know, there's lots of cool opportunities to raise capital, but this time targeted on individual investors rather than institutional. Is the leading factor because of the need for longer term hold periods, or what is it that made you choose that method? it was a couple of things. Definitely, so we chose a structure that would give us the flexibility to build a family of businesses for the long run. We have a lot of different options for how we want to ultimately monetize those investments. It could turn out that, that it becomes a really strong portfolio of companies that's greater than the sum of its parts. And that company as a holding company is actually the right vehicle to do something like a public offering or, uh, you know, there are a bunch of different options. I could go through a long list of different options, but it gives us a lot of flexibility to do the right thing, build the right culture, make the right types of partnerships. Um, over time and importantly, know, historically alternative investments had been in private equity, you know, hedge funds, what have you had been the domain of, of an exclusive network of kind of, you know, people who are in the know, right? If you've got your wealth management at Morgan Stanley, they're going to bring opportunities to you or Goldman Sachs or whatever. You have to have a certain net worth. you know, that's often times in, you know, eight digits or more. Um, you know, one of our goals is, know, we have those relationships and we're going to leverage those relationships to raise capital. But, know, philosophically, we really liked the idea of democratizing a little bit, uh, you know, the access to the sort of expertise and private markets, um, investing, uh, that traditionally has been reserved for, you know, kind of ultra high net worth, I'd call it, investors. And so, you know, that's a big motivation for us. You know, like I would love to create an investment vehicle that gives my mom and people like my mom and, know, you know, who aren't sophisticated, you know, high net worth people access to what we do well and You know, so that gives us a meaningful sense of purpose. So. Sorry to interrupt. Just a quick mention of a long-standing partnership with Grata. As you all probably know, the private equity scene is constantly evolving and deal flow is moving now to proprietary and data-driven processes. Grata provides you with the data and information of over 7 million private companies. So if you're looking to improve your proprietary deal flow, and improve the data access and reach out to Grata today. Now back to the podcast. You guys chose the hospitality industry, which in my eyes is renowned for everything like restaurants and obviously other areas. But I know you've got a big background in restaurants, lots of turnover, lots of kind of boom and bust, experience related changes. What made you choose such what appears to me to be such a volatile industry? Yeah. So, um, I have, you know, like I mentioned earlier, I've had the opportunity to work with some really awesome brands. Um, and, uh, I've seen what they do well and I've really come to understand the critical success factors for those businesses. The reputation that the hospitality and specifically restaurant industries have, um, is largely a function of, of. the accessibility of those, of that industry, right? You get a lot of people starting businesses. It's very easy to start a restaurant. It's very hard to scale and operate a restaurant company profitably. That takes a very different skill set from being able to cook and make people happy when they come in the four walls of the restaurant. Small restaurant businesses, encounter a lot of challenges and risks that larger restaurant businesses don't. Some of its portfolio effect, idiosyncratic risks are more dangerous to small businesses, single unit operators, stuff like that. So that's what really drives a lot of the statistics that you hear about. Oh, it's a high failure rate, et cetera, et cetera. But going back to the original idea, with my experience with this industry, I believe, I hope, I think I have really come to understand what differentiates and, you know, great from good or adequate or mediocre. And, uh, I understand how to scale restaurant businesses. It's, it's not easy because they don't have a lot of extra profit to invest in overhead and building out, you know, an enormous team, you know, to just blow out and build a ton of units all over the place. You know, it, it, takes a very careful, deliberate growth strategy that's appropriate for that particular brand to, to execute sensible growth. the biggest issue that I see with growing restaurant businesses is they, their appetite for growth gets ahead of their ability to manage people. mentioned turnover. Um, that is a huge problem in the restaurant industry. mean, you know, it's very common to see over a hundred percent turnover, you know, at the, in the front lines of the restaurant business. Um, You know, one of the core areas of investment that I encourage, uh, hospitality is restaurant businesses to, to make is in the people systems and processes. How do you support your people? How do you train your people? How do you give them the tools they need to execute their job? Well, earn well and support the customer experience. If you can figure out that piece of equation and you lead with that in growth. it massively de-risks restaurant growth. and so, but so many restaurant businesses, they go out and they want to take down a bunch of real estate and they want to build units and they have expertise in these sorts of areas. They want to diversify geography. They want to, you know, and those are all great goals, but they, they, they aren't investing in the people piece of the equation and you can't get ahead of the people piece of the equation. That's the the bottom line. um, hopefully that answers the question. I could talk about restaurant business, you know, indefinitely. I love the business. It's, it's near and dear to my heart because of it is so accessible and the opportunities for upward mobility are, are huge. You can go from working in a dish room and if you have a good work ethic and a good judgment, good hit on your shoulders, you can eventually operate your own unit or transition to corporate or in a franchise system even become your become an entrepreneur and earn just a tremendous living doing that and and the restaurant business affords people that opportunity and I and I view that as kind of like one of the core objectives of a restaurant business is to create that type of opportunity because it supports growth if you can do that the growth will come provided you have a viable concept so the Reminds me of a book actually, Unreasonable Hospitality, which I'm going to guess you read being in your industry, Eleven Madison Park. what I've done with my executive search business is look outside of executive search because you just end up getting stuck doing what your competition does, what XYZ does and just end up being similar. You know, how many firms have tried to copy the McKinsey and the BCG way of consulting. And we've looked at those types of businesses, we've looked at hospitality businesses, but that was a big, big advocate for me of really understanding customer service, customer experience and how to go further. What are some of the restaurant brands that you admire and why you mentioned that people element, but what specifically makes you admire them and why you think they've been around in success of so long? Yeah. So, so before I... at some point I'd like to circle back to executive search. I've worked with a lot of executive search firms and, uh, you know, I, I, first of all, I love Will Godara and unreasonable hospitality. Um, it's a fantastic book. It's a fun read and he's a great thinker about service leadership and, and the customer experience. Um, I actually recommend that book to a lot of restaurant companies that I get involved with. you know, like to help them understand what's possible and sort of team leadership and stuff like that. So great book. And it's applicable to so many different industries. Restaurant companies I admire, you know, I like a lot of different concepts for different reasons. Some of them are small concepts that are doing some things very different that I think are very uh, kind of next generation of hospitality. Um, there's a concept in, uh, Nashville called Ladybird Taco that I think is, uh, doing some awesome stuff with people. Um, and you know, relating to multiple generations of customers in a really effective way with a sense of humor and, uh, empathy. And, um, it's just a very warm and inviting, uh, concept. Um, I have huge respect for, uh, the original chop shop. The leadership there is, uh, really seems to understand how to scale a restaurant business. Um, you know, I love Kava. I've always loved Kava. I knew Kava when they had five units in Washington, DC. Um, and I've admired that brand for, you know, going on a decade now. Um, they're, uh, they're delivering an awesome high quality food experience in a very accessible way. and, uh, I think they're doing something, bringing something really new to, culinary in the fast casual context. Um, I respect a lot of larger restaurant chains for what they do well. mean, you know, McDonald's I think is an awesome business. Um, I think, um, you know, the longevity they've had, I mean, they clearly understand how to execute their business model and Um, you know, so many people have started their careers at McDonald's. mean, it's really like a, you know, they've created opportunity for so many people. mean, I really admire, uh, what they've done. Um, know, Chipotle obviously is an awesome concept. Um, they've had some hiccups along the way, but the brand management is, you know, especially in the early years, uh, was just extraordinary. Um, they, they really defined a new space. with Fast Casual, them and Panera. And, you know, it led to sort of a renaissance for the restaurant industry. So you got to respect that leadership and that vision. Yeah, oh, I couldn't not mention Golden Corral. I had the opportunity to work with Golden Corral very closely and The CEO there is probably the finest CEO of any hospitality business in America. And it's a great culture and what they deliver to their customers is an extraordinary value. It's the best value in the restaurant business hands down without exception. And what they're doing to feed people on special events and stuff like that, what they do, nobody else can do what they do. And they're the best, really wonderful people. Those are brands that I admire. you know, there, there are lots of others. Um, uh, but yeah, those are, those are some of them. You mentioned circling back to executive search might be a bit a little bit, uh, specialist podcast for me here, but what's your, what would you take and what was your insights on that? Oh, you know, I've worked with a lot of executive search firms, uh, over the years and a high quality executive search firm is worth its weight in gold. Um, You know, I have found that along the lines of what you were saying about hospitality, know, executive search firms that really take care of the executives and are very sensitive to their needs and, really the best, the best executive search firms I've worked with have really understood my business and what, what I really need. And sometimes given their experience, they can bring a lot to the table in terms of ideas for what you're looking for. And that's hugely valuable in the process because sometimes you don't know what you don't know, right? And, you know, but spending the time to really understand the business, understand what you're looking for in leadership, not just from, you know, has accomplished demonstrated track record of X, Y, and Z like that's hugely important, but really who would be a good fit for the ethos of the business and understanding, you know, people who'll take the time to understand the ethos of the business and then understand the candidates that they're working with to create a really successful match. mean, that's, and everybody wins when you have that kind of successful match. And I am, you know, I've got a pretty extensive network and hospitality, um, but I still go to executive. search because I think it de-risks the process a lot. I just had some good experiences with executive search, especially the ones that listen and really want to understand the business. What are your influences, Nate? What do you watch, read, listen to, do recommend to others check out? Oh yeah. So, so I'm a huge, I mean, so I, you know, like so many people, have received a full blown education from Warren Buffett. mean, I've read basically everything the guy's ever written. Um, and, uh, you know, I think the way he thinks about businesses and business ownership is about his sound. as it gets. mean, reading his investor letters, you you can buy the compendium of all of his investor letters and it's just awesome. Awesome read. It's like a, you know, an MBA, um, in a, you know, in a nutshell, um, you know, I really, I really enjoy leadership, uh, work and kind of organizational psychology work. So a lot of popular writers, know, Daniel Pink, um, Simon Sinek, who else? There's just a, there's a handful. I'm blanking on all the authors that I read. I'm terrible with the, with the author's names, but. You know, those sorts of books and books on servant leadership, John, John Maxwell's leadership books, I think are really, really great. Um, you know, I enjoy, uh, uh, Robert Green's books, not so much the laws of power, but more of the, wrote a book called mastery, which I think is an excellent book that I wish I'd read when I was 20 years old. Um, that, uh, kind of spells out. how to pursue satisfaction and greatness in your chosen field. There's a guy named Mahaya Chingsent Mahaya who talks about flow. He wrote a book on flow. I think it's really important to understand that in terms of working with teams and creating great work environments. Yeah, I'm an avid reader. Like I just devour, you know, everything. mean, a lot of psychology, a lot of psychology is, you know, is interesting to me. So. Yeah, excellent. And if anybody wishes to reach out to you, how best do they get in touch with you, Our website at enzogroupinc.com or can reach us through the Blystone and Donaldson website. the sponsor of Enzo. That's a great firm in Charlotte. Those are two great touch points. honestly, mean, any listener can just email me anytime and I will happily answer. So I love talking about this stuff and I love engaging with interested, interesting people. Perfect. Well, thank you very much for... coming on the podcast, Nate. You've been great value and we touched some hella topics today. So thank you very much for sharing everything you have done. Yeah, no, thank you for having me, Alex. I really appreciate it. Excellent. So thank you very much for all our listeners for yet again tuning into the Private Equity Podcast. Till the next time, keep smashing it and thank you very much for listening.