Expériences
“People will forget what you said, people will forget what you did, but people will never forget how you made them feel.”
– Maya Angelou
The recipe for mediocrity
As you travel to Cymbria Day this year, think about all your experiences on your way here. You arrive at the airport only to have to wait two hours on the tarmac for your flight to take off. You have a 30-minute wait at the airport coffee shop before you get your beverage. You finally get to your hotel and are refused early check-in because of an internal mix-up.
For firms to thrive in the long term, they need to have great relationships with their customers. How have all these companies lost their way? Why are so many of our experiences mediocre?
As investors have become more short-term focused, companies have followed suit. We see these examples everywhere. They take on levels of debt that will result in bankruptcy even at a small deterioration in the economic environment. They make bad acquisitions to give the appearance of growing revenue. They cut important spending to protect this year’s profits while sacrificing their future viability. These are decisions that hurt the long-term staying power of a business. No rational business owner would make these decisions, but why worry about it if you have no plans to be around for the long term.
A willingness to look long term
When we started buying private businesses, it was important for us to approach it differently than the rest of the industry. The industry is typically measured by their ability to maximize leverage and short-term profits. They are measured by the number of businesses they can acquire and how quickly they can sell to the highest bidder. The number of customers, rather than the length of the relationship, is what matters to them.
In contrast, our permanent capital is an advantage because when you truly have no end-date, decisions are made in a completely different fashion. For us, relationships are enduring and not transactional. Here are three examples:
Our financial technology business provides a mission-critical software solution for banks, credit unions and finance companies. The software is critical in helping these businesses determine the quality of their lending process, impacting their market share, costs and profitability. As a result, choosing a vendor is a multi-year project. There’s a lengthy sales and implementation process, stringent security and compliance requirements, and high ongoing customer demands. For many executives, the RFP process is a career-defining choice. The reward for a service provider who can deliver is low customer churn with an upgrade cycle measured in decades, not years.
Somewhat perversely, we have found that many of our competitors have taken advantage of the high switching costs to maximize profitability. This takes many forms, such as charging obscene amounts for trivial change requests, outsourced implementation with lengthy delays, and underinvested product built decades ago that is impossible to maintain and hard to use.
In 2020, the flavour of the month was to spend tens of millions of dollars in sales and marketing to make promises that any software company would struggle to meet. We chose to take those dollars and invest in our product and implementation capabilities with a bet that our reputation with clients would be the largest determinant of long-term success. With a growing customer reference list and a robust sales and implementation pipeline that continues to build despite a challenging economic environment, we believe that decision will pay off in the long term.The pest control industry has seen significant consolidation over the last decade. Large public companies have defined themselves by being able to consolidate the industry, pursuing scale and acquisitions at any cost. In Ontario, the last two years, we have seen multiple companies acquired before the combination is then sold to another buyer. There’s no attempt to integrate the companies, retain employees or achieve customer success. Instead, customer relationships are bought and sold without regard for the longevity of those relationships, because companies are rewarded for financial engineering rather than operating their businesses.
In this environment, we focused on a segment of the market where customers care about pest control outcomes and look to us to solve problems. Our goal of best-in-class customer service has allowed us to gain meaningful market share every single year. We have gone as far as to turn down business if we didn’t feel that we had the capacity to provide service at a high level we would be proud of, knowing that this is the best long-term decision for our clients and our business.There’s no industry where short-term decision making is more evident than in asset management. We have seen competitor after competitor focus on short-term decision making. To hit short-term asset gathering targets, they focus on selling what’s easiest to sell, not what’s in the best interest of investors. Investment managers are fired for short-term underperformance and employees turn over every few years like they’re trading playing cards. Just like our other private businesses in Cymbria, at EdgePoint every decision is made with the end investor in mind. As owners in the business, we make decisions for the long term, and we aren’t going anywhere.
Little things that go a long way
That being said, as we grow, how do we maintain a culture of best-in-class service? How do we ensure everybody across our organization(s) will go the extra mile for our clients? We have a program at EdgePoint called “Little Things” where we celebrate the top-10 Little Things done for clients – situations where we’ve gone above and beyond. For example, this year one of our relationship managers organized a group blood donation in memory of an advisor who passed away. We call them Little Things, but the reality is that our business exists because of everybody doing the Little Things to build relationships with our advisor partners. Our operating partners are implementing a similar program at both our financial technology and pest control businesses, and we’re excited to hear about their Little Things in 2023.
Phys(io) ed
We are excited about a new investment with a business that shares our values around the client experience. At the beginning of 2023, Cymbria invested in a group of physiotherapy clinics based in Alberta, with the goal of building and acquiring clinics across the rest of Canada. The physiotherapy industry is a durable and growing industry providing an important function in the healthcare system, with demonstrated effectiveness on health outcomes. The industry also measures well in its ability to reduce healthcare costs through a focus on primary care, injury prevention and rehabilitation. Despite this dynamic, we have found the largest players are focused on providing a service at the lowest possible cost and the absolute minimum outcomes. They have taken on onerous levels of debt to acquire hundreds of clinics with no attempt at integration. Many of their physiotherapists are treated like cattle despite the value and importance of the work they do.
We were introduced to the founder in 2018 by one of our advisors because he was attracted to Cymbria’s permanent capital, aversion to using debt and interest in growing the business in the right way. Throughout our conversations over the last five years, the goal has always come back to delivering the highest quality of care to all patients. The goal isn’t to be the largest physiotherapist clinic group but to maintain a quality of care for every new clinic that we can be proud of. We pride ourselves on our investment in our people – our physiotherapists are partners and owners of the business, which translates into a willingness to go the extra mile for their patients.
If you’re a physiotherapist that’s interested in partnering with a group of clinics that’s focused on delivering best-in-class patient outcomes, please reach out to anybody at EdgePoint and we can facilitate an introduction. We’re eager to take a leading-edge approach to physiotherapy across Canada.
We don’t believe in “sell-by” dates
Five years may sound like a long time to explore a partnership, but ultimately for the business owners we speak to, this is one of the most important decisions of their lives. Similarly, we’re extremely focused on finding and working with exceptional entrepreneurs who are aligned with growing their businesses for the long term. We aren’t going anywhere and will still be looking for exceptional people and great businesses to partner with 10, 15, 20 years from now. So, if you have a business and are looking for a partner – regardless of the timeframe – that sounds just like us, please reach out and we would love to chat.