Inside Private Equity's Perspective on the Transportation Industry with Daniel Perry

Kevin Carpenter: Welcome to On Air with airfreight.com. I'm the host, Kevin Carpenter, and I love to talk to the people shaping the future of logistics, technology, and business. We spend a lot of time talking about operations and supply chains on this show, but today we're going to switch it up. We're going to look at how investors look at transportation companies, what makes them scalable, and where they think the industry's headed next. So let's get into it. Dan Perry is a resource partner focused on sales excellence at Court Square Capital Partners, a private equity firm that owns the Evans Network of Companies, which is absolutely no slouch in the industry. We'll get into that. Dan works closely on the sales and marketing side. That's his focus, his expertise. He scales the sales and marketing. Thank you for joining me, Dan.

Dan Perry: Kevin, thanks for having me. It's great to be here.

Kevin Carpenter: Thank you. So right off the bat, a word that people have a love hate relationship with is private equity. I'm sure you know that sometimes it gets a bad name. So let's just address that right off the bat, for people that aren't in private equity, which is most of us. What do you actually do?

Dan Perry: Right, great question, Kevin. So I'll simplify it for everyone. We go out and we raise money from — call them limited partners, but really investors. We then take that money and we go buy companies, various sizes, various industries, and we try to then improve the company or gain value for the company, and then sell that company within a window of anywhere from four to six years, and then hopefully return investment dollars back to our investors or limited partners. Court Square in particular was founded in 1969. So we're one of the oldest private equity companies out there. We were part of Citibank until 2006, and then we divested. And we're now raising money — we're just raising our new fund called Fund Five, we just closed on that fund. That fund was $3.8 billion. And some of our investors that invest with us are CalPERS' pension system, Alabama's pension system, Harvard's endowment, the country of Chile's pension system, the country of Kazakhstan as well. So all over the globe, people come and commit capital dollars to us. We then go out and look for companies like the Evans Network of Companies. We buy that company, hopefully at a good price. We then add value to that — and I can show you how we do that. And then we sell that company and return those proceeds back to those investors. Over 47 years, we've averaged 2.4 times people's money. So Kevin, if you were to give me a dollar, I'm going to give you in total $2.4 back, or $1.4 in earnings, over the course of anywhere from four to six years.

Kevin Carpenter: Okay. And obviously leaving the company in a better spot than it was when you got involved. That's the goal. And that's what you hear about a lot. You hear a lot about a private equity company coming in, cannibalizing it, or making the business cannibalize itself, and then moving on, leaving that shell behind and moving on to something else. Obviously, Court Square is different.

Dan Perry: Right. Look, we try to be different. But at the end of the day, our goal is to make money for our investors, period. But we want to obviously leave the company in a better position. And when we sell that company to another one — I can go through some examples of why we sold companies in the past — we want to make sure that company's better and can continue whatever growth pattern they're on or culture they have. It's out of our hands at that time, but we definitely want to do that.

Kevin Carpenter: And I'm definitely not going to make you — that's all the grilling on that subject.

Dan Perry: No, sorry, Kevin, that's me. I'll do anything you want. It's all good.

Kevin Carpenter: But obviously a big part of adding value to a company is improving their sales and marketing. And that's your thing, right? So backing up a little bit — what makes a transportation company investable? What made Evans investable, attractive?

Dan Perry: Yeah, we look at not just the transportation industry — the culture of the company, what's their business model. So in a sense, Evans' business model is providing back office support for owner-operators. And we tend to focus on the middle or small markets, obviously not the enterprise or large markets. And we're really valuable to that person with five to 10 trucks who struggles with doing everything — driving, selling, dispatch, invoicing, insurance, et cetera. So for a fee, we provide that backend support. In a sense, we subcontract out that back office. And we like that market because — why? It's a services business, obviously, but we're really in there to help the companies perform. And as those companies get better, we get better too, because we charge a percentage of the revenue versus a flat fee. So we are incented to have the company grow.

Kevin Carpenter: Yeah, you're pulling in the same direction as your customer, which is always a good model. And airfreight.com is similar to that in that we are a service. We talk to people who have something that desperately needs to move, or a number of other different factors that make it critical and can't be trusted to just any provider, especially these large networks — which is what I would have guessed Evans was. So that's really interesting about what Evans does. How do you do the sales? Is that part of the service that you provide these owner operators?

Dan Perry: So we have really two sales forces at Evans. We have a sales force for agents. We go out and look for agents to partner with and contract with them wherever they're at. And agents come and go in the marketplace. As you know, it's been a little bit tough sledding for the last several years in the industry overall. It's picking back up and, thank God, greatly improved, which we're really excited about. But we look for those agents. So we have a sales team that literally goes out and says, hey, airfreight.com, would you like — if you were in our ideal customer profile, we call it an ICP — then we would try to solicit you to get you to sign up, and instead of you doing the backend, or a competitor of ours doing the backend, you'd take it with us. We also have a direct sales force that will go out to direct customers and try to get their shipping needs. And then we provide that to our agents as a value add, so that they have some business. So we give them some business along the way too. So instead of just backend, we want to try to provide some revenue for them as well.

Kevin Carpenter: Very interesting. So that's almost like 3PL services right there in a nutshell. Is that official though? Are you officially a 3PL?

Dan Perry: We are officially a 3PL, but our expertise is in drayage. That's where the company was founded, right? And that's really where we excel. We do have some other stuff too, don't get me wrong, as our customers ask us to do that, but drayage is our big, big focus.

Kevin Carpenter: And drayage is an interesting — well, it's kind of an inside baseball term from my perspective as an expedited freight agent. In plain English, those are the guys that are hauling freight from the port to the warehouse. So usually local moves, usually picking up containers, dropping the containers all day long, back and forth, short haul, right? Pretty much all short haul.

Dan Perry: 20 and 40 short hauls, right? We don't get into too many 53s, but 20 and 40 foot containers off the ship to the warehouse. That's what we do.

Kevin Carpenter: And then those drayage companies make up your customer base, in large part.

Dan Perry: Well, direct wise — but the agents that do that work make up our customer base, and we provide all that backend support for those agents. But since we know that part of the industry so well, we have a good reputation and we provide a lot of value for our customers.

Kevin Carpenter: Very interesting. Just a little more, because I'm a little curious. The agents themselves — are they a company, an MC, like a trucking company? When you say agent, that's what you mean?

Dan Perry: Correct, yes, they are. And again, we excel with the small ones. So Kevin, if you had five or 10 trucks that haul containers off the ships, you'd be an ideal customer for us, because we would take care of all that backend support for you.

Kevin Carpenter: Got it. And then in between those guys that you're working with and the actual customer, there's usually some larger size companies. And that's kind of where you guys add value, as you connect these agents with the drayage companies, basically.

Dan Perry: We do, correct. We absolutely do that as well. And then we've got some really large customers too, simply because they've grown with us. We had them when they were smaller and they've grown to be 500 to 1,000 trucks, right, or bigger. And so we then would provide value for that as well.

Kevin Carpenter: Okay, so you gave me the two flavors of sales and marketing that you guys do. On the agent side, what does that look like? And first of all, are you on both? You handle both of those aspects of sales?

Dan Perry: We do, correct. And marketing too with all of that. So for Evans, what we've done is we've really said to our team, what agents do we want to pursue? Like I mentioned, it's really an ideal customer profile. So Kevin, what we've done lately using artificial intelligence is we've gotten really specific on the criteria that make up our ideal customer profile. So it's not just the number of trucks per se that we want to prospect, but it also has other factors too. What city are they in? How much tonnage do they haul? What kind of products do they have? What shipping companies do they use? And with artificial intelligence, we can literally scrape the web for data to get that criteria, to be much more specific on who we want to call on, which improves our win rate, right? Because the lead is more qualified. And it shortens our sales cycle length and improves our average sales price as well.

Kevin Carpenter: Yeah, totally makes sense. AI is changing every business across the landscape. In your use case, it's like having inside sales agents basically. But you're giving these inside sales agents a giant haystack and saying, all right, I want you to filter based on this, this, this, and this. And by the way, these agents don't need to get up to use the restroom and they don't need to leave at night. They constantly go. They're like a human that you've assigned a job, and they're compiling these way more detailed and filtered lead lists for you guys.

Dan Perry: Then what we do is we put a program together to say, okay, Kevin, we want to earn this much revenue next year in new agents, as an example, and keep our existing agents. But I'll stick with the new agents — go for new agents with this much revenue. So what kind of budget do we need? How many people do we need to hit that revenue? Because there's only so much time in the day you can work, right? Then where do we put those people? Do we put them all in a central location? Do we put them in other places around the country? What's the biggest port for us? Like Jacksonville is a big port for us, but that's kind of saturated. So we wouldn't put somebody there — we'd have a customer service person or account manager in Jacksonville, but I'd put a new logo agent maybe in — and I think we have one in Houston, as an example. So the question is where do you put these people? Then how do you pay them? What's their job description? What quota do you put on them as well? And then what process do they use? How do they approach an agent? What are the steps they go through? How do they get that agent interested — discovery, is what we call it. How do we provide a solution for that agent as well? How do we actually negotiate terms and contracts and pricing? How do we close the agent? How do we implement the agent once it's closed? How do we have account management? So it's all process that we put into place as well, to make that even more efficient and effective.

Kevin Carpenter: Got it. And this that you're referring to right now, as of now, is a human.

Dan Perry: It's a human, correct. But we use AI to supplement that human, right?

Kevin Carpenter: Sure. An AI enhanced human. Absolutely.

Dan Perry: And then we have a technology stack as well, a CRM system to make sure we load everything in our CRM, so we have all the customer's data at our fingertips, et cetera.

Kevin Carpenter: And then another AI that's reading that CRM and generating reports.

Dan Perry: We've even gone so far, Kevin, as to have what we call early warning indicators for an agent thinking about quitting us, right?

Kevin Carpenter: Oh wow, without telling you. You're just picking up on certain metrics right off the bat.

Dan Perry: Absolutely.

Kevin Carpenter: I mean, a lot of these things that we are now freely calling artificial intelligence, they've been around — some things like that, that are just reading certain metrics. But AI really is shaking things up. There's just no getting around it. People that were kind of waiting to see if it was really going to shake things up — it is. To what extent still remains to be seen.

Dan Perry: Yeah, so what we've seen, Kevin, is artificial intelligence can help us go faster, find data faster, find key metrics faster — but then a human needs to make the decision. AI cannot do that for us, at least not yet. And so what we're doing is trying really hard to make sure our people, like I mentioned, are more efficient and effective using these metrics.

Kevin Carpenter: Yeah, that makes sense. Makes a lot of sense.

Dan Perry: So Kevin, instead of saying, hey, go call on 100 people today, I tell you, call on 20 people, but those 20 are really qualified. Let's do some preparation work for that ahead of time and get really prepped.

Kevin Carpenter: And that's a great point. Because from a sales perspective, when you have to call on a hundred people, you're not going to put that same quality forward that you will on 20 that you know are going to be good leads.

Dan Perry: Correct, exactly. That's it, Kevin. So for Evans, that's what we're doing. And then conversely for the direct sales portion, it's kind of the same thing. It's a different ideal customer, obviously. It's a different sales force. An agent is a very different sell than a direct customer. So you say different things, you look for different discovery tools, you ask different questions, but in theory it's the same kind of process.

Kevin Carpenter: Yeah, that makes a lot of sense. So for airfreight.com, we're definitely exploring and utilizing artificial intelligence and trying to be at the forefront of that. However, what makes us really special is that you're getting a human. For instance, when you call any of our 800 numbers, there's no phone menu. A human picks up.

Dan Perry: So there's no phone tree — or I like to call it a sequoia tree, because the phone tree is so long you can't get through it.

Kevin Carpenter: Exactly. So to kind of go back to what you were saying — we're inbound, inbound calls, and our marketing is geared toward catching people that are in that emergency freight situation. We're very good at that. We've been doing it for a long time. That's Dan's specialty. And I've gotten a better view of that over the last couple of years and I admire it a lot. However, we get a lot of calls from people that are not in emergency freight situations. So back to that — like when you have a hundred leads to work through, you're not going to put the same effort forth. So we are really focused on getting the quality of every call that comes in up, and educating the customer maybe, or educating our non-customers before they call us and tie up a human for even one or two minutes. Because one thing we're good at is the verbal jiu-jitsu of taking over a phone call with somebody that's not our customer and getting them off the phone. Because maybe somebody that is in an emergency freight situation is waiting on hold, waiting to talk to one of us.

Dan Perry: Yeah, so Kevin, we call that lead qualification criteria. What's your lead qualification criteria? Usually it's an acronym. There's MEDDIC, BANT, CHAMP, there's all kinds out there. But for you guys, it'd be a customized one, is my imagination. And that lead qualification criteria is going to be throughout your workforce. So anyone can call in, you're going to go through that qualification criteria quickly and either qualify that out or qualify it in. So I want to tell you a little stat, Kevin. We have one of our companies that we own in our business — not in transportation, but it has 400 sales reps and they're selling software. We recorded their calls on a technology called Gong. Doesn't really matter what it is, but we record their calls and we dumped that into ChatGPT. And all we said was, here's Kevin Carpenter, he's a quota producer. Here's Dan Perry, he's not a quota producer. Analyze these calls. So six months of recorded calls over 400 reps. Three big findings. Number one: good salespeople, quota-bearing salespeople, talk 23% of the time. Bad salespeople talk 62% of the time.

Kevin Carpenter: Wow.

Dan Perry: Second big thing — great salespeople qualify out leads in the first stage of a process 41% of the time; bad salespeople only 12% of the time. So what's happening, Kevin, is the great salespeople are saying, I don't want to spend my time working on this lead because it won't fit in our company. We won't give a good value proposition. And even if we get the customer, we might churn them.

Kevin Carpenter: Yeah. Knowing who is your customer and who is not your customer is a big part of the battle. What was the third metric?

Dan Perry: The third one was, what actually are people saying on the actual call — the great reps, quota-bearing reps, versus the poor reps? The poor reps say, Mr. Customer, I'll give you a meeting recap, or let me talk to you about my company. The great sales reps say, this is what your competition has been doing lately. Here's what the industry is doing. Here's what's happening. So they're providing insight for that person over the phone that they don't know otherwise, whereas a poor sales rep just purveys this kind of hyperbole.

Kevin Carpenter: Yeah, that's very interesting. From our side, we are sales and we're operations. That makes the sales part easier when you know the operations, when you get to be the expert friend of the customer that's calling in. And when we do get our customer on the calls, our close rate is incredibly high, because we know what we're talking about and we have all the tools to do the job. And we make it obvious to the customer that we know what we're talking about — including what their competition might be doing, although that's not an angle we have to use a lot. It's more about, what are the repercussions if this shipment does not make it on time? And that's a wide range of things. Sometimes you have a customer that's really ticked off at you and every minute it's late is a higher percentage chance they're going to drop you. Or if you have an assembly line shut down. I'm sure Dan has — if you've been around Dan too much, I'm sure he's told you how much Ford charges one of their tier one suppliers for shutting them down.

Dan Perry: It's not pretty.

Kevin Carpenter: It's not pretty. As of a couple years ago, it's like $60,000 an hour, so $1,000 a minute. And it could be higher than that too, depending on what they're shutting down.

Dan Perry: That's, Kevin — that's one of your wife's expenses.

Kevin Carpenter: My wife's very frugal actually, so I'm thankful for that.

Dan Perry: I'm kidding.

Kevin Carpenter: Definitely more than she spends. Yeah, well, that's all very interesting stuff. I won't keep you too much longer here. Are you guys looking at any other transport companies? Is that something that you're doing?

Dan Perry: All the time. Yeah. So we're actively in the market. At Court Square we're in four industries, and one of the industries is business services, where we look for transportation companies. We're actively looking at companies for sale, and there's a lot of them for sale — probably on the notes of people out there, obviously, confidentially. But we look at those companies, and then just like you, we have qualification criteria too. Can we make money at this business?

Kevin Carpenter: That's what I wanted to get into. Without giving away the secret sauce, what are some criteria?

Dan Perry: Yeah. So we have a list of 28 things that we look for. Is the business scalable? Is the industry, or a subsection of the industry, declining? Obviously that's a big one. Is there a lot of customer concentration? What I mean by customer concentration is, is the revenue of the company focused on one or two customers? We don't like that, because then if one of those two customers leaves, we lose a lot of the revenue. So we don't like that at all. There's a list of those criteria that we look for and that we adhere to. And sometimes it's difficult, because the company would be super attractive to buy — but we know over the past 47 years what works and what doesn't.

Kevin Carpenter: Yeah, that makes sense. It's one thing to take a customer, have a wide customer base, and then grow a customer to great heights and then that customer ends up being a higher percentage. But obviously you don't want too many of your eggs in one basket. That makes a lot of sense.

Dan Perry: Right. Another one is, does the business have customers under contract, or is it a bunch of handshakes? Handshakes aren't good, we want contracts. So we'll pay more money for contracts.

Kevin Carpenter: Absolutely. What about assets? Assets aren't necessarily a good thing, are they? Especially in trucking.

Dan Perry: No, that's why we purchased Evans, because they had some assets, but most of it is services. So we like services businesses too, for the most part.

Kevin Carpenter: Okay. Well, I think we gave our listeners a good look into how private equity looks at transportation. And we even got a little bit of a sales lesson here. Before I let you go, anything you want to add or promote? I appreciate you being on.

Dan Perry: Just, Kevin, thanks for having me. Airfreight.com is in my opinion the best emergency freight outfit out there. Very nimble, very humble, but a very personable experience. And I enjoy every time I have a conversation with you guys around what you're doing. And Kevin, I've got to let you and Dan know — if you're ever up for sale, let us know.

Kevin Carpenter: Well, we will let you know. I don't see that happening. But for now, thank you for being on air with airfreight.com.

Dan Perry: Thank you, Kevin.