Why Peter Wrote a Book on Holding Companies

Sei-Wook Kim (00:04.234) On today's episode, I'll be interviewing my co-founder Peter about his new book, The HoldCo Guide, how entrepreneurs structure and build a holding company that lasts. We'll talk about what compelled him to write the book and what he hopes readers will get from reading it. All right, Peter. First off, congratulations on writing your first book. It was really enjoyable to go through this, and it feels like what we talk about every day as we evolved from running a single business to now many businesses and with the HoldCo. Very exciting. Why don't we just start out by giving everybody an overview, maybe a 30-second overview on what the book is all about. Peter Kang (00:48.91) Yeah, thanks for letting me talk about the book. At a high level, The HoldCo Guide is a practical manual, an intro primer on holding companies — what is a holding company, what are the different structural aspects of a holding company, and most importantly, what are the mechanics that make holding companies an interesting way to think about business. I talk a lot about the concept of capital allocation — what do you do when you have profits and how do you turn that into something more productive. And then beyond that, a lot of examples of different types of holding companies, whether they're capital allocation focused, more operationally focused, or just really focused on the sector side of things. Sei-Wook Kim (01:43.502) Nice. Before we jump into the book some more, what motivated you to write it? What did you find wasn't in the market that you wanted to fulfill? Peter Kang (02:02.766) I didn't set out thinking I need to write a holdco book. It was very much an organic process. During the course of our evolution from just running a single agency to having multiple agencies and really envisioning this holdco concept for Barrel Holdings, I was sharing this online, writing about it on my blog, posting on social. Through that process, I got contacted by different agency owners, other founders, just people interested generally in this journey that we were on. I happily took those calls and shared what I could about what we were learning at the time and also traded notes with others doing something similar. Through those conversations, I started to think about, okay, maybe I should jot down some notes and aggregate some of the learnings. And then at one point, someone asked me for a list of reading materials and podcasts on the topic. When I went to compile those together, I realized they were all telling different aspects of holding companies, but nothing addressed holding companies directly. So I was like, all right, maybe this is an opportunity to synthesize my notes and understanding thus far and write something brief about holding companies. I started doing that and I thought it'd be a simple PDF or maybe a really focused blog post or LinkedIn post. It just started filling up a Google Doc, and before I knew it, it was 10,000 words, 15,000 words, 20,000 words. At that point I was like, maybe it's worth trying to get this published. That's how the book came about. Sei-Wook Kim (03:47.181) Nice. It's really cool to see all the different stories and case studies you go through. It's more of a practical application — not just the theories around holdcos, but real-life examples. You go into a lot about the types of different holding companies, and where in our conversations we don't really clearly delineate like, is it this type or that type, you break it down into specific examples. I think it'd be helpful to talk a little bit about that. We can dive into what type of holdco we are at Barrel Holdings. Peter Kang (04:33.876) Yeah, the big insight or takeaway from this book is the definition of holdco — two different major types of holdcos. One being the capital allocator holdco, and the other is what I'm calling the operational holdco. You can think of it as not two distinct buckets, but almost a spectrum of holdcos and where they might belong. On the capital allocator side, these are holding companies that are very much about making the right decision on which companies to acquire and what to do with the capital that they have from their cash flows. Berkshire Hathaway comes to mind, because what they're concerned about is taking cash that they have on hand and buying really good companies which then over a long period of time will allow them to produce more cash flow to buy more companies. They're not so concerned about rolling up their sleeves, getting in there with a business they bought, and doing things to make it better. They're already filtering for great businesses that they want to bring into the fold. Operational holdcos on the other end also look for quality companies, but they believe they have some kind of secret sauce, some kind of playbook or set of systems or support mechanisms to make companies that they bring into their ecosystem even better. A great example I mention several times in the book is Danaher, which started as a group of manufacturing businesses but has evolved to doing life sciences. They have a really structured way of improving the businesses they acquire through what they call the Danaher Business System, DBS. They come in and expect these companies to adopt these frameworks and ways, and they install leadership that adheres to this operational rigor. Through that, they're able to improve margins, raise prices, and do things that make these companies better. So you kind of see these ends. There are many companies that maybe have some operational aspects but are more capital allocator, or they might be more operational but sometimes act as capital allocators. It's not a clear bucket, but it's a helpful way to look at where you belong on that spectrum. Sei-Wook Kim (07:11.03) Yeah, and looking inwards, I feel like we almost started closer to the operational holdco end of the spectrum when we first created Barrel Holdings. We were all in the businesses — just from our history of running the businesses, we wanted to be very hands-on, have a lot of operational involvement. But as we've evolved and done more transactions, we're realizing maybe we're getting closer and closer to being capital allocators, where we're trying to find businesses that are independently successful, have a team in place, and we're more about selecting the right businesses that fit in our overall portfolio. Peter Kang (07:56.322) Yeah, it's really fun to reflect on that because I think we've ping-ponged, and where I think we sit is maybe more centered but slightly towards operational. The reason being, even though we've been pretty good about providing autonomy to our agencies to operate on a day-to-day basis, we do install certain things on the financial rigor and accountability side, and we have a very strong POV on the traits of a robust agency. Things like: you've got to have high gross margins, you've got to have really focused expertise and specialization in what you do and be able to articulate that through your marketing, you need to invest in talent. We have all these things that we've codified and repeat over and over again to our leaders. And obviously a lot of the leaders we bring into the fold are aligned with us in carrying these things out and believing in what makes for a good agency. A lot of the work we're doing on Agency Habits and the content we produce there is a reflection of a lot of the things that we talk about at the Barrel Holdings level. There is a big operational advantage that we bring to our portfolio. But at the same time, you're absolutely right — we do care a lot about the capital allocation side as well. Sei-Wook Kim (09:46.265) Yeah. That brings up another big theme that comes across in some of the best holdcos — the idea of centralization versus decentralization. What do you intentionally centralize at the holdco, and what do you deliberately try not to manage centrally? I think that's what you're talking about: there are overall themes, best practices, and standards that we set, but we're not in the businesses trying to run them, even though we have standards we want everyone to adhere to. Peter Kang (10:20.302) 100%. You and I have had so many discussions around this because there are times we're like, should we invest in a centralized outbound sales function to serve all the agencies, or do we need a much more coordinated cross-selling approach across all the agencies that is centrally housed at the holdco level. We've talked about all these things, but I think we've resisted those types of centralization. We draw the line at certain aspects of finance, and even there — the larger an agency gets in the portfolio, the more we're likely to push it towards them and decentralize. The centralized support is more for the ones that are subscale and need that. It's been a great evolution and dialogue as we've worked through this, and that's why it's been fun to see all these different companies in the book — they reside at different levels of centralization and decentralization, and it's good to learn from them. Sei-Wook Kim (11:28.981) Yeah. In the book it goes into some of the key things to centralize at the holdco — capital allocation, risk, and governance as some of the larger buckets — and then decentralization covers operations, day-to-day business decision making, and anything related to customers and employees at the company level. I think we're getting closer and closer to more of that. Cool. Another theme that I thought was pretty relevant is the idea of a sector-specific holdco. Can you talk more about what a sector-specific holdco is and any pros and cons? Peter Kang (12:16.014) Yeah, it's so funny because we talk about wanting to acquire specialized agencies and such. What I'm really talking about here is that there are specialized holdcos — and what are the advantages of being specialized as a holdco. As a concept, there are holdcos like Berkshire that are pretty agnostic about the types of businesses they buy. They have businesses ranging from insurance to energy to consumer and manufacturing, and they care more about the financial profile of these companies and less about a specific industry or sector. That's a good contrast because there are many holdcos — and I share a bunch as case studies, plus an appendix with even more examples across different industries — where being sector-specific, being a focused holdco, gives you advantages that you and I talk about with our own focus with agencies, especially in the marketing and IT space. You have operational depth. There's built-in institutional pattern matching — you recognize all the potential problems a business might have and all the levers you could pull to make it better. With that, the underwriting and M&A process gets improved, you're able to staff leadership more effectively, you're able to source deals better because you have a very defined area you're looking in and can go deeper. And there are maybe more opportunities to combine these businesses and get some kind of expansion on the multiples through that. So definitely a lot of pros. But there's also some downside. If you're really tied to a specific sector and it has tailwinds, great — you're riding that. But you can also face headwinds. You see this with real estate or energy, cyclical sectors where times might be good but can also be pretty bad. And then with a diversified holdco, you can take capital from a declining sector and allocate it into a growing sector, which offers a bit more flexibility. Sei-Wook Kim (15:01.253) Yeah, just thinking about ourselves, I feel like we're somewhere in the middle. We are specific in our types of businesses — it's mostly marketing, advertising, professional services. But industry-wise, it's very broad. There's less concentration risk from a particular industry fluctuating. We're diversified across the different areas that each of the businesses covers. Peter Kang (15:35.15) Yeah, absolutely. And if I was to pinpoint a risk or something that someone might point out for us, it's: okay, you guys are doing basically B2B services — but what if AI just completely upends the model that you're used to and rips that business model across the board? Having no diversity in the different sectors we serve might not save us then. These are conversations we've had, and when we think about it, we feel that's a lot less likely, at least over the long term that we're looking at. Sei-Wook Kim (16:21.773) Yeah, for sure. Cool. A couple more themes that I thought were really interesting were about metrics, and especially for holdcos and long-term compounding. What matters? What should holdcos focus on? Peter Kang (16:45.966) I list a few different types of metrics. The ones that jumped out to me, and that we talk about more frequently now — the first is free cash flow. What is your collection of businesses generating in the aggregate? And this is different than EBITDA. This is actual cash. This is after you pay your taxes, after you service whatever debt you might have, after whatever capex costs you might incur — very minimal on the agency side, but whatever those things are. After all that, what are the actual dollars left in the bank account for you to redeploy for something else? Free cash flow becomes a very important number because if you can convert a higher percentage of your EBITDA to free cash flow, it means you're running a pretty efficient business and you have more to compound. That's a huge one. And then there's return on incremental invested capital, ROIIC. This is really about being thoughtful about that extra dollar of your free cash flow that you're putting into something else — how is that growing? You put a dollar in to acquire an agency or fund maybe an internal expansion effort or whatever it might be. Is that returning 10% a year? 30% a year? What is that incremental return? It just makes you think differently and measure differently how you're deploying capital. The last one is turning that into a more absolute number: multiple on invested capital, MOIC. We use this a lot in our modeling of potential acquisitions. On a potential acquisition deal, you put in a million dollars — let's model out the MOIC on different scenarios, whether based on the cash flows it'll generate or a potential sale after a five-to-seven-year hold. What is the potential MOIC? If we can get to 5x or something over the next five years, we can say all right, that's a good use of our capital because that's how you compound what you have. These are helpful definitions, and in writing this book I had to get a bit more serious about these terms and the examples — and it's been helpful because we've incorporated them into our own operations. Sei-Wook Kim (19:47.44) Yeah. This is really the core anatomy of how a holdco works. If you don't have free cash flow to reinvest to grow or make more acquisitions that earn you more cash flow — that's the compounding flywheel. If you're negative on this, you start to compound in a negative direction. But if you deploy cash in the right way, you continue to grow exponentially over a long period of time. That cash conversion is so key to the whole thing, versus some of these other metrics that may look good on paper but unless they translate to actual cash, they don't really help you grow. Nice. The last couple of concepts — in chapter seven or eight, you go really nitty gritty into the ideas and themes of governance, compensation, and incentive structures. At that point in the book, people might find it a little dry or very specific. From your perspective, why did you decide to go into that depth and include that? Peter Kang (21:07.16) You're right — to the average reader, this might be new and could be pretty boring. But I was reflecting on our conversations, and so much of what we discuss revolves around governance. Governance has a lot of different components. One is: what is our risk tolerance and how should we think about that? As we've done acquisitions, we've had to take on debt, and there's this whole concept of how much debt are you comfortable with — the debt-to-EBITDA ratio. Through the research, I learned that a lot of the durable companies are disciplined about keeping it at two to two-and-a-half times outstanding debt to EBITDA, while those that have blown up went a little too aggressive and then had a small decline in their business and things blew up. Learning that and making sure we have governance rules around it — like, hey, unless we pay down more debt, let's not take on more and get out of hand with acquisitions. Those things are good to talk about. There are also other things like how you structure these companies and keep them separated so that if one runs into legal challenges, it doesn't impact everyone else. And then even more day-to-day is the governance around how cash actually flows around the holdco — when an operating company generates cash flow, how much gets kept within the opco for reinvestment, how much is put aside for taxes, how much flows up to the holdco. These are things you and I have spent so much time sketching out and writing rules for. When it came time to write this section, I was like, I need to go in depth because this is really about holdco design. Maybe governance is a boring word for it, but that's where I went. And the compensation and incentive structure piece is so key because with a holdco, you're bringing in a lot of different leaders to run different businesses within the portfolio, and you need to make sure there's alignment in both their short-term and long-term comp structure. In addition to base salary, what are the other levers you're going to pull to make sure they feel like they're growing the company adequately but also generating the cash flow that's going to be important for the holdco, and how they get rewarded as they hit certain milestones. Those are things I explore and provide examples for as well. Sei-Wook Kim (24:30.401) Yeah, I like reading this section because this is where things can get messy very quickly — if you think about how cash gets distributed among each company and if each company does it differently, you suddenly have to make sure you're doing it correctly. How you're incentivizing people may differ, which is fine, but you need to be really organized in how that all translates between bank accounts and taxes. Obviously there's a huge layer there, and you have a really in-depth section on how taxes ultimately get impacted by all these structures. That's important because when we talk about cash flow and growth for the holdco, taxes is a big bucket where a lot of expenses go. The more you can save and reinvest from there is important. Peter Kang (25:22.744) Yeah. I don't know if our listeners know this, but Sei-Wook basically works on taxes 12 months of the year across all the companies. There's some degree of tax work that needs to be done with our accountants constantly. When I was writing that section, I was pestering you to take a look at some of the drafts and give me feedback, because taxes are huge. If you structure your holdco right, part of the advantage is that you can lower some of the tax liabilities through smart planning. It's worth being very intentional with that design. Sei-Wook Kim (26:05.631) Awesome. Cool. To round things out — who's this book for? What's the audience? Is it relevant for agency owners, especially those running a single business? Who could find this valuable? Peter Kang (26:24.174) Even though it's called The HoldCo Guide, it's really an instructive book for anybody that has to think strategically about their excess profits. One of the things I mention in the book — and something you and I experienced in our time operating an agency — is that we'd always not have the best plan for what to do with profits. It'd be like, all right, do we just take distributions? Do we throw a bigger party for our team? Do we buy a lot of bourbon or something? Having a model for, hey, these are the levers to grow — how do you take today's profits and make strategic investments that will grow that profit in the future — is available to even single-entity agencies. You could take profits and do a tuck-in acquisition. If you have some debt, you could pay that down. You could grow a new service line and invest in that. But tracking it is important because then you can ask, am I getting the right return on that invested capital? It's relevant to anybody running a business. It's also helpful for investors who want a different lens on these types of businesses that exist out there. It's pretty broad, and I hope it's accessible enough — maybe not all the sections, as we mentioned, but a good amount of it. Sei-Wook Kim (28:10.42) Awesome. And I know you've learned a lot about the process of publishing and writing the book. What's been the reception so far after publishing? Peter Kang (28:23.15) It's been great. I didn't know what to expect just putting this out there. It's a self-published book — I went through a service and got a book coach to help me and all that stuff. Seeing it on Amazon is cool. It was cool to hand my dad a copy. He was very proud of that. And yeah, it's been good. I've had a lot of people reach out and say they've appreciated checking out the book. Very positive. Sei-Wook Kim (28:59.575) Very cool. And where can people buy the book? Peter Kang (29:03.042) It's available on Amazon — Kindle, paperback, hardcover. Just look up The HoldCo Guide and they'll find it there. Sei-Wook Kim (29:11.627) Awesome. Congrats again on writing and publishing the book. I hope our listeners get an opportunity to dig in and find some value. Excited to see the next book whenever it comes out. Thanks, and until next time, everyone, thanks for joining. Peter Kang (29:32.238) All right, thank you.