#26 Brandon Wolfe (Jordan Partners) on Why Freight Brokerage Is America's Most Underestimated Business

Transcribed from the recording. Speaker labels are approximate; light cleanup applied.

Jesse (00:00): All right, welcome everyone to another episode of the Freight Show. Brandon Wolfe, it's great to have you on. I'm excited for this conversation.

Brandon (00:07): Great to be here. I'm excited too.

Jesse (00:10): So Brandon, Jordan Partners, private equity fund, I'll let you sort of tell the story, invests a lot in supply chain and logistics. Maybe start by telling us a little bit about the fund, and then I'm curious about your sector focus and how you guys came to be interested in investing in supply chain. What's the thesis behind it?

Brandon (00:37): Sure. So Jordan Partners is based in Raleigh, North Carolina. We are a lower middle market private equity firm. We aim to be the first institutional capital into a company that's growing, bootstrapped, unlevered. So that's a key thing. With private equity, sometimes leverage debt is driving the return or not. We're usually coming in when companies are less than 10 million of EBITDA or still reasonably small, often doing a buy-and-build strategy where you might have a platform with a couple of tuck-ins. And as a result of that, we'd much rather have growth and margin expansion drive the returns and then get the business to a scale where we can consider a judicious amount of leverage. So that's fundamentally the model. Everything we do is software and services. Two years ago, everybody told us we should only do software, and now everybody tells us we should not do software. But in reality, that's just an example of how most investors allow themselves to be yo-yoed. We're probably going to be mostly services over time. Right now we're a hundred percent services, and that's mostly a call on valuations in the markets we've seen. Now, we're not playing in the software companies that are changing the world per se. That's a whole different example, like AI or what you guys are building. But for where we've been, we've just really focused on services, including a freight brokerage, which we'll get to. So how did we settle on supply chain along with one or two other verticals? At the end of the day, when you think about what we're doing, we're trying to make microeconomic and management team bets. We're not making market bets for what we do. So we've actually tried to focus on inherently good business models that are in incredibly slow-to-change industries. And for all the disruption that's happening in supply chain, it is a relatively slow-to-change industry compared to others. And that largely comes from being mission critical, being often highly regulated, being a cost center, and being the kind of place where you may or may not get a promotion if things go well, but you're definitely going to be in trouble if things go poorly. And those are the kind of end markets we like to sell into because five years from now we can't predict the future, but we feel like there's a narrower band of what we're investing in at that point. So then we can actually make the bet on the business and the people.

Jesse (02:36): So when you say a microeconomic bet, you mean you are not trying to predict the shape of moves of markets. You want durability there. And so you're looking for stuff where the pace of change is going to be slower, so then you can really evaluate the business on its merits, its business model, and its durability.

Brandon (02:55): Right. There's never a moment where you're like, I've got to get in X and Y and Z type industry. It's a here's the P&L, here's the cash flow statement, these are the unit economics of the company, this is why it's sustainable, this is why it's going to compound. At the end of the day, we'll make six to eight investments every three to four years. So you're really tied in with these companies and teams, and that's fundamentally what we're doing.

Jesse (03:18): And so supply chain is one, and then tell me about the other two that you guys focus on.

Brandon (03:25): Sure. So a lot in financial services, it's mostly property and casualty insurance services. The first sector I ever picked up was payments, and we can talk about this, but payments, even in the 15 years I've been doing it, has become, if I were just going to be investing only in payments, there'd be a much smaller universe now than when I started my career. So financial services, more P&C insurance, and compliance. And what we like about compliance is it straddles both of those. I mean, think about what's required for a supply chain firm or for a financial services firm. The compliance buyers in both wind up looking very similar. So supply chain, financial services, and compliance.

Jesse (04:09): And are you a typical five-to-ten-year hold period model?

Brandon (04:09): Yeah, this is a typical model because at the end of the day, the job of a fund is interesting. You have savers over here and you have people who have productive uses for that savings, right? And you have to absolutely be a good partner for both sides. And it's really hard to go to someone with their savings and be like, trust me, I'm a genius, you'll never get your money back. I wouldn't give that person money, right? But the thing that's interesting about the five-to-ten-year model, and this is happening in private equity in general, every cycle, every generation, the industry gets more efficient. It gets more institutional. There are a deep bench of people out there who would encourage you to never sell a good business. And so you've seen situations where hold periods have gotten longer for certain assets, but fundamentally our job is to be a great partner to companies and a great partner to our investors. And that requires returning capital too. So five to ten years, and sometimes it might be less than five. It just depends what's right for the company.

Jesse (05:05): And I've seen a number of instances, because it is also true, when you get a good business and the alignment of you got the market right and the business model right and the team right and everything's compounding, that's such a hard thing to get as an investor. And so in my prior fund I've seen a number of instances where they'll trade it through and the GPs will roll and then they'll bring in new LPs and continue to run and operate the businesses. But that's what often happens with some of these great companies, right, is that they'll change hands a few times over the course of their history because they just continue to compound.

Brandon (05:49): Yeah. And there's no perfect answer for it. The philosophical answer is kind of interesting. You know, Warren Buffett of Berkshire put out this letter in 2022 where he basically said if you strip out, I believe it was about a dozen investments over his 56-year career, he'd be so-so. And that dozen investments is kind of one every five years. That being said, he has an insurance company, he has permanent capital, you can do that. Fundamentally, if your partners expect liquidity, you have to get them liquidity. It's just what you do.

Jesse (06:18): And so the sector thesis for supply chain is really that it is an industry that is slow to move because the ultimate buyers at shippers are generally quite risk averse. It is a cost center. There's also just a lot of physical world stuff that needs to shift and change. As much as technology can move the needle, it is physical product moving as well. So that makes sense. So then as you think about it, is it Sage that you own in that category, or are there other supply chain businesses that you guys own or invest in as well?

Brandon (06:57): Yeah. Sage Freight, which is a brokerage out of suburban Nashville. That's our first investment in supply chain. There are a lot of things we're looking at. We're looking at anything from software services that sells into railroads or transportation, like trucking specifically. So there's a wide gamut there, but Sage is the investment we've made.

Jesse (07:15): Awesome. And tell me about how you think about evaluating a brokerage P&L. So it sounds like you're generally excited about the category, but there's a bunch of different flavors of brokerage. So I'm curious as an investor, there are a lot of folks that are customers of mine, some of them are acquisitive themselves and so they're trying to buy and roll up brokerages, some of them have aspirations to sell in the future. And I'm curious to understand from your vantage point, how do you evaluate a freight broker or an investment in brokerage, because there are a lot of different models and P&Ls can look very different. Maybe take me through the high-level buckets and then we can dive a little deeper into the pieces.

Brandon (08:04): Sure. So maybe I'll start with why we even like freight brokerage. Candidly, to us, and I hope this is positive for the audience out there, because sometimes it can feel like a slog doing the job, we really think it's one of the most underestimated business models in the country. And the reason for that is a lot of the best companies get to stay private. And as a result of that, you don't necessarily get the visibility into the P&L unless you're actually talking to that company. So one of the things that makes it a great business and why so many companies get to stay private is it is incredibly high return on capital. The dollar in should produce more than a dollar over a normal cycle pretty regularly. And you've seen this from the number two player who's private on down. And the net result of that means, all right, so you go to look at the P&L, it's a little bit wonky for brokerage compared to some other industries. And this is an accounting thing, and this is where I don't want people's eyes to glaze over, but the...

Jesse (08:54): No, it's okay, because I'm really curious. So yeah.

Brandon (08:58): Okay. So it's funny. Accounting is the language of business, right? And what is revenue is always up for debate. And so in brokerage, you have to book the entire transaction as your revenue, even though most of that revenue is passed through, right? And so as a net result of that, it means your gross margin will often be kind of ten to twenty percent plus or minus. And there's a lot of people who'd look at that and be, my God, that's a low gross margin, therefore it's an inferior business. But gross margin is just a function of whatever the accounting rules are. So that net revenue number of 10 to 20% gross margin, that's really kind of your real revenue. That's what you're actually earning. And this isn't totally unique to freight brokerage. Back to my comment about payments being the first industry I picked up, there's a lot of payments businesses with a lot of pass-through revenue. So if you look at the business, you say, okay, well, it's 10 to 20% gross margin, three to eight percent-plus EBITDA margin, that's a low margin business. But really, that three to eight percent EBITDA is on that ten to twenty percent.

Jesse (09:52): It's not thirty days. Payments is like this, right?

Brandon (09:57): Yeah, I mean from C.H. Robinson on down, this is a twenty percent-plus type return on capital business if you're doing it right.

Jesse (10:03): Yeah. So can you take me through, I obviously understand return on capital, but take me through how you think about that equation. What are the dollars that you're putting in and where are they going to? There's obviously working capital, but take me through how you think about the return on capital. Do the maths for me.

Brandon (10:26): Yeah. So the return on capital for us is really going to be net income relative to your gross margin. And the reason for net income for us is we're very much return on equity and net income driven investors. I think EBITDA is the number that everybody uses in private equity, but there's a lot of games that can be played with EBITDA. Some business models you have a lot of depreciation and amortization, in which case EBITDA is maybe not going to be that helpful. That's not totally true for brokerage, although it might be true as we do more automation if it's being capitalized. Brokerage can have a fair amount of interest depending on how the business is actually financed. So for us it's almost thinking about, okay, well if you're a two to four percent net margin on a ten to twenty percent gross margin, that gives us a feel for what your return on capital potentially could be. And to be fair, return on capital is one of these super squishy numbers. It's not a defined number. But what you're really trying to look for, and by the way it's lumpy, so year to year it's never smooth and perfect unless you're playing accounting games, but if you're looking at a number that gets you north of twenty percent regularly and sometimes much higher than that, you've got a business that could be really interesting.

Jesse (11:33): Yeah. And they are relatively, when you think about what is required to put in place to get that return, you can start a brokerage with some relationships and a phone, so you're not having to throw down on a bunch of trucks. And so on the investment side of it, I'm curious how you, because whenever I think about the gap between EBITDA and net income, the big one is interest costs and how you finance the float, because that can be super material in brokerage, right? Especially if you're selling to big shippers where the take rate is maybe sometimes even closer to the ten percent and you're pushing a ton of volume, that can be a really good business, but depending on how expensive your cost of capital is to fund the working cap, I think it can change the equation pretty materially, right?

Brandon (12:37): Right. No, it can be. And that's why it's so important for us to think on a net income basis just as a sanity check. We might talk to other firms or sellers or buyers in terms of EBITDA because that's just the parlance of private equity for better or worse. But you're absolutely right. Now, if I take the other side of the equation and say why EBITDA is still a fair metric, even though your interest could vary based on factoring or not, at the end of the day, everybody can work their way up to being an ABL in theory, right? So if you get big enough, you can outgrow this rate of factoring and get to a place where either because you sell to a strategic, and this is the math that a strategic would make if they were looking at your brokerage to acquire, you would say, okay, well, they have that level of interest because they are subscale. They come onto my platform, I can have them use my ABL or my other factoring available, and those interest costs go away. So there's a side of me that's almost more sympathetic to the interest argument in brokerage than I am in some other industries just because it goes away with scale. It just gets better.

Jesse (13:36): And interesting. It just gets better because your creditworthiness improves, is that largely it?

Brandon (13:44): Yeah, you've got more options, you've got more places you can go. Cost of capital from different financing providers goes down.

Jesse (13:48): What is the delta? If you're subscale versus very large, if you think about it as a percent of the invoice, how would you think of what the delta is that someone could see?

Brandon (14:04): I mean, everyone's going to be different, right? But it should be hundreds of basis points. So whether the number's two percent or three percent or four percent, you're not talking about like ten basis points on the margin. And then of course that's on your entire outstanding balance. So it starts to be very, very material. It's the kind of thing that even for a small group it's hundreds of thousands of dollars and for almost any group it's going to be millions of dollars. It's just a matter of how many millions.

Jesse (14:29): So when you're investing, you have this gut check on net income because it gives you a sense of whether the business is working essentially, even in its current form. How much will you underwrite? Sounds like a business where the thesis is, well, that's fine, because maybe if we exit it in the future, we'll be able to grow out of the low margins. When you're evaluating you'll understand the operating business and then also how that interest slug could change over time.

Brandon (15:07): Yeah, I think for us the margins are a function of accounting rules, not business quality, but the return on capital is a function of business quality. And in the beginning of my career, a long time ago now, I was doing public and private equities. And what I always loved about public equities was that there was an analytical rigor that was just off the charts because you're given limited information, even though it's from some of the best businesses on the planet, and you've got to just figure it out, right? It's almost like a puzzle. And you can't outsource it to consultants because they don't have any better information than you do. Whereas in private equity, it feels like you just give the job to a consultant and be like, all right, I'll be at the beach, come back and tell me what I'm supposed to do. We don't do that, but some firms do. So what I came to appreciate from looking at so many different companies in the public market is that the P&L is just a function of rules they have to follow. The return on capital is what you really have to dig into, which is again why we really think brokerage is an incredibly good business that's underrated, and it's the margin structure that's one of the things that doesn't make people appreciate it enough.

Jesse (16:08): Yeah, it's super interesting. If you play it right, they're incredibly cash generative businesses. And really the main investment is in people and technology. And so one of the things that can be challenging is the volatility, right? Because while volumes in freight move up and down, they move up and down much less than rates do. And so throughout the cycle, it can be quite challenging, right? The last four years have been hard in brokerage. And I'm curious how you think about that as an investor. How do you price that in? Do you see that as a feature, not a bug? Is that one of the downsides? What are the difficulties?

Brandon (17:03): Yeah, it's the number one thing you have to get comfortable with, for sure. So the one positive though is that there is a floor to pricing. And I don't think this has been talked about enough for the past few years, the downturn lasted so long, but it just bumped along a floor. And the reason that floor is interesting is that there does come a point where if you're an independent truck driver, you just leave the market. You might go to a different job, you might do something else. But there's a price at which the cost of my time and my fuel and my operations and maintenance, I'm just leaving the market. And there's a lot of industries that have variable pricing where we just wouldn't even look. And that's because I can't tell you where the floor is. But as an investor, it can be a really exciting time to invest in this market, as we did, when you're already on the floor. And I'm not someone who's trying to be too cute because the whole cycle went on way longer than I ever thought it would have. But at the same time, the floor is the thing that I think can give you as an investor or an operator some comfort. So if I'm an investor, I'm definitely not trying to buy when things are obviously rip-roaring. I'm looking for a time where it's approaching that floor, because like you said, volumes continue to grow, you add price on top. If I'm an operator, and this is something that I've seen some people do really, really well, you keep your foot on the gas through the downturns because everybody is trying to cut corners and save costs, but that's usually where you can hire the best people, make the best investments in automation or otherwise. And then as the cycle turns you might take your foot off the gas to let the operating leverage in the business flow through and the profits actually start to accumulate. So I think the cycle is something you have to get comfortable with. It's also why I am more averse to using debt in this market than most, just because you can't predict that piece of it. But if you have a business that's growing volumes sustainably, if you're as an investor getting involved when you're near the floor pricing and you have a great management team, that can be a home run. It's like buying the equity of a coiled spring, so to speak.

Jesse (19:01): A coiled spring. Yeah, that's super interesting. How did you, how do you think about finding what the floor is? Are you building that up from the cost of fuel and the cost of an asset and the cost of somebody's time and then adding a slim margin or nothing on it and saying, hey, this is about as low as we can get here?

Brandon (19:21): Well, it's interesting. C.H. Robinson puts out pretty good data on this, in their little monthly reports. And the thing that's interesting is those reports haven't really adjusted, I think, for all the inflation we've seen. We've just lived through forty percent inflation, plus or minus, depending on what we're talking about, from the COVID times. So that floor in their materials has been kind of flattish. And I'm pretty confident the floor is somewhere higher than it actually is in the materials. But it comes down to really what's the cost per mile. That's what it fundamentally comes down to. Some educated guess on a person's labor across America, because the best parts of this market aren't in the major cities, they're kind of the heartland, cost of fuel, things like that.

Jesse (19:57): Yeah, that's really interesting. And so then if you can get comfortable with that, and so then when you're evaluating a business, are you evaluating its ability to operate against that floor? Because when prices get that low, I know there's a lot of brokers that have struggled to survive through that. So then how do you use that lens to evaluate a brokerage?

Brandon (20:26): So I'm not usually thinking about the floor for that microeconomic bet. That's just kind of saying, okay, well, I'm not at the highs right now. The microeconomic bet is a function of what's your business mix. So the types of clients you have. I really favor folks, and Sage fits this to a T, that sell into end markets with very stable volumes, stable compounding type volumes. Because that takes that risk off your plate so that you're not having to worry about the volatility. So the business mix by client. The business mix by customer concentration. This is a market where it's very easy to have an outsized customer, which is not the end of the world, but it can make it very difficult for you to sell your business and certainly difficult to bring in capital. To use your example of the person who starts with the telephone and a few relationships, that usually is, I've got one good relationship, they're 50, 80% of my business. So business mix by end market, business mix by customer diversification. And gross margin is an important metric, not because it's the right number, it just reinforces what you're already seeing, which is if you're selling to enterprise, you could have great customers, which would have a lower margin. If you're selling to mid-market, you're going to have a much higher margin in general. And the same way you want to blend spot and contractual, you're going to want to blend enterprise and mid-market for the same reasons. And you get to a place where the companies we're looking at are probably going to do 100 to 500 million in volume. So then ten to twenty or so in gross margin. In general, those are the groups where you're going to look business mix quality wise like that.

Jesse (22:07): Yeah. And so what are the end markets that tend to have more stable volumes? What are the ones that you guys would avoid, and what are the ones where they are stable?

Brandon (22:20): Yeah, so I really like consumer packaged goods, things that are consumer staples. And that being said, there's a lot of really interesting stuff going on right now like heavy haul, around everything that's happening with data centers. But there's a side of me that's like, it's kind of incredible, everything is being touched by data centers. I'm just waiting for the day that it's like, hey, Denny's is doing really well, because it turns out they're near data centers or something. It just feels like everything's being touched. But that feels a little bit more boom-bust, although obviously there could be a very long boom. So for us, consumer packaged goods, household durables, the kind of things that you feel pretty good that people will be buying in and out regularly, that's what we're after.

Jesse (23:03): Yeah, and that's interesting. Because a lot of the CPG stuff, it's interesting because some of that stuff tends to be lower gross margin. And so you need to have a pretty good operating platform to be able to service that stuff well. Versus some of these spaces like maybe a heavy haul or more specialized forms of freight, there's a lot more dollars up for grabs and it's a little bit more white glove.

Brandon (23:33): Well, and that gets to the second piece of the equation, which is actually where automation and tech wind up being so important. So you're right that if you're doing CPG, you're going to be dealing with large, large brands. That being said, you can also then use that installed footprint for your operations to start to sell to smaller brands in the mid-market, right? Whether it's regional or exactly. And so that's the goal there. But you are right.

Jesse (23:50): Yeah, like all of the up-and-comers and all the contract manufacturers and that sort of stuff. And so is that part of the strategy then, because you mentioned there being two dimensions to diversification. One is stable versus cyclical, but then within that, mid-market and enterprise. And I think you were about to say that if you can build the operating platform at the cost basis that allows you to serve the enterprise, then there's a good opportunity to take that and then move to some of the smaller businesses where maybe the gross margin is a little bit better.

Brandon (24:32): That's absolutely it. And if you're going to do that, you're only really going to be doing it with technology. You're not going to be doing it with more people thrown at the problem. And so if you get to a place where, back to the net income basis, you're cash flow positive and generating real earnings on a ten to fourteen percent gross margin based on accounting, as you start to add more mid-market clients, whether it's the regional groups or the up-and-comers, that's just going to wind up being a very high incremental margin compared to what you'd expect. And so again, if I almost think about the P&L for brokerage as being gross margin, which is where so many people spend their time, it's are you actually buying and selling and trading labor appropriately? But then under that, it's really people versus systems. And on the systems front, to the question of buy versus build, I think this is for the most part a buy type proposition because you're not going to win on figuring out this particular situation better than broker XYZ or the other 20, 30 brokers around there. What you're going to win by is implementing this when much of the market is not actually implementing it. And there's no shortage of people who have that 80% client, they just have a good lifestyle business, or they have a good lifestyle business because they can't help but do anything else. Technology is one of these things where I don't think you're ever going to see this market get super consolidated. At the end of the day, there's just too many independent truck drivers coming in and out of the market. There's too many brokers coming in and out of the market. However, I do think you will see the industry get more consolidated as a result of technology. Because if you're not using the tools for automation that are coming out now and will continue to come out, you're inevitably going to lose share because you're just running a lifestyle business and that's not the state of play for the coming decade.

Jesse (26:17): Yeah, because I do think about it. I agree, technology is this factor. If you think back twenty years, there really wasn't a lot of operating leverage that you would get in the business. But obviously technology can change that equation. But it depends a little bit on, do the small guys have access to the same technology? But I guess the point that you're making is that it might not even be about access. It might just be about mindset. You may just not do it. You may not be thinking about how do I operate this thing as efficiently as I can.

Brandon (26:59): And we see that even outside of brokerage. In all of the verticals where we exist, there are some operators who want to be tech forward and they're paranoid and they want to make sure that they're not missing what the right side of history is. And there's other operators who have a good thing going and they just assume it'll be there forever and you run it like an annuity stream. And the latter approach, especially when there's a lot of disruption going on, is just the wrong approach.

Jesse (27:23): Yeah, we see this a lot across our customer base where it's interesting because we work with brokers large and small, right? We work with some of the biggest and then folks that are moving a thousand loads per month as well. And from my perspective, it does look like everyone does have access to pretty similar technology at pretty affordable prices given there's folks that will build it and sell it at pretty good prices. But then there are differences in attitudes to technology. And I do find that it's not always correlated with size, although I generally find that the larger businesses are just kind of of the mindset that, hey, we are going to move in this direction, and it's get on the bus or get out of the way, because we need this engine to continue to improve. Versus some folks that are tech curious or AI curious, and they know they should be doing something, but aren't spiritually committed to making it happen. And then at the first sign of difficulty, or maybe there's pushback from someone whose commission's on the line because you're going to automate some part of the process, they're like, well, we can't do this, and that's it. So I do see that dynamic play out. And I guess from your perspective, that's part of the opportunity here and probably what will drive the consolidation.

Brandon (29:00): Well, and that's also why we like being at the smaller end of the market in general, because at the big end of the market, the bigger concern is technical debt, right? At the big end of the market, there's somebody who's out there doing this, but how do they actually implement it when they might be running systems from the eighties, right? At the smaller end of the market, you can find these, I like your observation about they're religious about it or they're not, right? And I always think that, taking an even further step back, to me, AI is just part of a trend in automation. It's been ongoing. It will continue to be ongoing. We're at the very, very early stages of AI, but after AI, there will be something else. By that point, I might be very old, but there will be something else. So the question is, are you automation first? And if you are automation first, you will find that your abilities to automate things just keep spreading through the organization and efficiencies keep expanding. And then either your margins go up or your margins stay flat and you're dividending back those efficiencies to your customers, but that's still making you more competitive. This is really the story of Walmart, right? It's get more automated, get more efficient, and instead of having that drive your margin, keep your margins flat, just keep giving it back to your customers to get more volume, right? I think you could see that happen in brokerage.

Jesse (30:11): And you do see this happen. A lot of the ones that grow the fastest and really win are the ones who rev that flywheel as well. Because it's not even that you give it back to your customer, but the volume allows you to buy better typically as well on specific lanes. And so there is this flywheel that you can get going. It's interesting. I've seen this a lot in some of these bigger end markets like CPG. If you can figure out, because the market clearing price is a little bit of a function of whoever's got the lowest cost base. And so then you get to take share and then you plow it back in and maybe you can start to buy better as well. And automation is part of it. But you do tend to see folks that are doing a ton of volume on a lane tend to get the best prices as well.

Brandon (31:06): There's a small number of religious debates that investors have had my whole career. And one of them is if you're the low-cost producer, does that make you a good business or a not good business? And I would argue in the case of, as long as you're in an industry that tends to be inflationary, right? Like the cost of goods goes up, the cost of insurance goes up, the cost of freight will go up, right? So being a low-cost producer in a deflationary market, good luck. Let's hope it works out, go make some TVs. But being a low-cost producer in an inflationary market where freight rates will be much higher 10 years from now than they are today, that's an interesting model to us. That's what we like about it.

Jesse (31:47): That's interesting. What would be an example of a deflationary market?

Brandon (31:53): You see a lot in technology. So like TVs that I alluded to is a good example, right? The cost of a TV just keeps going down per unit. There's a lot of things that are technological, like on the content delivery side, bandwidth even. That's the part where it's like, okay, you're just trying to keep the technology ahead of the deflation.

Jesse (32:15): It's the treadmill. Yeah, that's interesting. Because you see that, I'm thinking of Mars and candy bars and those folks, the whole business model is that they can produce at a lower unit cost and then they get more volume and keep prices low and they get more volume, and you can still earn a really amazing return. I do love these businesses, thinking like Walmart or Costco or anyone who is just aggressive about the flywheel of keeping prices low. And it is wild if there is a compounding loop. But I think that's an interesting dimension, that you really want to do that in a space where prices will naturally rise. And your perspective in freight is that it will rise because it is driven by labor and fuel and cost of goods.

Brandon (33:12): Cost of goods. So as Mars candy bars go from being a dollar to five dollars, however long that takes, the cost of freight will not be something they have to hammer forever. And it gets back to the verticals that we chose. They are inflationary by design. The thing that I've seen time and time again from studying investors who came before is that if you're just buying something where you have very high conviction the industry's market size will be much larger in the future, and it's not because of rapid technological adoption, but just because of inflationary pressures on cost and price and everything else, well, you're already starting out with kind of 20% of a good thesis there. The question then is just what's the other 80% to get to business quality and sustainability and growth rates. So it's one of the things that's great about freight for folks who are in the industry, right? Whatever your cost per mile is today, it might be different in 12 months because that's the cycle. But I guarantee by the time you retire, assuming you're far from retirement, it's going to be much higher.

Jesse (34:11): Yeah. And your view is that that's a good thing. Because I feel like if you spoke to a lot of carriers, they'd be feeling like they've been a frog in a hot water bath for their whole life where everything's just getting more expensive. So how do you then contrast for me the brokerage business model versus, I assume you guys would probably not invest in assets, contrast that for me with a carrier for example. What are the differences there?

Brandon (34:45): Yeah, I think the biggest difference here is do you want to be asset light or do you want to be capital light? And neither business is right or wrong. It's just what business fits your aptitude as an operator, as an investor. And for me, I've just always much preferred businesses where, to the point of inflation, I can understand what the input costs are going to be. So if you are a carrier, it is problematic because you have not just the frog and the boiling water, you then have depreciation on your assets. Does this thing last for three years? Does it last for four years? The difference between those two can be night and day between you having a great year or a bad year. So for me, and the way I've always invested for a firm, we just much prefer to stay away from most assets. Now that being said, all assets aren't created equal. I feel like something in warehousing and 3PL, 4PL, managed transportation, those are assets that you could argue would be much more resilient, much more stable. But to me, depreciation is just the thing that, I'm not afraid of a lot of stuff in investing, but depreciation is pretty high on the list. So staying away from assets helps to avoid that.

Jesse (35:57): Yeah. And is that just because of the uncertainty around it with depreciation, it's just very hard to know?

Brandon (36:04): It's just running uphill. You take your, it's a little bit like being in a deflationary environment, right? You take your growth rate and you're like, okay, I have to outgrow the depreciation, I have to outgrow the capex needs in the future. And what are going to be the cash flow proceeds to the firm? If you're looking at brokerage and you think you can take it from one to five, and because of technology you will probably have a little bit more capital expenditure now than you used to, even if you're doing buy versus build, you still have a little bit more. But that one to five, the net income should accrue at a similar rate if you're doing something that's asset light. It might even accrue faster due to operating leverage and margins going up. On the asset side, tell me if the fleet I have breaks down, tell me if insurance goes up a lot, tell me if the cost of parking goes up a lot. There's just so many more inputs that are potentially eating into your returns as an equity owner.

Jesse (36:57): How do you, I'm sure you've followed the recent Supreme Court decision. I'm sure that like Sage, like everyone else, you're dealing with fraud. I am hearing that insurance costs are going up. I'm curious, how material is insurance as a piece there? And how do you think about, do you believe costs will rise? Does that concern you if it does? How do you think about that piece of it?

Brandon (37:26): Yeah, so this is my opinion as an investor, not an investor in Sage, because this is taking an even broader view than just one company. It's early and there's a lot of predictions about how Montgomery could actually impact things. I think from everything I've seen in other industries and other sectors and other such decisions, this is what tends to happen. The good actors get a competitive advantage and the cost for insurance goes up. I think those are the two things that I would expect to see. And this is where I will speak for Sage. They've been very, very good about being leading edge on not just compliance, but uber compliance on avoiding fraud and everything else. They've been very early adopters of some of the best software and technology that's out there today. So they're small compared to the big guys of the world. But whether you're small or big, if you've been adopting this as a best practice from the beginning, you're just going to keep doing what you've been doing previously. Now, the cost of operations will go up a bit, whether it's insurance or regulatory compliance, so be it. This will be awful for fly-by-night actors. It'll be awful for lifestyle businesses that never really took this stuff seriously. I think the one, and I've seen this view from somebody, I don't know if it'll play out this way, but the one interesting view that someone gave is like the people at the very top of the food chain might find themselves on the receiving end of a lot of ambulance-chasing attorneys, right? And so if you were to take my thesis and say it's good for the big guys who are compliant, the only real negative I could see to it is if you're the top five or ten brokers and now you've got a bunch of ambulance chasers chasing you because you have deep pockets, that would be a downside of it. But it's the interesting thing about, I've been to law school, compliance is a big thing we focus on, I like regulation, but one of our axioms is the regulator giveth and taketh. The thing about regulation is that it tends to just empower the bigger players because it makes the cost of competition, the cost of entry, everything just go higher. And so I would think that if you're a big player, and I would definitely think that if you've been acting in sterling capacity from inception, you'll be just fine.

Jesse (39:36): Yeah. Totally. And one of the things that I'm trying to understand is does the Montgomery decision affect shipper liability as well? Like could they also be brought into a lawsuit for the negligent selection of a broker who negligently selected a carrier? Does that make sense? I presume so, I would think.

Brandon (40:06): So I think you'll see that get answered in the courts. The thing that is good and bad about the court system is that you could argue either way for that exact topic. And over a few years it's just going to get fought amongst the courts. And so I could see that going either way. And it'll be interesting because you could imagine a district court, a court of appeals, or even the Supreme Court, you can imagine anybody coming along and making a policy argument for XYZ. It's just too early to know, but it's possible.

Jesse (40:38): Yeah, but that isn't currently in scope. Because that could definitely accelerate the, look, I'm just going to go buy from a big guy who I trust more than somebody who it's harder for me to verify what their security and compliance is.

Brandon (40:53): On the broker side for sure. It's funny, you would think that Montgomery drives shippers into big carriers because you presume that they're vetted and they're doing everything right and that would be bad for the brokerage model. I don't assume that'd be the case though, just because at the end of the day, you get such a price advantage from being in the brokerage channel with independent truck drivers than you do from going to large players who probably aren't going to give you the same pricing, but we'll see.

Jesse (41:21): One of the arguments I've heard, and this admittedly is sometimes from carriers, is their view that the cost advantage in brokerage is because many of these small carriers have not had good safety and compliance, running all the equipment, insert a bunch of reasons. And that that will start to shift and then therefore that would make the brokerage channel less competitive.

Brandon (41:51): I don't think that'll happen. This is something we thought about because even before Montgomery, you had to think about why is brokerage a good model for customers? Because it was not a good model for customers who were just living on borrowed time. At the end of the day, the vast majority of independent truck drivers are decent, hardworking people. I mean, I grew up across the street from a guy who built a garage bigger than his house just to house his single cab because he was an owner-operator with one truck, right? That's always been there. I think the thing that will always give independent truck drivers an advantage over the public companies is they don't need to have a headquarters, they don't have a C-suite. There's just a lot of costs that aren't going to be there.

Jesse (42:27): Yeah. Probably not a terminal. Yeah. The carrier side, I do find it fascinating that it seems to be one of these spaces where the minimum efficient scale is just very low. You don't get a ton of scale advantage on the carrier side, which is interesting.

Brandon (42:52): Yeah. It's a variable cost business at the end of the day. It's a complex business. People are coming and going in and out of the market all the time. It's just very hard to build the castle in that kind of a business with fixed assets.

Jesse (43:05): Yeah. Super interesting. I want to come back, you were starting to talk a little bit about your thesis around build versus buy and how you think about that. Because it's interesting because I hear different perspectives from different investors. We've had folks, and it's a bit of an accounting game, but they can capitalize an R&D build versus not, and there's a view that if you can capitalize it and then bring your variable cost down, you can boost your EBITDA and therefore it's a better thing to do. I'm curious, take me through your framework for how you think about the build versus buy decision.

Brandon (43:57): Yeah. So on that capitalizing stuff, devil's in the details. So I don't want to say whoever said that I disagree with or they're wrong, but directionally I disagree with that because any future buyer of the business is going to look at that and say, well this would have just suppressed your income if you'd put it on the P&L. So I'm going to actually burden that into EBITDA, right? EBITDA minus capitalized expense and at least amortize capitalized expense. So that is a bit of a shell game. Again, this is also why I fundamentally distrust EBITDA, even though I know I have to speak that language, but there's just so many ways you can obfuscate with it, for better or worse. So I think the way to think about buy and build for anything, but especially for brokerage, first and foremost is, what are you good at? Because at the end of the day, most people aren't going to be good at building this in-house. It's a very rare kind of bird who can actually build this in-house, even big groups. With all respect, if you've chosen to work in tech development at one of the giant companies versus other places you can do tech development, the question is, are you going to be competitive with someone like your firm that's got engineers dedicated on this? Or are you going to be more of a maintenance and caretaker and integrator type business? And that's really what companies, especially staff who have chosen to be in tech development at companies like this, are usually good at. It's integrating a bunch of other folks who have built really specialized software. I think the second piece, and this is maybe unique to AI, but it's probably not, because it's kind of every cycle you go through this, you have the foundational models and then you have the applications that are being built on top of them. And what is good about freight is that it is one of those sectors where it does need to be verticalized. And I don't think at the end of the day the foundational models are going to care enough to actually truly properly do it. Now, if this were software coding or something else, that's a different story because it's the same across all industries. But you actually have to have it verticalized for freight. So I think the best cost path in general, if you're in this market, this is what we're doing with Sage, is take the best off-the-shelf technology you can find, integrate it the absolute best you can. And then when there are things that you think you can do better, not universally, but in spots, actually develop that in-house. And that's actually where the LLMs can wind up being super helpful because what Sage is now doing with some work around LLMs compared to what we were able to do with that same resource two years ago is just incredible. But the net result of that means you're not going to have one software vendor to rule the world, you're going to have too many edge cases, you're going to have too many different integrations, you're going to still wind up with best-in-class off-the-shelf being integrated with modules that you build in-house selectively.

Jesse (46:39): Yeah. I mean I sometimes see it and I just think about the millions of dollars that we spend with very good engineers developing this stuff and then what I sell it for. And I'm like, why would you try to take that whole stack on?

Brandon (46:54): Right. But but I can vibe code it and then I'll just check for hallucinations. I'm sure it's easy.

Jesse (47:02): Totally. And the vibe coding is interesting because I'm so bullish on AI and it's getting incredibly good at building the last generation of technology. But a lot of, if you're building agents, a lot of this stuff is quite novel and it's hard to do it at reliable levels at scale. But there are things like, hey, you've got a bunch of data streams and I'm going to build a dashboard that gives me exactly what I want, and I'm like, great. We actually have customers where our agents are collecting a bunch of really difficult-to-get data and they're feeding that into their systems, and they've vibe coded some really cool stuff. And I'm like, that's awesome. I see it as a little bit of that symbiotic relationship that you're talking about where there are things that are unique and bespoke to a business that are really good to build, but it's generally not that you're building the whole thing. If that were possible, I always encourage our customers when that happens, I'm like, you guys should definitely go and try this, because if you can do this and it works, I need to desperately know right now, because I'm pretty confident you can't, because this is really hard for us and we've committed our lives to it.

Brandon (48:14): And also, dear customer, if you figure it out, I'd like to license it from you. Well, so the thing about, I'm hugely bullish on it long term, but it's also easy to be bullish on it, right? It's clearly here, it's great, it's fantastic. It's just like all things in the hype cycle, though, you get to a place where you're like, it's going to change everything tomorrow. And you're like, well, some things yes and some things no. And some things are going to require customer change and some things are going to require all sorts of changes on the customer end. The, I'm sort of a student of history and student of technology at the same time, more so history than tech, but it's like this is what technology has always done, right? Every cycle it gets easier for us to use, but it doesn't make what came before it any less valuable, it just makes the customer more valuable. So if you have that customer relationship, if vibe coding becomes a thing in five years, ten years, five months, as long as those customers trust you, you'll be the one vibe coding it. And then you'll resell it across dozens or hundreds of customers who you already trust, as opposed to them doing it and having to ask themselves internally, do we really trust Bill in IT to do this? I don't know. He's got a CS degree, we should trust him. And it's all about customer trust. Every cycle it just gets easier technology and it's just about customer trust.

Jesse (49:33): Yeah, I think it's a really good point because there is this view in the current moment that SaaS is dead. And it's interesting because I've heard sharp investors, the best people that will utilize that will be software companies who can figure out how to build the systems to build this stuff more, better, cheaper. And so I think it raises the bar massively. You need to move really quickly. Because that is almost how you retain the trust, is that we think about this as our role with our customers, that we are the steward of the translation of developments in AI into P&L impact on their business. And part of what you're buying is a relationship that will keep you at the forefront of those so that you can rest easy and trust that you're going to stay at the forefront and not get left behind. And I think that's the element. And you can lose that trust, right, if you stop innovating, I think. That's interesting. On those build areas, are there thematics that you've seen about where it makes sense to build, or is it a little bit like, look, it just rears its head in a bunch of ways based on the skills and capabilities of other systems?

Brandon (50:56): I think it all starts back with what you're trying to do that's unique to your business. So if you were trying to be the best at XYZ, you would then consider building XYZ versus just using the thing off the shelf. And that gets back to what kind of a customer, what kind of a business do you want to be? Do you want to be focused on CPG? Do you want to be focused on mid-market? So in the case of Sage, just using them as an example, because I think they've done this excellently, they care a lot on the people front. And I've seen them build a lot of in-house around HR and training and different kinds of people modules. But it's not the kind of thing you would resell to anybody else, but it's the kind of thing that would hopefully help you to be that much more competitive at what you're trying to do operationally. So I think it depends on the firm, but it's really what is your core strategy, what is your north star, and build something for that.

Jesse (51:43): One of the things I've asked this question of executives at some big brokerages, five hundred million plus, a billion plus, about the build versus buy decision. And some of them end up operating their business in a way that is a little bit unique. Maybe it's the freight mix, maybe it's how they structure their roles, and they find it really difficult to back an existing system into what they want to do. And so they go and build it, often with great expense. And I'm curious, maybe it's the case that you just haven't seen that, or maybe you just don't believe it, or maybe there's some semblance of truth, but it just never makes sense relative to the investment that would be required to build and then maintain. How do you think about that? Have you seen that at all?

Brandon (52:38): My best guess is that's probably due to technical debt. I think they probably have some system from many, many years ago. They can't really replace it. They can't really have it go down. And if you were going to have somebody come in and rewrite that code using Claude or Cursor or anything else, it would almost wind up costing you more than just keeping the staff you have in place doing it. It'd be like a heavy lift for a consulting group or even a software dev shop. That would be my best guess. But it actually gets back to something else that you alluded to earlier in the conversation, which is all of these companies are just people. So if the power center is the COO of the company and technology is how he got his job and that's what he's really good at and he's decided this is the way we're going, decisions are not always made rationally, especially as companies get bigger. Because it's not really your money anymore. You might own one percent of the company, two percent of the company, but your salary, your bonus, your equity incentive plan, your ability to get pushed to go to an even bigger job, these are the things that start to weigh in. So I've definitely seen a lot of big companies, from either selling to big companies or investing in big companies via the public markets, they're not always acting irrational, and it usually comes down to office politics, executive fiefdoms, and just simplistically, I think for something like this, technical debt, right? If you've got a system that's still running on COBOL and you don't want to admit you have a system running on COBOL, you'll tell every new vendor, well, we're going to do it ourselves. When in reality you're just like, hey Harry, you've been here for 25 years, just don't break the COBOL.

Jesse (54:11): Yeah, totally. That's interesting. And there's definitely a bit of that. But I've also seen instances where they are on a third-party system and then decide to build themselves. So they could be on a third-party TMS and then say, all right, we're going to bring this in house. And I've seen folks even make that decision very recently. And is your view on that that it's just probably not good financial sense to do that? I mean it's hard to know everyone's scenario.

Brandon (54:43): Yeah, it's hard to generalize, but in general, you should only do the things that are strategic that you can do better than other people, right? Otherwise, if using vendor A versus vendor B versus doing it in-house is not going to make a big difference, well, vendor A or B can provide it more cheaply than you can do it in-house by reinventing the wheel. So you should go with A and B, right? But if vendor A and B could wind up becoming something on which you're dependent, almost like now you can't get off the drug they sell you, well, you might want to build that in-house then. But there is a fine line there.

Jesse (55:11): Yeah. There's a question that I had. One of the things that when Uber Freight and Convoy came into the market ten years ago and everyone started seeing the valuations that freight brokers were getting, there was definitely a thread there where it was like, shit, we've got to build all of this to be able to, our investors are telling us that we, I've often heard that this demand is coming from private equity investors who want the tech to be proprietary because they believe that it will improve the business's multiple when they sell. And I've always, I don't think we've seen a ton of examples, maybe to your point, of any broker developing this wildly proprietary insight that is durable over a massive time period on a tech efficiency piece. Maybe that's misguided because maybe you'd look at some of the big guys and say that is a big part of it. But it's never made a ton of sense to me because if I was an investor, I'd just be looking at what is this business's ability to generate cash durably. And if I saw, holy shit, they've gone to build all of this and now they're either going to have to keep piling money into advancing the technology because things will change and evolve and the bar will keep rising, and it's not a build versus buy, it's actually you're committing to build, build, build, build, build forever. I've even heard folks that had million-dollar-a-year contracts with TMSs and then they brought it in house and their dev costs were like ten million a year, which is crazy. I mean that's probably not the norm, but.

Brandon (56:55): No, so I agree with that on most levels. So the earlier comment about how sometimes people tell you, hey, you should build this in house so you're proprietary or whatever. Don't get me wrong. At Sage, we're building anything proprietary that we think makes sense, but we will never be a tech company. You know what I mean? We will be a tech-enabled freight brokerage. We will be one of the best freight brokerages that any shipper could work with. We'll be one of the best places you could work. These are the things that matter to us. We're not a tech company, we're a freight brokerage, right? But there is this hand-waving sometimes from investors where it's like, if you do this, we can sell it at a multiple, and you're like, people aren't that stupid. I always think, and this is where I love having roots in the public markets, the apex predator, the place you ultimately sell, the place where you take SpaceX public today and you generate 75 billion of distributions, you do that in the public markets. And the public markets have seen this game time and time again. If you show up and you're like, hey, this is my business model, but no, I've got this proprietary software and I'm really a software company, the only reason anyone ever got away with that was because you were in 2021 and people were paying crazy prices for everything. As the joke goes, in a hurricane even a turkey can fly, and that's kind of like what bubbles are, basically. So it's just not how you build a business rationally for the long run. You get these episodic windows where people lose their mind and you just have to be careful with it.

Jesse (58:38): And it just feels very gamey, right?

Brandon (58:40): Yeah. But your one comment on has anybody built anything unique? It's interesting because I think about brokerage as just a trading system. There's, you're taking folks' labor with some other costs around it and you're trading that, right? And you're trying to do it in a way that's good for the system. But whether it's a Wall Street trading system or a labor trading system like brokerage, you're trading. When you discover something in a trading system, you don't tend to share it with the world or announce it to the world. So when I think about the efficiencies that we're uncovering that are either being dividended back to customers or making our business a higher-quality business, you may or may not always be broadcasting that. But there are some efficiencies.

Jesse (59:21): Yeah. And I think the point that I was making, I totally agree, is that there are some of these core workflows where it's just work required to move freight and there's not a lot, you should kind of, I'm like, why would you rebuild that? We can sell that to you for this cost and go focus your effort on that unique insight that is your own, which I agree with.

Brandon (59:52): No need to reinvent the wheel, especially at greater cost.

Jesse (59:55): Right. And especially where these are areas where you have an insight or a segment of advantage that you want to exploit. I'm curious what you think the broker, if you think AI could fundamentally change the brokerage industry and what a broker needs to look like. Because a lot of my customers come to me and they ask, there's almost sometimes this despairing, hey, if AI is going to handle all of the execution, what does that mean for me? Or does it create potentially disintermediation risk, right? If you could have a system that could autonomously execute freight, does a shipper just buy that or use it in-house? And I'm curious if you have a perspective, what do you think needs to change or evolve or not for the brokerage model say five years out, maybe seven years out, when we've actually seen AI diffuse into a lot of this stuff.

Brandon (61:03): So I think the first touch point should be automation or AI. And as anything gets more difficult, it should be handed off to the appropriate team member as fast as it can be. I think that's the future we're going to, which is automation first and then any kind of complexity or edge cases being handed over to teammates. And so what that means is that if you're a client of yours, you could in theory hold your headcount relatively flat while continuing to grow. It doesn't mean you need to replace your team at all. It just means you can now actually handle more business at a time. So again, this gets to, if 100% of the market adopted it, you would just have the floor reset at a higher level. You're not going to have 100% of the market adopt it. You're going to have people dragging their heels, sucking their thumbs, not actually doing anything about it. So for the folks who actually adopt it, automation first, and then if there's any kind of complexity or edge cases, hand it off to a teammate as fast as you can. I do not think you'll ever get to a place, to use my trading analogy, where this is just like algorithmic trading with machines trading amongst themselves. Let's not forget that probably the most important function here as a broker is selling to a shipper in the first place. They're still going to want to go to conferences, they're still going to want to play golf, they're still going to know that you care about them and their family, and you have all of the human touch you need. So sales could get a little bit automated, but it's still going to be the goal line for a brokerage. And candidly, for as far as I can see, I don't know, 30 years from now, 100 years from now, who knows, nothing's predictable anywhere near that far out, but you're going to have loads that go missing, you're going to have fraud, you're going to have other things that happen where you're not going to have the automation be up to stuff for that, or at least not in an appropriate amount of time without an appropriate amount of angst from the client. So the way I think about this is how much of my business can I hand off to automation so that while keeping my headcount flat or growing at a prior rate, I can now handle even more business than I ever did previously. I think that's really the opportunity.

Jesse (63:05): Yeah. But your view is that it wouldn't get to a point where it would fundamentally change the value prop of brokerage, where it may make sense then for a shipper, if you could get that headcount down, that they may just insource that and then have professionals inside. But I guess at that point what you're buying at some level is somebody who's orchestrated, built this system that can move the freight and then really knows how to deal with stuff when shit hits the fan.

Brandon (63:34): So one of the ways that we think about AI is that if the internet didn't entirely disintermediate it, there's a good chance that AI itself won't entirely disintermediate it. Now that's not true for everything, but brokerage is actually one of the best examples for it. So brokerage already has a load board, right? I'm an independent truck driver, I'm on the load board, I'm a shipper, I'm on the load board. If you could just in-house it at a shipper, we would have already done that with the load boards. The brokers would have disappeared previously. But the value that brokers have always provided is that high-touch service on the shipper side, the vetting of the carriers. And candidly, when things go wrong, they're the throat to choke in the middle. The shipper in some ways wants someone to say, my load's missing, this happened, you go fix it right now, or else insert cuss words and criticism and slamming the phone, right? I think at the end of the day, I don't think it's going to change the value prop. I don't think it's going to disintermediate the business. Evolutionary might be too mild of a word, but revolutionary is too strong of a word. I think it's going to be an advancement in the industry. And for the ones who don't adopt it, yes, it will be disintermediation. For the ones who do adopt it, it'll be advancement.

Jesse (64:43): Yeah, I think that's right. That's interesting. Do you see, some of the brokerages that I've spoken with are trying to, this gets a little bit more into managed transportation, but are trying to expand their offering where they're moving up or having a broader influence on supply chain decisions, certainly going into warehousing, but even thinking about consulting to think about supply chain strategy and then having the execution arm over here. I'm curious what you think about that model generally, and then brokerage versus managed transportation, and if you see managed transportation growing in importance in the future with any of this.

Brandon (65:32): So I think it can make a lot of sense to move up market and to managed transportation. I understand why people do it. I would consider it myself. I think there's two things that you've got to consider. One, you need a certain amount of scale. It's very hard to do that as a relatively small broker. So that's just number one. But the second thing is anytime you start moving into different business units or business lines, you're always going to run the risk of, if not cannibalization, then at least confusing the customer. And if not confusing the customer, then maybe conflicts of interest. So the real question is, are you solving a customer's problem? And if you're not solving a customer's problem, you're just putting an idea on a PowerPoint in a spreadsheet. But if you have clients who are coming to you and saying, I trust you so much on the brokerage side, I need your help on XYZ, whether it's consulting or anything else. And warehouses are different beasts because now you are getting into assets. They're better assets, right? They're long-lived assets, they don't depreciate rapidly, but they're still assets. They still have to be maintained and they still have to be financed. If you're solving a customer's problem, it can potentially make it even more durable, more resilient, more diversified, higher quality business. But you've got to make sure you're of a scale to do it and you're actually solving a customer's problem.

Jesse (66:44): Why does the scale matter? Just explain that to me.

Brandon (66:48): I just think at the end of the day, if you're moving into different business lines, you're going to find you're really, really distracted if you're becoming jack of all trades master of none. If you are one of the top brokers in your realm, definitely in your lanes, then maybe you've earned the right to go do something else. But until you're top tier at what you do from the start, just ace that thing. And if you shouldn't be in that thing, then pivot into another business line. But business is just focus, focus, focus, focus, focus. And if you outgrow your original focus, then you can move into adjacencies. But you need a certain amount of scale, I think, to do that appropriately. I haven't thought enough about managed trans because it's not where we're playing right now. But that's actually where you could maybe see more AI-type stuff on the consulting side. You know what I mean? Like I could see man trans being, I've got warehouses and assets to offer you along with my brokerage. But the consulting piece and some other pieces it might get into, well, I can just have Claude write that report for me. I could see that happen potentially.

Jesse (67:45): Yeah, exactly. Very interesting. Brandon, final question, as you think about the next twelve to eighteen months, what gets you, what are you excited about for Jordan Partners, for freight, for Sage? What are you excited about?

Brandon (68:07): So for freight and Sage, it's really exciting to see pricing turning positive. I'm sure everybody listening to this is excited about that. There's always an adjustment when that happens, with contract prices or other things, but it's just really nice to see a company that has always been growing, always been taking share, and have that extra tailwind. So I think that's just a huge relief for everybody and you get to see the fruits of your labor actually play out. For Jordan, it's trying to support Sage, supporting our second portfolio company, which is outside of supply chain. I expect to make another one or so investments over that span of time. Expect to continue hiring our team. And really I didn't mention this, but Jordan Partners has a mission statement, which is to earn one of the best reputations in private equity based on performance, culture, and trust. And just every 12 months I want to execute that mission. I just get excited about it.

Jesse (68:56): I love it. Tell me a little bit about, I know I said that was the last question, but I was reading on your website the history of the name Jordan Partners and I really loved it. Maybe tell me that story and what motivated you to start the fund, given everything that you'd done.

Brandon (69:12): Sure. So the name ties back to Jordan Mines, Virginia. I'm originally from Covington, Virginia, a very small town on the West Virginia border. Eleven miles outside of Covington, which is a town of five or six thousand people, there's a place called Jordan Mines. It did iron ore mining back in the early 1900s, back when everybody in that area thought we were going to get so prosperous, it was going to be like a boom town. And of course they found cheaper iron in Minnesota and Australia and all around. And so Jordan Mines today is just a bunch of empty fields where my family lived before the boom and lived after the boom. And I like it because on the one hand, it's a good reminder of my roots. On the other hand, it's also a good reminder that, similar to what we've talked about today, predictions can sometimes be very, very wrong. So you've got to manage your risk in building your business in general. And so the name, I've planned to call this firm Jordan Partners for years, because my co-founder Gordon and I have been talking about the firm we were going to build together for many, many years. And I think similar to you and similar to many people listening, if you're entrepreneurial, you're entrepreneurial. And from the second I became an investor, I always knew that my path was to apprentice, get some experience, learn what I was good at, learn what I liked, and one day start a firm and be entrepreneurial and try to be the best possible firm I could be for everybody involved. And that's where we're at.

Jesse (70:38): Very cool. Really enjoyed the conversation, Brandon. Thanks so much.

Brandon (70:42): Enjoyed it too. Thank you.